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Estimating with Confidence

Published on 5 December 2024

Written by Martin Hinshelwood

2 minute read

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Estimation in Software Projects: Why Probabilistic Forecasting is Better | Martin Hinshelwood

👋 Hi, I’m Martin Hinshelwood from NKD Agility, and in this video, I tackle one of the biggest challenges in software projects: estimation. Traditional estimation methods, whether absolute (hours) or relative (story points), often fall short in high-variance environments. Instead, I’ll explain how probabilistic forecasting can give you confidence and clarity without wasting time on inaccurate estimates.

📌 Chapters:

00:00 – Introduction: Why Estimation is a Struggle in Software Projects
02:30 – The Problem with Absolute and Relative Estimation
05:15 – Understanding Variance and Why Accuracy Isn’t Possible
08:00 – The Power of Probabilistic Forecasting
11:15 – How to Use Historical Data for Forecasting
14:30 – Building Confidence with Probability (85% Confidence Level)
17:00 – Reducing Batch Sizes to Improve Understanding

🎯 Who This Video is For:

• Product managers and project managers tired of unreliable estimates • Agile teams looking for better ways to plan and deliver work • Organizations struggling with high-variance environments and unpredictable timelines • Leaders seeking practical tools to improve confidence in delivery timelines

📖 What You’ll Learn:

• Why traditional estimation methods often fail in software projects • How probabilistic forecasting works and why it’s more reliable • The importance of analyzing and breaking down work to reduce batch sizes • How to use confidence levels (e.g., 85%) to set realistic expectations • Why understanding work is more important than estimating it

💡 Key Takeaways:

• Accurate estimation is impossible in high-variance environments—focus on probabilities instead. • Probabilistic forecasting uses historical data to predict outcomes with confidence. • Reducing batch sizes and understanding work leads to better execution. • Aim for an 85% confidence level to balance risk and realism in your forecasts.

At NKD Agility, we help teams and organizations embrace modern forecasting techniques like probabilistic forecasting to deliver with confidence. Ready to leave outdated estimation methods behind? Visit us today and let’s help you forecast success.

#agile #productdevelopment #productmanagement #projectmanagement #devops #agileproductdevelopment #agileproductmanagement #agileprojectmanagement #projectmanager #productmanager #productowner #scrummaster #professionalscrumtrainer #scrum #leanproductdevelopment Watch on Youtube

One of the big struggles within the context of software projects is estimation. Most organizations try and do some form of estimation. Either they’re using absolute estimation, so we’re talking errors here, or they’re using some kind of relative estimation tool. It’s really difficult because we feel like we need estimates to understand what we’re going to do. We actually don’t.

But what we do need is the ability to forecast out into the future with some kind of probability. Right? So when we’re talking about software delivery, where we have really high variance, it’s still really difficult. There is no tool when you have more than 50% unknown that you can use to accurately predict the future. Right? Accuracy is not a thing you can have.

So what’s the best we can get? Right? We want to be looking at probabilities and probabilistic forecasting. So what we tend to do is use some kind of forecasting simulation tool to look forward into the future based on what actually happened. So we’re never actually effectively estimating an individual item within our backlog. We’re just saying that we can deliver, let’s say, in the next 30 days, we’ll deliver another 50 items with an 85% likelihood that that’s going to happen.

That leaves wiggle room for things not happening the way you think, and it doesn’t require the people on your teams to spend a significant amount of time estimating. It doesn’t require any actual numbers to come out of the team. It still requires the people doing the work to analyse the work and break it down into smaller chunks. Right? That’s reducing the batch size of each individual item. That is still required. That is something you want to spend time on because it builds understanding within the context of what it is that we’re delivering.

Right? We want to understand the thing we’re delivering, and that understanding is the main impactor of our ability to execute on those things. So in this new world, there isn’t really estimation, but we still have confidence, and we put an actual probability on our confidence. I usually encourage teams and departments and organizations to look at about an 85% confidence level, being that what 70% of all startups fail. So it probably relates a little bit to 70% of all ideas are going to be unsuccessful.

Right? So what’s your confidence level of being able to deliver? As long as it’s higher than 70%, it’s probably a good bet, and we can figure it out from there.

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