Agile Estimation: Definition and Techniques

The Agile philosophy is a collection of values and principles designed to help manage work more efficiently. In the broad sense of Agile, estimation refers to expert opinions about when a piece of work can be completed based on its complexity. The Agile term “Agile estimation” gained popularity in software development, and it is used to quantify the duration of a given development work item.

Let's discuss how estimation is managed in an Agile environment, the good and bad sides of estimation, and some of the widely used techniques.

The Agile Approach to Estimation 

The Agile way to work management is focused on customer satisfaction, adaptability, and frequent value delivery. To comply with the 12 principles of Agile project management, teams reach out to various methodologies and frameworks to help them streamline work processes, improve their flexibility and deliver quality value faster. A cornerstone of this mission is the ability to determine how long work would take before value can be delivered to the customer. 

Agile methodologies/frameworks such as Scrum use story points based on past team velocity to estimate the required effort for completing user stories in a team’s product backlog. Methods such as Kanban, on the other hand, rely on historical workflow data to create probabilistic outcomes for the duration of single or multiple work items.

Work estimation

5 Techniques for Work Estimation in Agile Development 

Agile teams tend to take a one-dimensional approach when it comes to estimating work’s duration. Properly sized work items help Scrum teams, for instance, prioritize the next iteration and plan their capacity better. To arrive at those estimates, development teams use various techniques.

1. T-Shirt Size Estimation. T-shirt sizing is one of the methods used by Scrum teams to estimate various work items (user stories, epics, tasks, themes, initiatives). Work items are each estimated using standard t-shirt sizing – XS, S, M, L, XL, XXL. The sizes give an overview of the complexity or required effort depending on the team’s preference.  

2. Relative Sizing. The relative sizing approach to work estimation uses grouping or categorizing work items with similar or equivalent difficulty. Agile teams using this method refrain from using absolute high-level estimates. Similar approaches include silent grouping and affinity estimating.  

3. Planning Poker. In Scrum, team members use numbered cards to assign story points to user stories and determine work items’ complexity. The team discusses their estimates based on previous experience or expert's opinion, and the prevailing number becomes the item’s final estimation. The Planning Poker work estimation technique is widely used by Agile teams following the Scrum or XP programming frameworks. 

4. The Bucket System Estimation. The Agile team using this approach discusses the work items which are divided into “buckets” based on their complexity. The Bucket system allows teams to quickly size a large number of work items. 

5. Three-Point Method. The Three-Point estimation model is a probabilistic approach where each work item is assigned three different values to reflect optimistic, pessimistic, and most likely outcomes. The approach is useful when dealing with large and complex projects with many unknowns.

What Are the Benefits of Agile Estimation? 

Estimates can help break down, plan and prioritize work and ultimately improve the efficiency of managing Agile projects. Proper work sizing can be beneficial to project management in various ways.

• Improved coordination. Arriving at a mutual understanding about the actual size of the work requires everyone’s input. As such, estimation practices improve the team’s communication and coordination. 
• Decision-making enhancements. Teams can improve their ability to prioritize work in the backlog according to the assigned estimates and improve their Agile projects planning capabilities. 
• Better risk management. Proper work sizing lays the foundations for better risk management and improves the chances of delivery with the required quality and within the agreed time and budget. 

Pitfalls of Estimating Work 

The Agile philosophy is rooted in the ability to adapt and spread agility across organizational levels. Weighing the work is a critical step in that mission which, if not addressed adequately, can easily turn into a pain point in Agile project management.

• Estimates do not account for uncertainties. Regardless of the chosen estimation technique or the measurement unit, estimates are criticized because of their inability to account for risks. After all, knowledge work doesn't deal with homogeneous work types, and the complexity of the incoming tasks can be of widely varying levels. 
• Estimates cannot be final. The biggest caveat of estimates is the expectation that once work is weighed, it's final. Addressing emerging conditions should always be an option. 
• Misuse of estimations. It’s not uncommon for teams to get carried away in treating the agreed-upon estimates as commitments for assigning specific timelines or judging team members – a counter-productive and demotivating practice.

Who Is Involved in the Agile Estimation Process? 

Estimating is a team activity. Every team member should be involved in the work estimation process. Let's not forget that Agile proclaims collaboration, communication, and feedback on all levels as the path for delivering value with increased quality and at a fast pace.  

• Development team members (programmers, designers, quality assurance engineers, or other types of knowledge work specialists) should all be involved in the process of estimating the duration of work items because that ensures that all expert opinions are taken into account. Furthermore, this promotes transparency and enables collaborative discussion within the team about how to get work done more efficiently. 
• Team leaders, product owners, Scrum masters play an important role in the estimation of work. They are the moderators of the Agile ceremonies dedicated to the process of prioritizing work. It’s their role to detect any unknowns, questions, or discrepancies and provoke further discussion.

Forecasting as an Estimation Alternative in Agile Project Management 

Estimating a project's duration accurately is an important step toward better coordination between departments and teams, work prioritization, and better planning (at least initially). However, today's hectic market demands more reliable approaches to work estimation. As such, forecasting techniques are often used by Agile teams to obtain data-driven insights on how to improve and manage risks in a more efficient manner. 

This is the philosophy that a data-driven method such as Kanban promotes. Let’s uncover how Agile managers can narrow down the duration of work initiatives with Kanban in practice.

Moving from Estimation to Forecasting with Kanban  

The Kanban method of work management is rooted in the Lean and Agile management ways. At its core lie the people, learning, and continuous improvement. The Kanban adaptive approach relies on practical techniques for forecasting the completion of work such as workflow data. As a result, Kanban project leaders manage to account for the volatility and uncertainty of today’s business environment. 

The Kanban method allows managers to use specialized tools to forecast the expected duration of various work pieces by collecting historical data about cycle time and throughput for specific work types.   

The first step to do that in Kanban is to stabilize the flow of work. One of the key prerequisites to creating a stable Agile workflow is understanding how teams handle the incoming and completed work and trying to match the “arrivals” and “departures” in your process.  

To do this in practice, Kanban teams map their workflows on Kanban boards and use WIP (work in progress) limits to create a pull system. Eventually, they aim to continuously optimize that system so they can align work demand with actual capabilities and create a stable flow of work. 

To monitor and analyze your workflow, the Cumulative Flow Diagram, for example, is an invaluable chart where Kanban teams can track the most important metrics of their flow - cycle time, throughput, and WIP.

Cumulative Flow Diagram (CFD) 

By applying those and other practices, Kanban teams can make their workflows more predictable. The accumulated workflow data can be then integrated within tools such as Monte Carlo Simulations to move to forecasting based on probabilities for work delivery. With Monte Carlo simulations, for instance, you can answer how many work items your team could complete for a specified time period. Or, get a realistic forecast about when a given amount of work items can be finished.  

The analytics tools in our project portfolio management platform, for example, use real data, so various uncertainties and risks are also accounted for.

Monte Carlo When simulation

In Summary

The process of evaluating the required effort to finish a specific work item, also known as estimation, can be achieved using a variety of approaches derived from the various Agile methods. Agile teams employ different estimating techniques such as: 

• Monte Carlo probabilistic forecasting for teams using the Kanban method to work management 
• T-shirt sizing of work items for Scrum teams 
• Planning Poker for Scrum teams