Cost Estimation: Methods and Tools

342 Pages·2015·2.38 MB·English

by  Gregory K. Mislick

Cost Estimation
Wiley Series in
Operations Research and Management Science
A complete list of the titles in this series appears at the end of this volume.
Cost Estimation
Methods and Tools
Gregory K. Mislick
DepartmentofOperationsResearch
NavalPostgraduateSchool
Monterey,California
Daniel A. Nussbaum
DepartmentofOperationsResearch
NavalPostgraduateSchool
Monterey,California
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LibraryofCongressCataloging-in-PublicationData:
Mislick,GregoryK.
Costestimation:methodsandtools/GregoryK.Mislick,DanielA.Nussbaum.
pagescm.–(Wileyseriesinoperationsresearchandmanagementscience)
Includesbibliographicalreferencesandindex.
ISBN978-1-118-53613-1(hardback)
1.Costs,Industrial–Estimates.2.Productionmanagement.I.Nussbaum,DanielA.,1943-II.Title.
HD47.M4962015
658.15′52–dc23
2014043910
Coverimage:iStockphoto©sambrogio
iStockphoto©Fertnig
PrintedintheUnitedStatesofAmerica
10987654321
1 2015
Contents
Foreword xiii
About the Authors xvii
Preface xix
Acronyms xxiii
1 “Looking Back: Reflections on Cost
Estimating” 1
Reference, 10
2 Introduction to Cost Estimating 11
2.1 Introduction, 11
2.2 WhatisCostEstimating? 11
2.3 WhatAretheCharacteristicsofaGoodCostEstimate? 13
2.4 ImportanceofCostEstimatinginDoDandinCongress.
WhyDoWeDoCostEstimating? 14
2.4.1 ImportanceofCostEstimatingtoCongress, 16
2.5 AnOverviewoftheDoDAcquisitionProcess, 17
2.6 AcquisitionCategories(ACATs), 23
2.7 CostEstimatingTerminology, 24
Summary, 30
References, 31
ApplicationsandQuestions, 31
3 Non-DoD Acquisition and the Cost
Estimating Process 32
3.1 Introduction, 32
3.2 WhoPracticesCostEstimation? 32
v
vi Contents
3.3 TheGovernmentAccountabilityOffice(GAO)andthe
12-StepProcess, 33
3.4 CostEstimatinginOtherNon-DoDAgenciesand
Organizations, 38
3.4.1 TheIntelligenceCommunity(IC), 38
3.4.2 NationalAeronauticsandSpaceAdministration
(NASA), 38
3.4.3 TheFederalAviationAdministration(FAA), 39
3.4.4 CommercialFirms, 39
3.4.5 CostEstimatingBookofKnowledge(CEBOK), 40
3.4.6 FederallyFundedResearchandDevelopmentCenters
(FFRDCs), 41
3.4.7 TheInstituteforDefenseAnalysis(IDA), 41
3.4.8 TheMitreCorporation, 42
3.4.9 RandCorporation, 42
3.5 TheCostEstimatingProcess, 43
3.6 DefinitionandPlanning.KnowingthePurposeofthe
Estimate, 43
3.6.1 DefinitionandPlanning.DefiningtheSystem, 47
3.6.2 DefinitionandPlanning.EstablishingtheGround
RulesandAssumptions, 48
3.6.3 DefinitionandPlanning.SelectingtheEstimating
Approach, 49
3.6.4 DefinitionandPlanning.PuttingtheTeam
Together, 51
3.7 DataCollection, 52
3.8 FormulationoftheEstimate, 52
3.9 ReviewandDocumentation, 53
3.10 WorkBreakdownStructure(WBS), 53
3.10.1 ProgramWorkBreakdownStructure, 53
3.10.2 Military-Standard(MIL-STD)881C, 56
3.11 CostElementStructure(CES), 56
Summary, 58
References, 59
ApplicationsandQuestions, 59
4 Data Sources 61
4.1 Introduction, 61
4.2 BackgroundandConsiderationstoDataCollection, 61
4.2.1 CostData, 63
4.2.2 TechnicalData, 63
Contents vii
4.2.3 ProgrammaticData, 64
4.2.4 RiskData, 64
4.3 CostReportsandEarnedValueManagement(EVM), 65
4.3.1 ContractorCostDataReporting(CCDR), 65
4.3.2 ContractPerformanceReport(CPR), 66
4.3.3 EVMExample, 70
4.4 CostDatabases, 74
4.4.1 DefenseCostandResourceCenter(DCARC), 75
4.4.2 OperatingandSupportCostsDatabases, 75
4.4.3 DefenseAcquisitionManagementInformation
Retrieval(DAMIR), 76
Summary, 76
Reference, 77
ApplicationsandQuestions, 77
5 Data Normalization 78
5.1 Introduction, 78
5.2 BackgroundtoDataNormalization, 78
5.3 NormalizingforContent, 80
5.4 NormalizingforQuantity, 81
5.5 NormalizingforInflation, 83
5.6 DoDAppropriationsandBackground, 87
5.7 ConstantYearDollars(CY$), 88
5.8 BaseYearDollars(BY$), 90
5.9 DoDInflationIndices, 91
5.10 ThenYearDollars(TY$), 95
5.11 UsingtheJointInflationCalculator(JIC), 97
5.12 Expenditure(Outlay)Profile, 99
Summary, 103
References, 103
ApplicationsandQuestions, 103
6 Statistics for Cost Estimators 105
6.1 Introduction, 105
6.2 BackgroundtoStatistics, 105
6.3 MarginofError, 106
6.4 TakingaSample, 109
6.5 MeasuresofCentralTendency, 110
6.6 DispersionStatistics, 113
6.7 CoefficientofVariation, 117
Summary, 119
References, 119
viii Contents
GeneralReference, 119
ApplicationsandQuestions, 119
7 Linear Regression Analysis 121
7.1 Introduction, 121
7.2 HomeBuyingExample, 121
7.3 RegressionBackgroundandNomenclature, 126
7.4 EvaluatingaRegression, 132
7.5 StandardError(SE), 133
7.6 CoefficientofVariation(CV), 134
7.7 AnalysisofVariance(ANOVA), 135
7.8 CoefficientofDetermination(R2), 137
7.9 F-Statisticandt-Statistics, 138
7.10 RegressionHierarchy, 140
7.11 StayingWithintheRangeofYourData, 142
7.12 TreatmentofOutliers, 143
7.12.1 HandlingOutlierswithRespecttoX(The
IndependentVariableData), 143
7.12.2 HandlingOutlierswithRespecttoY(The
DependentVariableData), 144
7.13 ResidualAnalysis, 146
7.14 AssumptionsofOrdinaryLeastSquares(OLS)
Regression, 149
Summary, 149
Reference, 150
ApplicationsandQuestions, 150
8 Multi-Variable Linear Regression
Analysis 152
8.1 Introduction, 152
8.2 BackgroundofMulti-VariableLinearRegression, 152
8.3 HomePrices, 154
8.4 Multi-Collinearity(MC), 158
8.5 DetectingMulti-Collinearity(MC),Method#1:Widely
VaryingRegressionSlopeCoefficients, 159
8.6 DetectingMulti-Collinearity,Method#2:Correlation
Matrix, 160
8.7 Multi-CollinearityExample#1:HomePrices, 161
8.8 DeterminingStatisticalRelationshipsbetweenIndependent
Variables, 163
8.9 Multi-CollinearityExample#2:WeaponSystems, 164
8.10 ConclusionsofMulti-Collinearity, 167