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Risk in Calculating Cost per Story Point

Updated: Apr 15

“Watch the cost and the profits will take care of themselves.”

Agile is all about evidence-based management. This means agile is always managed based on the evidence available like cost, estimation, metrics, etc. except on gut feelings or emotions. It is necessary to calculate project estimation cost to know the required time and cost of adding new features. With knowing and comparing the older feature with new, estimation and required cost it becomes easy and takes half of the time to know the needed cost of new features and know the gain we can acquire from the future. By this project estimation, we can know will the project is a success and should be continued or not.

In agile, many teams use cost estimation on story point or epic as a single epic or bunch of epics can estimate the whole project cost.


Objectives for Cost Estimations

Every team’s for their team member must have some objectives for their cost estimation for story points some are as follows

  • There should be transparency on the estimated cost for every team member.

  • Cost should be estimated and calculated frequently to know are on the right path.

  • The calculation should be reproducible, logical, and clear for better understanding and acceptance.

Required Data for Cost Estimation
  • Timeframe of sprint

  • Average velocity or past velocity of sprints

  • Number of stories in a product backlog items

  • Relation between backlog items

When project cost estimation is required we need added requirements as

  • Number of developers

  • Average salary per hour to team

Calculation of Cost Estimation of Story Point

While calculating the cost estimation based on story points we will suggest having 3 sprint data for better estimation and adequate data. The formula for cost estimation is as:

Cost= ((Man hours in sprint x average salary per hour) / average velocity) x number of stories

Risk in calculating Story points

Now as we know how the estimation is calculated and help in every business we will move towards what are the dangers or risk it create when estimation is done on a story point basis.

Risk in Calculating Story Points

Now as we have calculated the cost estimation per story point we must have also noticed that the scrum master does cost estimation based on team cost rather than on single person cost. The calculation includes the average of a large number of story points. So let’s see what risk the story point calculation carries:

1. Used for Comparison in Teams

The calculated data from cost per point by an agile team can be used for comparison with other teams which is not the right thing to do. The data of one team when compared with other team members' data without the same level of data where team member size, velocity, and baseline are different will surely create a wrong picture to be seen either from this or other teams side. Even if a lot of efforts are taken to match the data it will still not be matched as two different team members have different capabilities and skills. While comparing, scrum masters must know that the velocity cannot be measured as the productivity of the team members. Sometimes the small team can also provide more productivity than the larger team.

2. Using Calculation too narrowly

It will be so wrong if the cost calculation goes narrowed. Some scrum masters may try to narrow the calculation at an individual level or individual’s velocity of each team member. This is a bad idea as no team has a product backlog item that can be solved by a single team member. There is various role needed to be played for the completion of a single product backlog item like a tester, developer, analyst, and DBA and it will be unwise to allocate the same points to each team member. There may be two coders and a single tester in a team but the coder does the work three times faster than the tester and even earns twice the salary of the tester. It will create a lot of confusion if scrum masters go on providing points based on their work or equally. SO it is only possible to use cost per story point based on averaging the team cost and velocity.

By seeing the risk in estimation based on story points and trying to skip it then know that estimation helps a team in decision making and helping product owners to know if the feature is worth the estimated effort or not to be used. The story point estimation is an easy method to calculate and use. It is better to go with an estimation as, “Probability of success is difficult to estimate, but if we never search the chances of success is zero.”

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