Software Cost Estimation is one of the more difficult aspects of Agile Software Development. Software Estimation has always been challenging and Agile doesn’t necessarily make this type of predictive exercise any easier.
Customers, whether they be external or internal, are used to working in fixed price contracts. Getting customers to agree to fixing Time and Cost, but with Variable scope, is a new way of working which requires a much higher degree of trust and collaboration than many people are used to. And the challenges seem to get multiplied when the customer is external, as trust and collaboration haven’t necessarily been such a critical part of contract negotiations in the past.
Paul Barnes has written a great article on Agile Software Estimation which discusses these challenges in detail and describes some of the ways his company has addressed them.
Of course, anyone interested in Agile Estimation should read Mike Chon’s bible on the topic: Agile Estimation and Planning.