Comparing Bottom-Up and Top-Down Estimating Approaches in a Custom Cost Model
Developing a cost model involves several steps such as data collection, normalization, cost estimating relationship (CER) development, model building and documentation. Choosing an appropriate level of detail for each CER is an important consideration. This is influenced by several factors such as user needs, data availability as well as the statistical behavior of the data. The cost modeler must sometimes choose to estimate costs for particular work breakdown structure (WBS) elements with either a bottom-up or top-down approach. In a bottom-up approach, estimates of summary-level (i.e., higher level) WBS elements are statistically summed from its constituent (i.e. lower level) WBS elements, and in a top-down approach, costs for lower level elements are derived and allocated from the higher level WBS elements. Each of these approaches has its benefits.
In the data normalization process, perfect allocation of costs into appropriate WBS elements is a goal, not a reality. Any improper allocation eventually manifests itself in poor fits of data in regressions among lower-level WBS elements but better fits to higher-level WBS elements. In this presentation, we model results of CERs as random variables and compare the statistical summations of WBS-element estimates using a bottom-up approach with those using the top-down approach to demonstrate the differences in errors using these methods.
Donald L. Trapp
MCR Federal, LLC
Mr. Trapp is a Technical Manager at MCR, LLC. He has been involved with cost and system analysis for defense and space systems for the past forty years. During that time he has also been employed at The RAND Corporation, SAIC, and the Office of the Secretary of Defense, where he was responsible for cost analysis of all missile systems and all strategic defensive systems. He has specific experience in cost analysis, economic analysis, systems analysis, parametric analysis, and risk analysis. He received his BS in Engineering Science from Harvey Mudd College and his Masters in Nuclear Engineering from M.I.T.
Noah L. Wright
MCR Federal, LLC
Mr. Wright is a junior Cost and Project Control Analyst at MCR, LLC. He has been involved with developing Cost Estimating Relationships and factors for missile programs. Prior to working with MCR he served for five years in the Marine Corps with two air control squadrons as an air control electronics operator. His specific experience covers both cost and schedule with regards to analysis and estimating, along with cost modeling using advanced statistical methods, and schedule development and maintenance. He received his BS in Business Administration degree in 2009 from the University of Central Florida and is currently a 2013 MBA Candidate at Rollins College.
Lisa G. Hackbarth
MCR Federal, LLC
Ms. Hackbarth is a junior Cost Analyst at MCR, LLC. She has been involved with cost estimating for the Joint Urban Test Capability as well as developing Cost Estimating Relationships and factors for missile programs for two years. Prior to working with MCR she was a Graduate Teaching Assistant for University of Central Florida’s (UCF) Department of Economics and a Multifunctional Financial Analyst at Lockheed Martin. Her specific experience covers cost estimating, defining program/project Work Breakdown Structures, and working manpower requirements. She received her BSBA in Economics and an MBA from UCF in 2008 and 2009 respectively.