Estimates, Forecasts, Projections (Update)
Glen Alleman MSSM
Vietnam Veteran, Applying Systems Engineering Principles, Processes & Practices to Increase the Probability of Program Success for Complex Systems in Aerospace & Defense, Enterprise IT, and Process and Safety Industries
There is misuse of the terms of statistics and probability in many domains. Politics being one. Here are the mathematical definitions. Not Wikipedia definitions. Not the self-made definitions used to support conjectures but definitions from professional estimating organizations, handbooks from the US Government, and papers and books from the?estimating profession.
The search for credible estimates, forecasts, and predictions is never-ending. There are many sources of error, misunderstanding, misuse and abuse, and sometimes outright manipulation of these numbers. But never are these undesirable outcomes the motivation for removing the need to know something, to some level of confidence about the future cost, schedule, and performance of project work when we spend other people's money.
The following definitions are used in our Software Intensive System of Systems domain. Many definitions that can be found in dictionaries are broad and many times not applicable to this domain. The misuse and manipulation of these definitions are just as plentiful as the misuse and abuse of the numbers themselves. So when you hear a manipulated definition used to support some conjecture, ask?why do you need to change an established definition for an established domain?? The answer can usually be found by?following the money - someone is trying to sell you something - a book, a conference, a consulting engagement - that is counter to the established principles of Microeconomics of decision-making in the presence of uncertainty.
Estimates
In the project domain, an estimate is a calculated approximation of some desired measurement. This is usually a cost, a completion date, or a performance measure used in a closed-loop control system to keep the project GREEN while delivering the needed Capabilities to produce the Value for the customer at the needed time for the needed cost. Showing up late, over budget, and with missing Capabilities is different from what the customer paid for.
Forecasts
A forecast is a prediction of some outcome in the future. Forecasts are based on estimating the processes that produce the forecast. The underlying statistical models (circulation, thermal models) of weather forecasting are estimates of the compressible fluid flow of gases and moisture in the atmosphere (way oversimplified).
Projections/Predictions
Prediction is important because it connects subjective and objective reality. — Nate Silver, The Signal and the Noise
Project cost, Schedule, and Technical Performance Estimates
All projects contain uncertainty. Uncertainty comes in two forms - aleatory (irreducible) and epistemic (reducible). If we're going to make decisions in the presence of these uncertainties, we need to estimate what their values are, what the range of values are, what the stability of the underlying processes that generate these values are, how these values interact with all the elements of the project and what the impact of these ranges of value will do to the probability of success of our project.
Project decisions in the presence of uncertainty can only be made with estimates. Anyone claiming otherwise needs to understand statistics and the probability of outcomes on projects.
Also, anyone claiming estimates are a waste, not needed, misused by management, or any other dysfunction, needs to do them correctly. So as we said at Rocky Flats - Don't Do Stupid Things On Purpose. This means when you do hear those phrases, you'll know they are Doing Stupid Things on Purpose.
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And when you hear?we don't need estimates, we need a budget, remember:
In a world of limited funds, as a Project Manager, Product Owner, or even sole contributor, you’re constantly deciding how to get the most return on your investment. The more accurate your estimate of the project cost is, the better able you will be to manage your project’s budget.
Another example of not understanding the probability and statistics of projects and the businesses that fund them is that there are two estimates needed for all projects that operate in the presence of uncertainty:
This last formula is universal and can be used regardless of the software development method.
?Wrap-up
Nothing in progression can rest on its original plan — Thomas Monson
All project work is driven by uncertainty. Random variables model uncertainty. These variables can represent aleatory uncertainty or epistemic uncertainty. This uncertainty creates risk and, as stated here, often.
Risk Management is How Adults Manage Projects - Tim Lister
So if you hear the conjecture that decisions can be made in the presence of uncertainty without estimates, you'll now know that is a complete load a crap, run away.
If this topic interests you, here's a Bibliography of materials for estimating and lots of other topics in agile software development that is updated all the time. Please read and use these when you hear unsubstantiated claims about estimating in the presence of uncertainty. Making estimates is our business, and this resource has served us well over the decades.
Other Resources
Cost is a driving consideration in decisions that determine how systems are developed, produced, and sustained. Critical to these decisions is understanding how uncertainty affects a system's cost. The process of identifying, measuring, and interpreting these effects is known as?cost uncertainty analysis. Used early, cost analysis can expose potentially crippling areas of risk in systems.