PARAMETRIC COST ESTIMATING HANDBOOK by vgw19124

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									Parametric Cost Analysis Handbook


                      PARAMETRIC COST ESTIMATING HANDBOOK

                                                  TABLE OF CONTENTS

FOREWORD

PREFACE

CHAPTER I -- INTRODUCTION, BACKGROUND AND DEFINITIONS
     Introduction ..............................................................................................................    1
     Background ..............................................................................................................      4
     Definitions and Terms ..............................................................................................           9
     Cost Realism ............................................................................................................     10

CHAPTER II -- COLLECTION AND NORMALIZATION OF PARAMETRIC DATA
     Generalizations .........................................................................................................     12
     Significant Adjustments to Parametric Data ............................................................                       14
              Consistent Scope ..........................................................................................          14
              Anomalies ....................................................................................................       14
              Improved Technology ..................................................................................               15
     Other Types of Adjustments and Data Normalization .............................................                               15
              Inflation ........................................................................................................   15
              Learning Curve ............................................................................................          16
              Production Rate ............................................................................................         16
     Calibration and Validation of Cost Models .............................................................                       17
     Some Review and Audit Considerations .................................................................                        18
     Data Normalization Process .....................................................................................              19
     Pitfalls to the Use of a Parametric Model ................................................................                    25
     Two Illustrations of Typical Data Normalization Problems ....................................                                 27
     Summary ..................................................................................................................    29

CHAPTER III -- ELEMENTARY STATISTICAL TECHNIQUES AND CER
DEVELOPMENT
     CER and Model Development - Uncertainty and Risk Reduction ..........................                                         32
     Developing Cost Estimating Relationships (CERs) .................................................                             34
            Hypothesis Testing of a Logical CER .........................................................                          36
            The CER Model ...........................................................................................              36
     When to Use a CER .................................................................................................           36
     Strengths and Weaknesses of CERs .........................................................................                    37
            Strengths ......................................................................................................       38
            Weaknesses ..................................................................................................          38
     Regression Analysis .................................................................................................         38
     Curve Fitting ............................................................................................................    41
            Graphical Method ........................................................................................              41
            LSBF Method ..............................................................................................             41


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Parametric Cost Analysis Handbook


                 Multiple Regression .....................................................................................         44
                 Curvilinear Regression ................................................................................           45
          “Goodness” of Fit, R and R2 ....................................................................................         45
                 Correlation Analysis ....................................................................................         45
                 Coefficient of Determination .......................................................................              46
                 Coefficient of Correlation ............................................................................           47
          The Learning Curve .................................................................................................     47
          Limitations, Errors and Caveats of LSBF Techniques .............................................                         49
                 Extrapolation Beyond The Range of the Observed Data .............................                                 49
                 Cause and Effect ..........................................................................................       50
                 Using Past Trends to Estimate Future Trends .............................................                         50
                 Misinterpreting the Coefficients of Correlation and Determination ............                                    50
                 Summary ......................................................................................................    50
          Examples of CER Use ..............................................................................................       51
                 Construction .................................................................................................    51
                 Weapons Procurement .................................................................................             51
                 Electronics ...................................................................................................   51
                 Cost and Price Analysis ...............................................................................           52
                 Information and Techniques ........................................................................               52
                 Estimate Reliability ......................................................................................       53
                 Two Examples of CER Use .........................................................................                 54
                 Common CERs ............................................................................................          60
          Acceptance Criteria for a Cost Estimating Relationship ..........................................                        61
          Auditing and Analyzing a CER ...............................................................................             63
                 CER Analysis ...............................................................................................      63
                 General Features ..........................................................................................       63
                 Evaluating and Estimate ..............................................................................            64
                 Summary of CER Audit and Analysis .........................................................                       65

