While consulting on a very large deal in 2001, it became apparent that suppliers generally don’t have a good understanding of their operational costs. This led to a focus on cost estimation and a journey to understand IT cost estimation and the tools that are available.

Over the past 20 years, we have looked at a number of organisation’s costing tools. The first thing that became apparent is that they were all MS-Excel based and were “tweaked” based on the project at hand – a very dangerous practice. The second thing was that different parts of the same organisation will use different cost modelling tools for the same scope.

There is no formal training or accreditation for IT cost modelling. What seems to happen is that someone will build an Excel model and become the de facto “expert” in the area.

Galorath Incorporated defines three tribes of cost estimators:

The Napkins:   Ad-hoc, hero driven group of estimators whose past successes are legendary and whose napkin scribbling is taken as gospel.

The Guts:   Feeling and experience oriented group of project managers and workers whose years of experience,good and bad, makes them trusted prognosticators of what will happen regardless of the actual results (tenure benefits of being a survivor).

 

 The Spreadsheets:   Former and current Napkins and Guts members who believe translating their tribal knowledge onto MS-Excel spreadsheets bestows mathematical accuracy and empirical integrity on home grown algorithms.

So why is cost estimation so difficult?

IT projects cover a broad spectrum of technologies and activities:

  • Regulatory changes and compliance
  • Replacing obsolete hardware and software
  • Business changes
  • Process changes
  • Different user interfaces
  • APIs
  • Software licensing

“The bigger the project, the more risk for potential