Reflections on Software Engineering Education
IEEE Software
A framework for the analysis of software cost estimation accuracy
Proceedings of the 2006 ACM/IEEE international symposium on Empirical software engineering
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It is well known that software development projects tend to be based on over-optimistic cost estimates. Better knowledge of the sources of this over-optimism is necessary to improve realism in software development project bids and budgets. This paper analyses the effect of "the winnerýs curse". The winnerýs curse is a result of the selection of software providers among those with the lowest bid, i.e., those with a tendency towards the highest level of over-optimism. The winnerýs curse has not been extensively analyzed in software cost estimation studies, but is a well known phenomenon in domains such as auctioning. We exemplify the effect of the winnerýs curse with data from a real software development bidding round and simulate how increase in number of bidders and cost uncertainty impact the expected profit. We argue that the winnersý curse is a problem for both clients and providers, and that it may lead to inefficient use of scarce resources. Possible remedies for reduction of negative effects of the winnerýs curse are discussed.