Draft CE-74 v03 for MAIN review
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This document outlines the recommended practices for creating a Basis of Estimate (BOE) specifically for software services, detailing its purpose, structure, and content requirements. It emphasizes that a well-prepared BOE serves as a comprehensive record that facilitates understanding and assessment of cost, effort, and duration estimates while ensuring effective change management. The BOE is described as a guideline rather than a standard, enabling varied implementation based on organizational practices.
![Basis of Estimate 2 of 7
November 1, 2012
RECOMMENDED PRACTICE
The primary intent of this RP is to provide a guideline for the topics and contents to be included in typical
BOE. However, before describing the template contents there are a few points of significance worth
noting. A basis of estimate should:
Be factually complete, but concise.
Be able to support facts and findings.
Identify estimating team members and their roles.
Describe the tools, techniques, estimating methodologies, and data used to develop the
estimates.
Identify other projects that were referenced or benchmarked during estimate preparation.
Be prepared in parallel with the estimate.
Establish the context of the estimate, and support estimate review and validation.
Qualify any rates or factors that are referenced either in the estimate or BOE; e.g. productivity
can be expressed as either units/time (function points/hour) or time/units (hours/ function points).
The following describes the suggested topics and contents included in a typical BOE.
Purpose
In this initial section of a basis of estimate, the estimator should provide a brief and concise description for
the total architectural solution for the engagement. The type of services should be identified (i.e., new
development, addition to existing, migration, infrastructure, etc.), as well as the type and capacity of the
staffing, the location (onshore/offshore/mix), and the overall duration of the engagement.
Engagement Scope Description
This section decomposes the solution into its constituent elements; the Product Breakdown Structure
(PBS). For every element it must be known what is to be provided; how it will be provided; and the
activities (gives the work breakdown structure) necessary to deliver it. It’s also good practice to indicate
the primary roles that will be involved with the engagement. Be as thorough as necessary, without being
overly descriptive, so as to adequately explain the scope of work being estimated.
Methodology
The BOE should indicate the primary estimating methodology (functional size based, expert based,
analogy based, process metrics based, parametric) used to prepare the estimate. This should include
documentation of the use of resources, historical data and benchmarking. Documenting the level of effort
or man-hours used in preparation of the estimate may also be helpful.
Estimate Classification
The AACE International estimate classification should be identified, along with reasons or justification
used in the selection of the estimate classification [1].
Class % Definition complete Purpose accuracy
5 0% to 2% Screening or feasibility 4 to 20
4 1% to 15% Concept study or feasibility 3 to 12
3 10% to 40% Budget authorization or control 2 to 6
2 30% to 75% Control or bid/tender 1 to 3
1 65% to 100% Check estimate or bid/tender 1
Note: Accuracy Range (Typical +/- range relative to index of 1(i.e. Class 1 estimate)
If the range index value of "1" represents +10/-5%, then an index value of 10 represents +100/-50%.
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![Basis of Estimate 3 of 7
November 1, 2012
Design Basis
Company standards will typically specify the (non) functional and project information required for the
classification of the estimate that is being prepared. In this section, the estimator will identify the types
and status of engineering and design deliverables that were provided to prepare the estimate including
any design basis assumptions. Two attachments to the estimate basis should be referenced and “public
available”: 1) an estimate deliverables checklist that is aligned with estimating process; and 2) a listing of
all architectural documents (including revision number and date), a well as other design information, such
as (non) functional requirements, hardware and software lists, units of measure etc.
In addition it may be required to document specific quantity metrics for particular services, such as
training quantities, ticket volumes, work space volumes, database size, etc. These may be organized by
facilities, training partners or data centers.
If Common of the Shelf (COTS) or dedicated solution components (subcontractor) are provided, the
estimator should identify specifically how this will integrate within the total solution.
Sizing Basis
This section documents the methods used to measure the size of the PBS. The methods used for
measuring the unit size
Requirements; number of use cases, number of backlog items, etc.
