Quality of Estimations - How to Assess Reliability of Cost Predictions

Software Project Cost Prediction is one of the unresolved problems of mankind. While today´s civil engineering work is more or less under control, software projects are not. Cost overruns are so frequent that it is wise never trusting any initial cost estimate but take precaution for higher cost. Nevertheless, finance managers need reliable estimates in order to be able to fund software and ICT projects without running risks. Estimates are usually readily available - for instance based on functional size and benchmarking. However, the question how reliable these estimations are is often left out, or answered in a purely statistical manner that gives no clue to practitioners what these overall statistical variations means for them. This paper explains how to make use of Six Sigma´s transfer functions that map cost defined by a committee of GUFPI-ISMA onto project cost. Transfer functions reverse the process of estimation: they show how much a project costs under suitable assumptions for the cost drivers. If cost drivers can be measured, and transfer functions can be determined with known accuracy, not only project cost can be predicted but also the range and probability for such cost to occur.