CHAPTER IV -- HARDWARE COST MODELING
     Introduction ..............................................................................................................   68
     Overview of Hardware Cost Modeling ....................................................................                       70
     Micro-Circuit and Electronic Module Modeling .....................................................                            77
     Hardware Operations and Support (O&S) of Life Cycle Models ............................                                       79
            Deployment and Employment .....................................................................                        81
            Hardware Parameters ...................................................................................                82
            Program Globals ..........................................................................................             82
     Commercial Models .................................................................................................           82
            MicroFASTE ...............................................................................................             83
            Price Parametric Models ..............................................................................                 87
            SEER ............................................................................................................      90
     Regression Based Product Specific Cost Models ....................................................                            91
     Non-Commercial Cost Models ................................................................................                   93
     Non-Statistical Cost Models ....................................................................................              94
     Model Calibration ....................................................................................................        95



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Parametric Cost Analysis Handbook


          Cost Model Audit and Analysis ...............................................................................          96
                Analyzing a Product Specific Cost Model ...................................................                      96
                Summary of Cost Model Audit and Analysis ..............................................                          99

CHAPTER V -- SOFTWARE PARAMETRIC COST ESTIMATING
     Software Definition ..................................................................................................     101
     The Importance of Software Today .........................................................................                 102
     The Software Development Process ........................................................................                  107
            The Waterfall Model ....................................................................................            107
     The Software Cost Estimating Process ....................................................................                  109
            Define Project Objectives and Requirements ..............................................                           111
            Plan the Activities ........................................................................................        111
            Software Estimation Risks ...........................................................................               112
            Estimation Methodologies ...........................................................................                113
            Software Cost Estimating Standards ............................................................                     116
            Benefits ........................................................................................................   116
     Examples of Parametric Software Cost Estimating .................................................                          116
     Parametric Software Cost Estimating Tools ............................................................                     119
            Desired Functional Capabilities of Parametric Tools ..................................                              120
            Input Data Collection ...................................................................................           122
            Some Commercial Tools .............................................................................                 122
            Software Sizing Tools ..................................................................................            127
     Glossary of Terms ....................................................................................................     130
     Model Calibration ....................................................................................................     130
     Trends and Conclusions ...........................................................................................         131
            Trends ..........................................................................................................   131
            Conclusions ..................................................................................................      132

CHAPTER VI -- AUDITING PARAMETRIC ESTIMATES - A MANAGEMENT
                VIEWPOINT
     Cost Estimating Relationships: A DCAA Perspective ...........................................                              133
            Introduction ..................................................................................................     133
            Background ..................................................................................................       134
            Parametric Criteria .......................................................................................         134
            Logical Relationships ..................................................................................            135
            Significant Statistical Relationships ............................................................                  135
            Verifiable Data .............................................................................................       135
            Reasonably Accurate Predictions ................................................................                    135
            Proper System Monitoring ...........................................................................                136
            Audit Planning and Requirements ...............................................................                     136
            Observations and Suggestions .....................................................................                  140
            Summary ......................................................................................................      142
     Estimating System Reviews .....................................................................................            143
     Forward Pricing Rate Agreement (FPRAs) .............................................................                       145
     What to Look For in a Parametric Estimate .............................................................                    148



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Parametric Cost Analysis Handbook


                     Rules of Thumb ...........................................................................................     150
                     An Example .................................................................................................   151

CHAPTER VII -- BUSINESS APPLICATIONS OF PARAMETRIC ESTIMATING
     Introduction ..............................................................................................................    153
     Parametric Estimating in New Business Development ............................................                                 153
     Estimating Production Buys Using Parametrics ......................................................                            154
            Example: Estimating Production Buys Using Parametrics .........................                                         155
     Estimating Spares and Change Orders .....................................................................                      158


Appendix A              Definitions of Estimating Terminology ....................................................                  160
Appendix B              Work Breakdown Structure .......................................................................            177
Appendix C              DCAA CAM 9-1000 Section 10, Review of Parametric Cost Estimates .                                           198
Appendix D              More About Statistics ................................................................................      205
Appendix E              Examples of Other Hardware Estimating Models ....................................                           209
Appendix F              Some Currently Available Software Estimation Products ........................                              218
Appendix G              Parametric Estimating System Checklist ..................................................                   236




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