Functional size; Function points (Measurement methods: IFPUG, NESMA, COSMIC, FiSMA, etc.) [2]
Technical size; (source) lines of code, number of interfaces, modules, etc.
Service size: number of incidents, tickets, users, locations, etc.
The overall assumptions, probability and potential scope creep of the size should be identified. For
functional size also the expected error range, the level of accuracy and the method of ‘measuring’ (e.g.
Backfired or detailed measured).
Effort Basis
This section documents the methods (and tools) used to convert size into effort. The effort will be based
on the required activities to deliver the required product /services related to the engagement criteria
(delivery constraints, service level) and basis (benchmark, historical data).
Planning Basis
This section documents the management, engineering, design, procurement, fabrication, and
construction approaches to the engagement. The contracting and resource strategies should be
identified, as well as any assumptions that were made with regard to the schedule (gross or net hours,
hours worked per period, shifts worked per day (24/7 services), holidays, etc.) and planned use of
overtime. Any assumptions made regarding architecture, quality criteria, delivery constraints (deadline,
fixed price, sourcing construction, etc.), use of critical resources should also be noted here.
The overall engagement schedule and key milestones should be identified.
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![Basis of Estimate 5 of 7
November 1, 2012
Containments
Containments are cost elements in the estimate related to measures included to prevent and/or mitigate
the identified risks. The activities are indentified in the risk analysis report. These may impact not only
cost but also duration.
Contingencies
Contingency is a cost element of the estimate used to cover the uncertainty and variability associated
with a cost estimate, and unforeseeable elements of cost within the defined project scope. Contingency
covers inadequacies in complete project scope definition, estimating methods, and estimating data.
Contingency specifically excludes changes in project scope, and unforeseen major events such as
earthquakes, prolonged labor strikes, etc. The amount of contingency included in the estimate should be
identified, as well as the methods used to determine the contingency amount. If risk analysis techniques
were utilized to develop the contingency amount, the associated confidence level should also be
identified.
Management Reserve
Contingency is not intended to cover the costs associated with changes in engagement scope. E.g. if the
engagement needs to provide an allowance for anticipated changes in scope, or to cover the costs for
items that may be required but have not yet been specifically identified as being included in the current
engagement scope, then that amount of cost, typically referred to as management reserve, should be
identified here.
The intended purpose and use of management reserve should be clearly identified. The approval
process, management and tracking of the management reserve should also be clearly identified.
Reconciliation
Provide an overview of the major differences between the new or re-baselined estimate and the last
published estimate prepared for this engagement. Identify the cost/duration impacts due to scope
changes, pricing updates, progress, productivity adjustments, estimate refinement, etc. A more detailed
reconciliation or cost trending report can be provided as an additional attachment if necessary.
Benchmarking
This section should document any comparisons of overall estimate metrics, ratios, and factors with similar
engagements, historical data, and industry data (e.g. International Software Benchmarking Standards
Group [3]). References used in the benchmark comparisons should be similar in process type and overall
value. If significant variations of the estimated values versus the benchmarks exist, those inconsistencies
should be identified and explained and/or reconciliated. A more detailed benchmark analysis report may
be included as an attachment to the BOE.
Estimate Quality Assurance
Since estimate reviews are the means for testing the quality of the estimate, this section of the BOE
should identify all estimate reviews that have taken place to date, and any additional reviews that are
proposed to take place. All review comments or analysis should be included as an attachment to the BO,
In case of an external review the review should include who executed the review, when it was conducted
and which references (models) are used).
Estimating Team
In this final section, all members of the estimating team should be identified, including roles and
responsibilities.
