Explain like I'm five · SW Eng

What is Software Project Cost Estimation?

Software cost estimation, told as a story about pricing a manuscript by its measured size times a fixed rate — not by feel.

I'll say a millionI'll say five millionsame size — why so different?everyone names a price by their own rule of thumb

Every writer names a different price.Everyone names a price by their own rule of thumb.

price it by feel alone — and disputes follow₩too cheap — the writer loses out₩too pricey — the client loses outwith no pricing standard, both writer and client end up unhappy

Pricing by feel alone ends up too cheap or too pricey.With no pricing standard, both writer and client end up unhappy.

cost estimation = pricing fairly as size × unit ratesize (FP)×₩unit rate=not a guess — multiply the measured size by a fixed unit rate

Cost estimation prices things fairly as size times a unit rate.Not a guess — the measured size times a fixed rate.

Measure the size firstwith the function-point ruler
Apply the rate tablemultiply by the published unit rate
Apply adjustment factorsreflects scale, complexity, performance, and more
Convert to person-monthsalso gauges how many person-months it takes
THE COST FORMULApre-adjustment dev cost = function points × unit rate per FP× factors for scale, integration, performance, etc. = dev cost+ direct expenses + profit (up to 25% of dev cost)= the software development cost

Function points × rate, adjusted, plus expenses and profit, gives the software development cost.Size × rate needs adjusting, and then real expenses and profit added, before the price is complete.

the rate table is a referencethe final price still comes from the contractthe rate table doesn't set the final pricea public project also weighs its effect on the private market before pricing

The rate table doesn't set the final price.A fair rate table still leaves room for client-contractor negotiation. A public project also weighs its effect on the private market first.

In one breath

Software project cost estimation = instead of writers each naming their own price, pricing fairly as size (function points) × unit rate, adjusted by factors, plus expenses and profit.

Software project cost estimation multiplies a size metric like function points by a published unit rate, multiplies in adjustment factors for scale, integration complexity, performance, operating-environment compatibility, and security to get the development cost, then adds direct expenses and profit (up to 25% of that cost). In Korea, the SW Project Cost Estimation Guide from KOSA, the AI and software industry association, is the main reference. It took over from a government notice abolished in 2012, so it is an industry body's standard, and the final amount is set by contract.

When grown-ups say it

Software Cost Estimation
Turning page count into money. Size times rate is the basic skeleton.
Rate per Function Point
The price for one unit of measured size. Size is measured first with → the ruler that measures functions, not pages.
Person-Month (M/M)
The amount of work one person does in one month. The unit used to gauge schedule and headcount.
Adjustment Factor
The rate that adjusts the price to a book's size and complexity. Scale, integration complexity, performance, environment compatibility, and security get multiplied in.
Profit
The contractor's own margin. Set at up to 25% of the development cost.
Direct Expenses
Real costs paid out, like the price of paper. Costs actually spent on the project are added separately.
Software Project Cost Standard
The rate table the whole industry refers to. The old government notice was abolished in 2012; the KOSA guide is the reference now.
Fair Pricing
Neither low-balling nor inflating the price. The whole point of having a rate table in the first place.
Next story
Before Remaking a Book the Store Already Sells →
Want another term as a picture book? Request →