How do you estimate budget at completion for agile projects?

"Estimating BAC" is a tricky proposition. Budgeted At Completion indicates a value that will be fully approved for expenditure and has been agreed upon by all stakeholders. Approved budgets are modified by change orders, which often take time and scrutiny to chisel to the point where all parties are satisfied. As pending change orders are developed for review, internal risk ranking of line items included in the change order could provide for a creative process of estimating BAC. There is a path among the weeds that leads to BAC linking up closely to EAC, but it is only discovered with diligent analysis of Productivity and the obstacles befalling the project. This is not a popular question to answer and I'm glad to have the first stab!

In agile projects, estimating the budget at completion involves regularly reassessing costs based on ongoing work and adapting to changes. Utilize techniques like story points, velocity, and burndown charts to forecast completion. Factor in team capacity, historical data, and any variations in scope. Continuous monitoring and adjustment are key, ensuring alignment with project goals and client expectations.

Budget at Completion (BAC) is calculated at the start of a project. That's the most tricky. It's applicable for the contracts on Fixed Price basis, where you agree the scope and budget in advance, and usually there is an advance payment of 50% or 100%. It burdens the liability of uncertain estimate to the Development Team. Because if they fail with the estimate, they will pay with their money. That's why the scope has to be strict, and the project/product manager with the team lead have to consider the team skills, time for testing and extra risk (if the lead developer falls ill) to make BAC the most accurate. Afterwards, the change management is a crucial art to fulfil the BAC.

Agile frameworks like Scrum and Kanban prioritize iterative delivery, with budgets typically considered operational expenses (OPEX) due to the focus on delivering viable product increments. However, distinguishing between features adding value and those extending product life is crucial. Features with clear business value and longevity may be capitalized, aligning with accounting principles. Continuous monitoring and adjustment based on evolving requirements, team velocity, and stakeholder feedback are essential for accurate budget estimation. Working with finance teams, product owners, and Agile teams ensures transparency and alignment with organizational goals, enabling effective management of project finances while delivering value.

Before diving into any estimation techniques, it’s crucial to have a clear understanding of the project’s scope and the value it brings to the client. Agile projects often evolve incrementally, and the Product Owner plays a key role in prioritizing deliverables that maximize value. Ensure that all stakeholders are aligned on expectations, as this will directly impact the accuracy of your budget estimates.

Agile projects thrive on flexibility, and for budget estimation, relative estimation techniques like Story Points or T-shirt sizing are very effective. These methods help teams assess the effort required for each feature, while factoring in complexity and uncertainty. Tools like Planning Poker or affinity estimation can also be useful in fostering team collaboration and achieving more accurate results.

Select an appropriate estimation technique for your agile project. Common techniques include story points, planning poker, T-shirt sizing, or bucket system. Choose a method that suits your team’s experience and the complexity of the project. Ensure the technique allows for flexibility and iterative adjustments.

Earned Value Management is used to track and evaluate the progress of a project EVM employs various performance indices: Cost Performance Index( CPI) Schedule Performance Index (SPI) A CPI or SPI value greater than 1 indicates better-than-expected performance Advantages of EVM: Early detection of deviations. Forecasting the final cost. Fosters better communication. Identification of potential risks. Individual assessment. Team performance. Key components of EVM: Budgeted Cost of Work Scheduled( BCWS). Budgeted Cost of Work Performed(BCWP). Actual Cost of Work Performed (ACWP). Cost Performance Index (CPI). Schedule Performance Index (SPI). Variance Analysis. Performance Indices Thresholds. Earned Value Formulas. Schedule Variance

Once you’ve selected your technique, use a tool that supports your approach. Microsoft Project, Microsoft Planner, or Jira can be employed to track the estimated costs, resources, and timelines based on your Story Points or T-shirt sizes. These tools offer transparency and allow teams to visualize the progress and adjust as needed.

Agile estimation is not about achieving perfect accuracy but about providing a reasonable estimate to guide planning. Requirements can change, so flexibility is crucial. Agile estimation techniques are essential for predicting the budget, time, and effort required for successful project completion. Here are eight popular agile estimation techniques: 1. Planning Poker 2. Affinity Grouping 3. T-shirt Sizing 4. Wideband Delphi 5. Relative Estimation 6. Monte Carlo Simulation 7. Velocity-based Estimation 8. Expert Judgment If you’re asking for the best, remember, the most applicable and useful agile estimation technique depends on your team’s context, project type, and preferences.

Utilize estimation tools that facilitate the chosen technique and enhance accuracy. Tools like Jira, Trello, or Excel spreadsheets can help in organizing and tracking estimates. These tools allow you to visualize the project’s progress and make necessary adjustments to the estimates as the project evolves.

Agile projects require continuous review and adaptation, and budget estimation is no exception. Regular sprint retrospectives provide an opportunity to assess whether the initial estimates hold true. Be prepared to make adjustments based on actual progress and emerging challenges. A good practice is to incorporate feedback loops where estimations are revisited and refined at key points in the project.

Regularly review and update your budget estimates based on the project’s progress and any changes in scope or priorities. Agile projects are iterative, so it’s essential to continuously refine the budget estimates as new information becomes available. Conduct sprint reviews and retrospectives to assess actual costs versus estimates.

Actively managing the budget throughout the project is essential to ensure that financial resources are being used efficiently. Utilize metrics like Earned Value Management (EVM) or burn-up charts to monitor the project’s performance against the budget and timeline. These metrics help you identify any discrepancies early, enabling you to take corrective actions if necessary, and ensuring that you stay on track.

In Agile budgeting, it is easy to calculate quarterly or annual budgets by multiplying cost of a sprint by number of sprints The short length of sprints allows greater flexibility in budget management Rough estimation is based on requirements, expectations provided by the product owner The next step is to thoroughly examine the business idea and product details to determine the necessary work precisely Budget can be set accordingly by: A blended rate. Specific Labour Categories. Dedicated software development team utilizes numerous estimation methodologies to determine complexity of each demand Client cooperation is a key component of agile methodologies; it is critical to communicate with the customer to avoid over budget

Actively manage the project budget throughout its lifecycle. Monitor expenditures, track variances, and ensure that the project remains within the estimated budget. Use agile practices like regular stand-ups, sprint planning, and burndown charts to keep the team aligned and informed about the budget status. Adjust the project scope or timeline if necessary to stay on track.

Estimating the budget at the completion (BAC) for agile projects is a challenging process, because the basis of these calculations is the scope defined for the project as well as their assigned budgets, and such projects are characterized by uncertainty in their scope. Therefore, in such projects, this process is repeated and re-examined periodically. Whenever the project manager can finalize the scope of the project with other stakeholders, he/she can clearly prepare and present the expected budget of his project.