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Draft CE-74 v03 for MAIN review
- 1. AACE International Recommended Practice No. CE-74 BASIS OF ESTIMATE - SOFTWARE SERVICES TCM Framework: 7.3 – Cost Estimating and Budgeting November 1, 2012 PURPOSE This document describes the Basis of Estimate specific to Software Services (i.e. Software Development, Maintenance & Support, Infrastructure, Research & Development, etc.). The Netherlands Software Metrics Association (NESMA, www.nesma.nl) started this initiative to support the Software Services Industry with a document that can be used as guideline for the structure and content of a basis of estimate. To get a broader acceptance both the NESMA and the Measurement Associations International Network (MAIN, www.mai-net.org) reviewed the document before AACE acceptance. The basis of estimate Software Services is based upon the AACE’s the Recommended Practice (RP) 34R-05. AACE International’s Total Cost Management (TCM) Framework identifies a basis of estimate (BOE) document as a required component of a cost (/effort/duration) estimate. This document will act not just as a RP of AACE International but also by MAIN. In the TCM Framework, the BOE is characterized as the one deliverable that defines the scope of the engagement and ultimately becomes the basis for change management. When prepared correctly, any person with (capital) project experience can use the BOE to understand and assess the estimate, independent of any other supporting documentation. A well-written BOE achieves those goals by clearly and concisely stating the purpose of the estimate being prepared (i.e. cost/ effort/duration study, project options, funding, etc.), the project scope, cost basis, allowances, assumptions, exclusions, cost risks and opportunities, contingencies, and any deviations from standard practices. For Software Services the effort expended is the main driver for cost and duration. In addition the BOE is a documented record of pertinent communications that have occurred and agreements that have been made between the estimator and other stakeholders. A well prepared basis of estimate will: Document the overall engagement scope. Communicate the estimator’s knowledge of the engagement by demonstrating an understanding of scope, quality and duration as it relates to cost. Alert the stakeholders to potential cost risks and opportunities. Provide a record of key communications made during estimate preparation. Provide a record of all documents used to prepare the estimate. Act as a source of support during dispute resolutions. Establish the initial baseline for scope, quantities, effort, duration and cost for use in engagement control. Provide the historical relationships between baselined estimates throughout the project lifecycle. Facilitate the review and validation of the estimates. This RP is intended to be a guideline, not a standard. It is understood that not all organizations that prepare estimates employ the same processes and practices, and therefore, may opt to use this information either in part or in its entirety. Copyright 2012 AACE International, Inc. AACE International Recommended Practices
- 2. Basis of Estimate 2 of 7 November 1, 2012 RECOMMENDED PRACTICE The primary intent of this RP is to provide a guideline for the topics and contents to be included in typical BOE. However, before describing the template contents there are a few points of significance worth noting. A basis of estimate should: Be factually complete, but concise. Be able to support facts and findings. Identify estimating team members and their roles. Describe the tools, techniques, estimating methodologies, and data used to develop the estimates. Identify other projects that were referenced or benchmarked during estimate preparation. Be prepared in parallel with the estimate. Establish the context of the estimate, and support estimate review and validation. Qualify any rates or factors that are referenced either in the estimate or BOE; e.g. productivity can be expressed as either units/time (function points/hour) or time/units (hours/ function points). The following describes the suggested topics and contents included in a typical BOE. Purpose In this initial section of a basis of estimate, the estimator should provide a brief and concise description for the total architectural solution for the engagement. The type of services should be identified (i.e., new development, addition to existing, migration, infrastructure, etc.), as well as the type and capacity of the staffing, the location (onshore/offshore/mix), and the overall duration of the engagement. Engagement Scope Description This section decomposes the solution into its constituent elements; the Product Breakdown Structure (PBS). For every element it must be known what is to be provided; how it will be provided; and the activities (gives the work breakdown structure) necessary to deliver it. It’s also good practice to indicate the primary roles that will be involved with the engagement. Be as thorough as necessary, without being overly descriptive, so as to adequately explain the scope of work being estimated. Methodology The