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 9
Terms ..............................................................................................
Cost 10
Realism ............................................................................................................

CHAPTER II -- COLLECTION AND NORMALIZATION OF PARAMETRIC

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

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 Summary .............................................................................................................. 29
....

CHAPTER III -- ELEMENTARY STATISTICAL TECHNIQUES AND CER

DEVELOPMENT
CER and Model Development - Uncertainty and Risk 32
Reduction ..........................
Developing Cost Estimating Relationships 34
(CERs) .................................................
Hypothesis Testing of a Logical 36
CER .........................................................
The CER 36
Model ...........................................................................................
When to Use a 36
CER .................................................................................................
Strengths and Weaknesses of 37
CERs .........................................................................
Strengths .................................................................................................. 38
....
Weaknesses .............................................................................................. 38
....
Regression 38
Analysis .................................................................................................
Curve 41
Fitting ............................................................................................................
Graphical 41
Method ........................................................................................
LSBF 41
Method ..............................................................................................
Multiple 44
Regression .....................................................................................
Curvilinear 45
Regression ................................................................................
“Goodness” of Fit, R and R2 45
....................................................................................
Correlation 45
Analysis ....................................................................................
Coefficient of 46
Determination .......................................................................
Coefficient of 47
Correlation ............................................................................
The Learning 47
Curve .................................................................................................
Limitations, Errors and Caveats of LSBF 49
Techniques .............................................
Extrapolation Beyond The Range of the Observed 49
Data .............................
Cause and 50

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Parametric Cost Analysis Handbook

Effect ..........................................................................................
Using Past Trends to Estimate Future 50
Trends .............................................
Misinterpreting the Coefficients of Correlation and 50
Determination ............
Summary .................................................................................................. 50
....
Examples of CER 51
Use ..............................................................................................
Construction ............................................................................................. 51
....
Weapons 51
Procurement .................................................................................
Electronics ................................................................................................ 51
...
Cost and Price 52
Analysis ...............................................................................
Information and 52
Techniques ........................................................................
Estimate 53
Reliability ......................................................................................
Two Examples of CER 54
Use .........................................................................
Common 60
CERs ............................................................................................
Acceptance Criteria for a Cost Estimating 61
Relationship ..........................................
Auditing and Analyzing a 63
CER ...............................................................................
CER 63
Analysis ...............................................................................................
General 63
Features ..........................................................................................
Evaluating and 64
Estimate ..............................................................................
Summary of CER Audit and 65
Analysis .........................................................

CHAPTER IV -- HARDWARE COST MODELING

Introduction .......................................................................................................... 68
....
Overview of Hardware Cost 70
Modeling ....................................................................
Micro-Circuit and Electronic Module 77
Modeling .....................................................
Hardware Operations and Support (O&S) of Life Cycle 79
Models ............................
Deployment and 81

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 Employment .....................................................................
Hardware 82
Parameters ...................................................................................
Program 82
Globals ..........................................................................................
Commercial 82
Models .................................................................................................
MicroFASTE ............................................................................................ 83
...
Price Parametric 87
Models ..............................................................................
SEER ....................................................................................................... 90
.....
Regression Based Product Specific Cost 91
Models ....................................................
Non-Commercial Cost 93
Models ................................................................................
Non-Statistical Cost 94
Models ....................................................................................
Model 95
Calibration ....................................................................................................
Cost Model Audit and 96
Analysis ...............................................................................
Analyzing a Product Specific Cost 96
Model ...................................................
Summary of Cost Model Audit and 99
Analysis ..............................................

CHAPTER V -- SOFTWARE PARAMETRIC COST ESTIMATING

Software 101
Definition ..................................................................................................
The Importance of Software 102
Today .........................................................................
The Software Development 107
Process ........................................................................
The Waterfall 107
Model ....................................................................................
The Software Cost Estimating 109
Process ....................................................................
Define Project Objectives and 111
Requirements ..............................................
Plan the 111
Activities ........................................................................................
Software Estimation 112
Risks ...........................................................................
Estimation 113
Methodologies ...........................................................................
Software Cost Estimating 116

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Parametric Cost Analysis Handbook

Standards ............................................................
Benefits .................................................................................................... 116
....
Examples of Parametric Software Cost 116
Estimating .................................................
Parametric Software Cost Estimating 119
Tools ............................................................
Desired Functional Capabilities of Parametric 120
Tools ..................................
Input Data 122
Collection ...................................................................................
Some Commercial 122
Tools .............................................................................
Software Sizing 127
Tools ..................................................................................
Glossary of 130
Terms ....................................................................................................
Model 130
Calibration ....................................................................................................
Trends and 131
Conclusions ...........................................................................................
Trends ...................................................................................................... 131
....
Conclusions .............................................................................................. 132
....

CHAPTER VI -- AUDITING PARAMETRIC ESTIMATES - A MANAGEMENT

VIEWPOINT
Cost Estimating Relationships: A DCAA 133
Perspective ...........................................
Introduction .............................................................................................. 133
....
Background .............................................................................................. 134
....
Parametric 134
Criteria .......................................................................................
Logical 135
Relationships ..................................................................................
Significant Statistical 135
Relationships ............................................................
Verifiable 135
Data .............................................................................................
Reasonably Accurate 135
Predictions ................................................................
Proper System 136
Monitoring ...........................................................................
Audit Planning and 136
Requirements ...............................................................

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 Observations and 140
Suggestions .....................................................................
Summary .................................................................................................. 142
....
Estimating System 143
Reviews .....................................................................................
Forward Pricing Rate Agreement 145
(FPRAs) .............................................................
What to Look For in a Parametric 148
Estimate .............................................................
Rules of 150
Thumb ...........................................................................................
An 151
Example .................................................................................................

CHAPTER VII -- BUSINESS APPLICATIONS OF PARAMETRIC ESTIMATING

Introduction .......................................................................................................... 153
....
Parametric Estimating in New Business 153
Development ............................................
Estimating Production Buys Using 154
Parametrics ......................................................
Example: Estimating Production Buys Using 155
Parametrics .........................
Estimating Spares and Change 158
Orders .....................................................................

Appendix A Definitions of Estimating 160

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

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