This porridge is just right!.

                                            Goldilocks
                                 Fictitious Fairy Tale Character

The first bowl of chocolate pudding was too hot,
but Goldilocks ate it all anyway because,
hey, it's chocolate pudding, right?

Mo Willems, American Writer and Animator (1968 - )
                              Goldilocks and the Three Dinosaurs

The Drive By Estimate                                              

Ever had your boss say: "...We don't have time to do all this estimation work, just give me a number..."?

That's a Drive-By estimate.  No prep, no calculation, no data.  Just a quick, inglorious, and unvarnished opinion.

The Never-Ending Estimate                                      

Ever had your boss say: "...we've got to make sure this estimate is completely accurate.  Let's work on it until it's perfect..."

This is is the Never-Ending estimate.  To make an estimate truly "accurate" we  have to remove all the uncertainty.  The only way to do that is to go and actually run the project.  But if you're waiting for the estimate to decide if you want to run the project,... then you're stuck.

Not Too Little, Not Too Much                                

Clearly, "too little" is not enough, while "too much" is, well, too much.  so the optimal amount of work to be done on an estimate is somewhere between these two values...

...but where exactly?

This graph shows the components of net cost of an estimate.  The declining exponential curve is the cost of a "bad" estimate--the longer time and more effort we spend producing an estimate, the 'better" it will be and the more likely that business decisions made based on the estimate will be sound and won't incur unexpected costs.  The straight line is the cost of producing an estimate (assuming that a constant number of people are employed working on it.

The "Goldilocks" point is the green area in the middle.  Here's how to calculate the cost of this point:

Cost_of_Estimate_ = Lifecycle_Phase * Target_Cost_of_the_Project^0.35

Where Lifecycle_Phase is the phase in which the project is being estimated.  It has typical values of:

Early Lifecycle (feasibility or "what if?" estimates. . . . . . . . . . . . 24
Budgeting estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Definitive or Planning estimates. . . . . . . . . . . . . . . . . . . . . . . 115

The Target Cost of the Estimate is just what we want to spend on the total project

Example:

A project with a target cost of $10m requiring a planning estimate should expect to spend around $32k to produce the estimate (try it!).

Read the article to get more info...

The Goldilocks Estimate