BOE should indicate the primary estimating methodology (functional size based, expert based, analogy based, process metrics based, parametric) used to prepare the estimate. This should include documentation of the use of resources, historical data and benchmarking. Documenting the level of effort or man-hours used in preparation of the estimate may also be helpful. Estimate Classification The AACE International estimate classification should be identified, along with reasons or justification used in the selection of the estimate classification [1]. Class % Definition complete Purpose accuracy 5 0% to 2% Screening or feasibility 4 to 20 4 1% to 15% Concept study or feasibility 3 to 12 3 10% to 40% Budget authorization or control 2 to 6 2 30% to 75% Control or bid/tender 1 to 3 1 65% to 100% Check estimate or bid/tender 1 Note: Accuracy Range (Typical +/- range relative to index of 1(i.e. Class 1 estimate) If the range index value of "1" represents +10/-5%, then an index value of 10 represents +100/-50%. Copyright 2012 AACE International, Inc. AACE International Recommended Practices
- 3. Basis of Estimate 3 of 7 November 1, 2012 Design Basis Company standards will typically specify the (non) functional and project information required for the classification of the estimate that is being prepared. In this section, the estimator will identify the types and status of engineering and design deliverables that were provided to prepare the estimate including any design basis assumptions. Two attachments to the estimate basis should be referenced and “public available”: 1) an estimate deliverables checklist that is aligned with estimating process; and 2) a listing of all architectural documents (including revision number and date), a well as other design information, such as (non) functional requirements, hardware and software lists, units of measure etc. In addition it may be required to document specific quantity metrics for particular services, such as training quantities, ticket volumes, work space volumes, database size, etc. These may be organized by facilities, training partners or data centers. If Common of the Shelf (COTS) or dedicated solution components (subcontractor) are provided, the estimator should identify specifically how this will integrate within the total solution. Sizing Basis This section documents the methods used to measure the size of the PBS. The methods used for measuring the unit size Requirements; number of use cases, number of backlog items, etc. Functional size; Function points (Measurement methods: IFPUG, NESMA, COSMIC, FiSMA, etc.) [2] Technical size; (source) lines of code, number of interfaces, modules, etc. Service size: number of incidents, tickets, users, locations, etc. The overall assumptions, probability and potential scope creep of the size should be identified. For functional size also the expected error range, the level of accuracy and the method of ‘measuring’ (e.g. Backfired or detailed measured). Effort Basis This section documents the methods (and tools) used to convert size into effort. The effort will be based on the required activities to deliver the required product /services related to the engagement criteria (delivery constraints, service level) and basis (benchmark, historical data). Planning Basis This section documents the management, engineering, design, procurement, fabrication, and construction approaches to the engagement. The contracting and resource strategies should be identified, as well as any assumptions that were made with regard to the schedule (gross or net hours, hours worked per period, shifts worked per day (24/7 services), holidays, etc.) and planned use of overtime. Any assumptions made regarding architecture, quality criteria, delivery constraints (deadline, fixed price, sourcing construction, etc.), use of critical resources should also be noted here. The overall engagement schedule and key milestones should be identified. Copyright 2012 AACE International, Inc. AACE International Recommended Practices
- 4. Basis of Estimate 4 of 7 November 1, 2012 Cost Basis Describe the methods and sources used for determining all unit, effort, subcontract, material and expenditures costs. Identify the following (if used): The costing per unit / effort hours and all productivity adjustments. Provide appropriate detail if costing vary by role and/or location within the project (architecture, process, sourcing construction, etc.) and reference data. All wage rates used (including sourcing construction). Identify all items included in all-in rates. Pricing sources for all major hardware and software (vendor quotes, historical data, etc,) including any discount strategies. COTS pricing sources. Pricing source for all start-up costs. Pricing source and methodology for overhead costs (management, housing, etc.). Document the basis for any contractor fee costs. Pricing source and methodology for costs such as freight, taxes, duties, etc. Pricing source for liabilities. Currency exchange rates if applicable, as well as the stability and/or volatility of rates. Contingency development and basis. Reservations (warranty, transfer, etc) methodology and