Last updated on Jul 24, 2024
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Understand the scope and value of your project
2
Choose an estimation technique
3
Use an estimation tool
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Review and update your estimate
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Manage your project budget
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Here’s what else to consider
Estimating budget at completion (BAC) is a challenge for any project, but especially for agile projects that adapt to changing requirements and deliver value incrementally. BAC is the total amount of money that the project is expected to cost when it is finished. It is a key indicator of project performance and health, and it helps you to plan, monitor, and control your project budget. In this article, you will learn how to estimate BAC for agile projects using different methods and tools.
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- Vismay Dalwadi (VD) ⭐ 13 X LinkedIn Top Voice |Project Manager -EPC Projects Management Experienced Professional with expertise in Project…
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- Hayden J. Peairs Project Resourcing
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- Dmitry Drozd PM/BA I believe that thinking processes is an essential part of software development
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1 Understand the scope and value of your project
Before you can estimate BAC, you need to have a clear understanding of the scope and value of your project. Scope defines what you are going to deliver, and value defines why you are delivering it. In agile projects, scope and value are not fixed, but they are prioritized and refined through collaboration with stakeholders and feedback from customers. You can use tools such as product vision, product backlog, user stories, and acceptance criteria to define and communicate the scope and value of your project.
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- Vismay Dalwadi (VD) ⭐ 13 X LinkedIn Top Voice |Project Manager -EPC Projects Management Experienced Professional with expertise in Project Management, Stake Holder Management, Order Management and Engineering with Customer Centric focus.
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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.
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- Hayden J. Peairs Project Resourcing
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"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!
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- Dmitry Drozd PM/BA I believe that thinking processes is an essential part of software development
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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.
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- 陈美佳 Independent financial advisor of AMG FINANCIAL GROUP
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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.
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- GHULAM NIZAM |Contracts Engineer| Contract Administrator |FIDIC| Claims Management | Procurement |Cost Control|QS|EOT|Project Coordination|Legal Compliance|Negotiation|
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Begin by clearly defining the project scope and identifying the value it aims to deliver. This involves understanding the key features, functionalities, and user stories that comprise the project. Ensure that all stakeholders have a shared understanding of the project goals and priorities.
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2 Choose an estimation technique
When estimating the BAC for agile projects, there are various techniques to consider, depending on the level of detail and accuracy required. Top-down estimation involves utilizing historical data, expert judgment, or analogy to estimate the overall cost of the project based on its size, complexity, and duration. This method is advantageous for high-level planning and budgeting, but may not account for the variability and uncertainty of agile projects. Alternatively, bottom-up estimation breaks down the project into smaller units such as features, epics, or user stories and estimates the cost of each unit based on its effort, resources, and risks. This technique is more accurate and detailed but may take more time and effort to perform and update. Lastly, parametric estimation uses mathematical models or formulas to estimate the cost of the project based on its parameters such as scope, quality or velocity. This technique is fast and consistent but requires reliable data and assumptions.
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- GHULAM NIZAM |Contracts Engineer| Contract Administrator |FIDIC| Claims Management | Procurement |Cost Control|QS|EOT|Project Coordination|Legal Compliance|Negotiation|
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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.
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3 Use an estimation tool
To support your estimation technique, you can use an estimation tool such as Earned Value Management (EVM), Burn Rate, and Burnup Chart. EVM compares the planned value, earned value, and actual cost of your project to calculate the cost variance, cost performance index, and estimate at completion (EAC). EAC is the projected total cost of the project based on the current performance. Burn Rate is the amount of money that your project spends per unit of time. Burnup Chart is a graphical tool that shows the progress of your project in terms of value delivered versus budget spent. This chart can be used to estimate BAC by extrapolating the budget spent line until it reaches the target value or scope. It can also be used to visualize the cost variance, cost performance, and remaining budget of your project. However, for agile projects, you need to adjust EAC and Burn Rate regularly to reflect changes in scope and value.
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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 Poker2. Affinity Grouping3. T-shirt Sizing4. Wideband Delphi5. Relative Estimation6. Monte Carlo Simulation7. Velocity-based Estimation8. Expert JudgmentIf 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.
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- GHULAM NIZAM |Contracts Engineer| Contract Administrator |FIDIC| Claims Management | Procurement |Cost Control|QS|EOT|Project Coordination|Legal Compliance|Negotiation|
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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.
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4 Review and update your estimate
Estimating BAC for agile projects is not a one-time activity, but a continuous process that requires frequent review and update. As your project evolves and adapts to the changing needs and expectations of your stakeholders and customers, you need to revisit your estimate and make adjustments accordingly. You can use tools such as retrospectives, feedback loops, and change management to review and update your estimate. You should also communicate your estimate clearly and transparently to your project team, sponsors, and other stakeholders.
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- GHULAM NIZAM |Contracts Engineer| Contract Administrator |FIDIC| Claims Management | Procurement |Cost Control|QS|EOT|Project Coordination|Legal Compliance|Negotiation|
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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.
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5 Manage your project budget
Estimating BAC for agile projects is not enough; you also need to manage your project budget effectively. You need to align your project budget with your project scope and value, and ensure that you deliver the maximum value within the available budget. You need to monitor and control your project cost, and identify and mitigate any issues or risks that may affect your project budget. You need to report and justify your project cost, and demonstrate the return on investment (ROI) of your project.
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- GHULAM NIZAM |Contracts Engineer| Contract Administrator |FIDIC| Claims Management | Procurement |Cost Control|QS|EOT|Project Coordination|Legal Compliance|Negotiation|
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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.
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6 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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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.
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