Independent Estimation - How to avoid selecting bids based on overoptimistic cost estimates

I came across an interesting article in the May/June 2009 issue of IEEE Software by Magne Jurgensen of the Simula Research Laboratory in Norway which touches on the age-old challenge of deciding whether the lowest estimate is actually a realistic estimate. From his research, Magne has derived 7 recommendations which I have paraphrased below (I suggest they have much validity for internal and external estimates):

  1. If price is an important selection criteria, dont invite too many bidders if your requirements specification is incomplete.
  2. Avoid using price as an important selection criteria if your ability to assess provider competence is low.
  3. Ensure sufficient competence in assessing provider competence by hiring external experts if necessary.
  4. When selecting bidders, compare the bids with your own independent cost estimate of the average of all bids.
  5. Let providers collect sufficient information to help them analyze the projects complexity.
  6. Don't include potentially misleading information that could affect the estimation process (especially your budget expectations).
  7. Be aware that a negotiation phase after receipt of bids may encourage even greater over-optimism.

Of course, "over-optimism" is Magne's polite way of saying "stupidity."  If these recommendations resonate with you, I suggest that you should talk to us here at DCG about getting a professional, objective view of your estimates and/or your estimation process.

Written by Michael D. Harris at 11:00

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