basis. Location factors used and the basis for these factors. Influence of local market conditions. Capital costs (inflation, cash flow charge) expense costs, or other categorization as necessary. Any other pricing factors or external influences that may have a significant impact on engagement cost should be identified. Allowances This section should describe any allowances that have not been detailed in the body of the estimate. Assumptions Any other assumptions made by the estimator but not documented elsewhere in the estimate basis should be included in this section if not yet mentioned before. This may include such assumptions as the availability of key resources, parametric setting (tool settings), dependencies on other projects, etc. Small assumptions can change into major assumptions throughout the life of the project. Therefore, it is better to document assumptions then not to document at all. Exclusions Potential items of cost which a reviewer might associate with the engagement should be documented by the estimator, but for which no costs have been included in the estimate. Acceptance Tests, Conversion, Migration, Implementation, Training, extended warranty, changes of scope, taxes, financing costs, licensing costs, etc. are examples of potential items that may need to be identified. Exceptions The estimator should identify any anomalies or variances to agreed upon standard estimating practices (organizational standards, tender standards) .This section should document any significant deviations from the engagement deliverables normally required for the applicable class of estimate. A good practice is to provide a checklist as an attachment to the BOE that will document any exceptions that are identified. This checklist should correspond to the agreed standard estimating practices. Risks and Opportunities Any areas of the estimate containing significant risk or opportunity should be identified. All assumptions need to be assessed as risk. If a formal risk analysis study has been prepared then it should be described (e.g. methodology, technique, etc.). In particular, this section should identify those elements that have been identified with high or very high risk or opportunity values related to cost, duration, quality and/or safety critical measures). The risk analysis report (or summary) should be provided as an attachment to the BOE. Copyright 2012 AACE International, Inc. AACE International Recommended Practices
- 5. Basis of Estimate 5 of 7 November 1, 2012 Containments Containments are cost elements in the estimate related to measures included to prevent and/or mitigate the identified risks. The activities are indentified in the risk analysis report. These may impact not only cost but also duration. Contingencies Contingency is a cost element of the estimate used to cover the uncertainty and variability associated with a cost estimate, and unforeseeable elements of cost within the defined project scope. Contingency covers inadequacies in complete project scope definition, estimating methods, and estimating data. Contingency specifically excludes changes in project scope, and unforeseen major events such as earthquakes, prolonged labor strikes, etc. The amount of contingency included in the estimate should be identified, as well as the methods used to determine the contingency amount. If risk analysis techniques were utilized to develop the contingency amount, the associated confidence level should also be identified. Management Reserve Contingency is not intended to cover the costs associated with changes in engagement scope. E.g. if the engagement needs to provide an allowance for anticipated changes in scope, or to cover the costs for items that may be required but have not yet been specifically identified as being included in the current engagement scope, then that amount of cost, typically referred to as management reserve, should be identified here. The intended purpose and use of management reserve should be clearly identified. The approval process, management and tracking of the management reserve should also be clearly identified. Reconciliation Provide an overview of the major differences between the new or re-baselined estimate and the last published estimate prepared for this engagement. Identify the cost/duration impacts due to scope changes, pricing updates, progress, productivity adjustments, estimate refinement, etc. A more detailed reconciliation or cost trending report can be provided as an additional attachment if necessary. Benchmarking This section should document any comparisons of overall estimate metrics, ratios, and factors with similar engagements, historical data, and industry data (e.g. International Software Benchmarking Standards Group [3]). References used in the benchmark comparisons should be similar in process type and overall value. If significant variations of the estimated values versus the benchmarks exist, those inconsistencies should be identified and explained and/or reconciliated. A more detailed benchmark analysis report may be included as an attachment to the BOE. Estimate Quality Assurance Since estimate reviews are the means for testing the quality of the estimate, this section of the BOE should identify all estimate reviews that have taken place to date, and any additional reviews that are proposed to take place. All review comments or analysis should be included as an attachment to the BO, In case of an external review the review should include who executed the review, when it was conducted and which references (models) are used). Estimating Team In this final section, all members of the estimating team should be identified, including roles and responsibilities. Copyright 2012 AACE International, Inc. AACE International Recommended Practices
