Cost Estimating

Identify the purpose of project cost estimating

Identify the purpose of project cost estimating

Cost estimating is the process of quantitatively analyze historical costs to determine future costs

Allows PM’s to accurately estimate, plan, and request resources for project success

Recognize the various types of costs: fixed, variable, semi-variable; recurring, nonrecurring; life cycle costs; direct, indirect costs

1.) Fixed, Variable, and Semi-Variable Costs

2.) Recurring and Nonrecurring Costs

3.) Direct and Indirect Costs

4.) Life Cycle Costs

A cost can cross the 4 categories

Fixed, Variable, and Semi-Variable Costs

1.) Fixed Cost - Cost remains constant regardless of activity level

2.) Variable Cost - Cost varies with activity level

3.) Semi-Variable Cost - Fixed cost plus variable cost

Recurring and Nonrecurring Cost

1.) Recurring Cost - A cost that is repeated for each unit of production or duration

2.) Nonrecurring Cost - A cost incurred only once for a project

Direct and Indirect Cost

1.) Direct Cost - Cost directly traced to producing a product

2.) Indirect Cost - Cost that is necessary for production but isn’t directly related to production

Life Cycle Cost

The total cradle-to-grave cost of a weapon system, including development, procurement, operation and support, and disposal

2 Types of Life Cycle Unit Cost

1.) Average Procurement Unit Cost (APUC)

2.) Program Acquisition Unit Cost (PAUC)

Average Procurement Unit Cost (APUC)

The sum of all procurement costs divided by the number of units

Program Acquisition Unit Cost (PAUC)

The sum of all acquisition costs (RDT&E, MILCON, and procurement) divided by the number of units

A superset of APUC

Identify the [6] steps in the cost estimating process

1.) Establish Ground Rules/Assumption

2.) Collect Data

3.) Select Methodology [replaced with SOB]

4.) Make the Estimate

5.) Check the Estimate

6.) Review and Report

Establish Ground Rules/Assumption

Consists of the answers to 4 W’S:

1.) What is the work?

2.) What does it look like?

3.) When is it to-be-available?

4.) Who will do the work?

Collect Data

Collect information from similar projects, people with experience, and raw data and then filter the inaccurate or irrelevant data

Identify the various cost estimating techniques and when each might be applied in the acquisition process

In order of increasing accuracy, the 5 cost estimation techniques are:

1.) Expert Opinion

2.) Analogy

3.) Parametric

4.) Detailed Engineering Build Up

5.) Actuals

Expert Opinion

Ask an expert for what they think

Used when cost estimating tools are inadequate, inaccurate, or scarce

Analogy

Make an estimation based on a similar, known system

Used early in the acquisition cycle when their is not much program definition or earlier estimate

Parametric

Utilize statistical methods like regression to estimate

Detailed Engineering Build Up

Estimate a system based on the sub-components

Used later in the acquisition process when program configuration has stabilized

Actuals

Extrapolate from actual costs from earlier in the project

Requires accurate data that can only be available when a project is underway

Make an Estimate

Estimate the cost of the whole system by summing the constituent costs (point estimating)

Check the Estimate

Review calculations for accuracy, perform a sanity check, and cross-check with other estimation methods

Review and Report

Document the estimate and submit the results