The Hidden Costs of Software Development Estimates: Why Reliability Matters

It should come as no surprise that reliable software development estimates are a critical factor in ensuring a project's success. Inaccurate estimates present significant challenges in unique ways, whether it’s leading to disrupted timelines, lowered team morale, or erosion of stakeholder trust. Regardless of whether your team uses agile, waterfall or another methodology, the reliability of their estimates has a direct impact on both the planning, and execution of the project.

So why are so many teams relying on guesswork, something inherently unreliable, for something so important?

In this blog, I’ll bring to light the hidden costs of getting your software development estimates wrong, discuss why it’s so difficult to get it right as well as highlight the value of using tools to empower your teams with reliable, predictable insights to ensure project success.

The Hidden Cost of Inaccurate Estimates

The effect of inaccurate estimates presents short and long term implications that may not be visible to everyone across the team. While the most obvious impact may be missed deadlines or budget overrun, these are simply outcomes of the more hidden challenges that are faced at the individual contributor level every day.

Project Delays & Budget Overruns

Let's start with the obvious: project delays. Say your organisation commits to a feature release date to satisfy a large customer requirement. With only 1 month until release you’re notified by your project manager that it is unlikely the feature will be complete on time. So what do you do? A reasonable thing to do at this stage is to tell your sales team to go back to the customer and inform them of the delay. What cost does relying on guesswork truly have? You’ve now spent more time and money on the feature than initially planned, coupled with the opportunity cost of conducting other work, and you’re also at risk of losing customer confidence or the sale entirely.

Erosion of Stakeholder Trust

This leads onto the next cost, stakeholder trust. Inaccurate estimates undermine the relationship stakeholders have with a team. Customers, executives and other business teams expect reliable timelines and when this expectation is not met, it begins to erode trust. The first time may be palatable, the second time concerning, and the third time will have you reconsidering your options.

Misinformed Decision-Making

Relying on guesswork, and human bias (which we will get to), builds a picture for decision makers that has an underlying foundation of misinformed context. Making critical decisions based on flawed data isn’t just a problem for engineering leadership, it also affects your product and project management teams. When you lack the ability to capture and look back on important historical data, it undermines the ability to make an informed decision or steer the project in the right direction.

Strained Team Morale

Estimates that are consistently off the mark, can lead to frustration, reduced motivation, and lack of trust within a team. It's a double-edged sword though. On one side, you’ve got the engineers that typically  loathe doing estimates as they feel they’ll be held accountable for the timeline, regardless of the unknown risks and complexities that pop up. And on the other side, project managers that are desperate for a reliable estimate, so they can keep things on the rails and effectively conduct planning. Setting self-induced, unrealistic expectations (i.e. an unreliable estimate) is a path to creating strained relationships across a team.

Why Software Estimates Are So Hard To Get Right

If you read this far, it’s going to sound obvious: estimating the effort required to complete software development tasks is incredibly difficult, and risk laden. There are several factors that make it challenging for teams to consistently produce reliable estimates, but I like to consider it using Rumsfeld's logic.

It is easier to estimate something that you are both aware of, and understand.

It is hard to estimate something that you are aware of, but do not understand.

It is hard to estimate something that you are not aware of, but may understand.

It is very hard to estimate something that you are neither aware of, nor understand.

Risk, Complexity and Uncertainty

Unlike building a house that has relatively stable parameters and codes defining how it needs to be built, software development projects are unique, and each comes with its own set of risks, complexities and uncertainties. These factors are often difficult to predict, making it a challenge to define a specific timeline for even the most simple of tasks. While many teams use agile estimation techniques, such as story points or t-shirt sizes, these complexity assessments often overlook both the risk and uncertainty of the task at hand. These processes, although an exercise in communication, often leave more questions than answers, and misaligned expectations. I plan to write another blog highlighting why this is the case, so keep your eyes peeled.

Psychological Bias

As the most common forms of estimation are judgement-based, human psychology plays a significant role when someone is required to answer questions such as, ‘how long will this take’. Commonly seen, overconfidence in estimates creates a false sense of certainty that is likely misguided or doesn’t quite tell the whole picture.

Common Cognitive biases to be aware of:

Confirmation Bias

Searching for or recalling only the information that supports one's beliefs,

Anchoring Effect

When a judgement is anchored from a past experience, regardless of relevance,

Planning Fallacy

Underestimating time/cost/risk, overestimating the benefits, and

Illusory Correlation

Perceiving a relationship between variables when no relationship exists.

Although there are many more that the human mind is at risk to, this list highlights the importance of being aware and understanding the pitfalls of the human psyche in the estimation process.

Lack of contextual insights

Relying on guesswork requires the estimator to be aware of, understand and be able to consider the potential risks, the unique variables and full scope of the task. This relies on the memory of said estimator and as a result is often based on incomplete or outdated information. Each individual has a different set of experiences, working memory of the project and codebase, and interpretation of the task as it’s written. Couple that with the consistency of a team's makeup; if a team member leaves, their knowledge and understanding of your product goes with them. These factors risk a team losing out on important context, making your estimates unreliable over time.

The Value of Reliable Estimates in Software Development

Reliable estimates aren’t for reducing timelines or enforcing performance standards, they are for informing effective decision making, improving stakeholder confidence and building high performing teams.

Predictability and Informed Decision-Making

Reliable estimates improve planning predictability, help bring to light the unknown-unknowns, and help communicate this effectively across the team. This leads to more effective planning and the ability to anticipate challenges before they occur. Informed decision-making drives better business outcomes, reduces the risk of budget-overruns or technical issues, enables effective resource allocation and helps build a better team culture.

Improved Confidence

When estimates consistently align with the reality of the work to be conducted, customers, leaders, project managers and the engineers will all develop confidence in the team's ability to deliver. Ultimately, this leads to stronger relationships between all stakeholders. This translates to customer retention, improved communication and productivity, a stronger reputation for recruiting top talent, and improved cross-team collaboration.

Increased Team Efficiency

Having a clearer awareness and understanding of the project scope and potential challenges helps improve efficiency, reduce frustration and enhance collaboration. Data-driven estimates help guide decisions and improve communication in a more objective way, so engineers can increase the focus time spent on completing the task itself.

How zenimate Can Help

zenimate’s AI-assisted software development estimates improve planning reliability and predictability whilst enabling smarter, more informed decisions. As a methodology agnostic tool, we help bring clarity and confidence to your established planning processes by leveraging data-driven insights, AI workflows and enabling effective team collaboration. Think of it as a common system for software development teams to create reliable estimates that improve over time, as more work is conducted. 

zenimate uses a hybrid-estimation approach, combining reference class forecasting (using previously completed work), risk-based estimation, and expert judgement. Integrating seamlessly into your project management tools like Jira, as well as your codebase repositories like Github, GitLab and BitBucket, to deliver actionable insights directly to where your team works.

Conclusion

Often hidden in plain sight, unreliable estimates can cause both short and long term disruption and problems for your team, hindering their success. By using a more reliable and consistent estimation process, or tools like zenimate, you can reduce the risks from guesswork, bring data-driven insights to the forefront of your planning, improve relationships and culture with stakeholders, and enable more informed decision making across the board. Ultimately reducing the occurrence of delays, budget overruns, strained relationships and erosion of stakeholder trust.

Don’t let guesswork or the fear of being wrong hold your teams back, explore how zenimate can help achieve more reliable software development estimates today.