- 6. Basis of Estimate 6 of 7 November 1, 2012 Attachments Several supporting documents will generally be included with the basis of estimate. 1) Attachment A: Estimate Deliverables Checklist Attachment A: Estimate Deliverables Checklist Attach a completed estimate deliverables checklist indicating the engagement deliverables that should be provided to support preparation of the estimate for the associated estimate classification, and whether they were in fact available during preparation of the estimate. 2) Attachment B: Reference Documents Attachment B: Reference Documents Document the sizing report, requirements, designs, texts, notes, specifications, and other references used in developing the estimate. Identify the revisions and date of issue for key documents. Additional Attachments Include any other attachments that may be necessary or required (reconciliation report, benchmarking report, risk analysis report, etc.). LEVEL OF DETAIL IN THE BASIS OF ESTIMATE It is often not a simple matter to determine the amount of detail that should be provided in a BOE. Several factors may come into play during the preparation of the estimate that will help determine the level of detail. However, it is the estimator’s best judgment that will ultimately determine the appropriate level. Level of Engagement Definition Estimates are prepared at various stages of an engagement. A more detailed estimate will generally require a more detailed BOE; however that is not always the case. A conceptual estimate will most likely be based on a limited amount of scope but may require a more detailed basis of estimate. It's not uncommon for a BOE for a conceptual estimate to be more thorough than one prepared for a more detailed estimate because there are often more assumptions made at the conceptual stage of an engagement that require greater documentation. Conversely, there may be times when the engagement definition is so complete or simplistic that a BOE does not require a great amount of detail. A three or four page document may be sufficient to convey the information provided in the BOE. Cost Value and/or Impact of the Engagement Typically, an engagement with more impact (high cost, critical duration, high quality) will require a more detailed BOE. However, engagements with lesser cost value and/or less impact can require an extensive BOE to fully communicate major assumptions that constrain or reduce the cost. Type of Engagement The type of engagement can also affect the BOE. For example, the BOE for a partial software development engagement (e.g. construction and test only) may be less detailed than a BOE for a full lifecycle engagement. Other Factors Other factors that affect the level of detail in a BOE are: product breakdown structure (PBS) and associated work breakdown structure (WBS), consideration for new technologies, delivery strategy (Agile, Spiral, Waterfall, Kanban, etc.) contracting strategy, etc. The BOE should contain a concise level of detail to fully support the review of the estimate by those that have not been a part of the preparation of the estimate. The BOE provides a definition of the scope of the engagement as estimated, and should establish the basis for change management subsequent to publication of the estimate. Copyright 2012 AACE International, Inc. AACE International Recommended Practices
- 7. Basis of Estimate 7 of 7 November 1, 2012 REFERENCES 1. Christensen, Peter, Editor. Cost Estimate Classification System, Recommended Practice No. 17R-97 AACE International, 2011 2. ISO/IEC Standards: International Function Point User Group, Function Point analysis Counting Practices Manual, ISO-IEC 20926, IFPUG, www.ifpug.org Netherlands Software Metrics user Association, Definitions and counting guidelines for the application of function point analysis, ISO/IEC 24570, NESMA, www.nesma.nl Common Software Metrics International Consortium, The COSMIC Functional Size Measurement Method, ISO/IEC 19761, COSMIC, www.cosmicon,com Finnish Software Metrics user Association, FiSMA 1.1 Functional Size Measurement Method, ISO/IEC 29881, FiSMA, www.fisma.fi 3. International Software Benchmarking Standards Group, Repositories for Development & Enhancements and Maintenance & Support, ISBSG, www.isbsg.org CONTRIBUTORS Ton Dekkers (Chair) Hans Bernink Marten Eisma Ray Sadal Jelle de Vries Review Measurement Association International Network (MAIN, www.mai-net.org) Netherlands Software Metrics Association (NESMA, www.nesma.nl). Copyright 2012 AACE International, Inc. AACE International Recommended Practices