Original Post Date: Thursday, August 13, 2009

Let’s start with a simple test. Which is greater: the number of six-letter English words that have "n" as the fifth letter or the number of six-letter words ending in "ing"?

If you are like most people you’re thinking the correct answer is six-letter words ending in "ing". But most people are wrong. And the reason is simple, people rely on what they can easily recall. Since it’s much easier to think of 6-letter words ending in "ing" the fact that people come to that conclusion isn't surprising. Psychologists refer to this as availability bias. This type of bias gives more importance to things that we can vividly remember and easily recall. All too often, bias like this plays a prominent a role in the development of estimates. (By the way, the group of six-letter words that have "n" as the fifth letter include all of the six-letter words ending in "ing")

Part of the power of parametric cost estimating is the ability to substantially diminish this bias and to fill in where data is lacking. A parametric approach uses sophisticated mathematical equations along with historical data from similar systems or projects in combination with existing organizational data to produce an estimate that is external to the types of biases that often plague estimates. Once organizations are estimating software, hardware or systems of systems using a parametric model, the accuracy of the model will increase as data is captured from other projects. This systematic collection of actuals compared to estimates over time leads to data driven decision making.

Parametric cost estimating is a widely used approach for bidding on a contract, input into a cost benefit analysis, or as the pre-planning tool for project implementation. Extensive literature reviews suggest that an effective parametric cost estimating methodology is becoming an essential tool for technology-driven organizations. The use of parametric estimating in budgeting, scheduling, and control of projects will enhance the ability of project management organizations to effectively and efficiently utilize valuable resources. The benefit of parametric cost estimating tools is its use as an estimating model for better determining potential resource requirements during the project pre-planning and conceptual phase. When software cost estimation is performed using a parametric approach with proven commercial framework, the benefits realized far outweigh the cost of doing the estimating.