2014 Workshop Cost Estimating Basics Training

Cost Estimating Overview/Basics (CEB 01)

Chris Dalton – Lead Economic & Business Analyst, MITRE Corporation
David Bach – Director of Business Analytics, Quantech Services, Inc.

The Cost Estimating Overview session introduces the basics of cost estimating and analysis and the reasons for doing cost estimates. Additionally, the motivation for cost estimating, why and how it is used, and an overview of the challenges and issues will be presented. Cost estimating products will be reviewed and a general overview of the process and methods used to develop cost estimates will be discussed, providing the background information and fundamental knowledge needed for the other CEB sessions. This session will provide an overview of the ICEAA certification process and give trainees an understanding of what to expect in the subsequent CEB sessions.

This session covers the Core Knowledge section of Module 01 Cost Estimating Basics of CEBoK. CEU Credit: 0.15

Keywords: Cost Estimating Characteristics, Cost Products, Estimate Types, Work-Breakdown Structure (WBS)

Cost Estimating Techniques (CEB 02)

Sam Toas – Aerospace Engineering Cost Competitive (ECC) COE, Northrop Grumman
Christina Snyder

This module introduces the essential cost estimating techniques, explains how to use these costing techniques, and compares the different techniques. The basic techniques of Analogy, Engineering Build-Up, and Parametric are covered, with an emphasis on the latter. Extrapolation from Actuals and Expert Opinion are also discussed. Examples are presented, and the strengths, weaknesses, and considerations of each technique are discussed. There is an additional emphasis on the concepts of Uncertainty and Risk and how these manifest in the application of each technique.

This session covers the Core Knowledge section of Module 02 Costing Techniques of CEBoK. More information on the Parametric technique can be found in training sessions PT 01 Parametric Analysis Overview, PT 02 Cost Estimating Relationships (CERs), and PT 11 Other Uses of Parametrics.

Keywords: Analogy, Parametric, Build-up, Extrapolation from Actuals, cross-check, expert opinion

Data Collection and Normalization (CEB 03)

Jeffrey Locke – Senior Level Multifunctional Financial Analyst, Lockheed Martin Missiles and Fire Control
Joseph Sarage

All parametric estimating techniques, including cost estimating relationships (CERs) and complex models, require credible data before they can be used effectively. Training in Data Collection and Analysis discusses the processes needed to collect and analyze the data used in parametric applications, as well as data types, sources, and adjustment techniques. It also:

-Identifies sources of information that can be collected to support data analysis activities;
-Describes various methods of adjusting raw data to put it on a common basis (i.e., data normalization);
-Discusses the importance of collecting historical cost and non-cost (e.g., technical or programmatic) data to support parametric estimating techniques.
-Addresses lessons learned in Data Collection

CEU Credit: 0.15

Keywords: Primary data, secondary data, actuals, cost data, technical data, programmatic data, normalization

Inflation and Index Numbers (CEB 04)

Neil Chakrabarti – Cost Analyst/Economist, Booz Allen Hamilton
Blaze Smallwood – Cost Analyst, Booz Allen Hamilton

“Accounting for changes in prices in cost estimates”
Proper inflation analysis is essential to the success of any cost estimate or economic analysis. Calculating inflation correctly and understanding the fundamental concepts will enable you to produce cost estimates that are timely, accurate, and credible to support your program’s lifecycle needs. It will also empower you to communicate with key stakeholders on the need to adjust your financial estimates based on changes in the economy.

This training session will enable you to:

• Understand what inflation is, including definition of key related terms and concepts:

o Constant Year, Current Year, Then Year / Budget Year
o Raw/Weighted and Composite/Composite indices
o Budget year multipliers
o Outlay profiles and appropriation considerations

• Differentiate between inflation and discounting
• Introduce you to standard civilian and DoD inflation indices and terminology
• Convert dollars from constant year to then year or current year and vice versa and understand how these conversions relate to your program’s spending and budgetary needs.

This session covers the Core Knowledge section of Module 05 Inflation and Index Numbers of CEBoK.
CEU Credit: 0.15

Keywords: Inflation, escalation, base-year, Seighted index, Somposite index, expenditure

Basic Data Analysis Principles (CEB 05)

Melissa Winter – Solutions Architect, PRICE Systems
Joe Bauer – Solutions Consultant, PRICE Systems
Steven Glogoza – Senior Manager of Estimating and PFA, Boeing

This session discusses the first analytical steps to take after obtaining a set of cost data, with a particular emphasis on techniques for displaying and analyzing data graphically. It addresses univariate, bivariate, and multivariate data sets, with a focus on statistical analysis of univariate data sets and graphical analysis of bivariate data sets via scatter plots. It introduces measures of central tendency, such as mean, median, and mode; measures of variability, such as standard deviation, variance, and coefficient of variation (CV); and measures of uncertainty, such as confidence and prediction intervals. A couple of vivid examples illustrate the perils of drawing conclusions from your numerical data without looking at a graph.

This session covers the Core Knowledge section of Module 06 Data Analysis of CEBoK.

Keywords: Mean, Median, Mode, Variability, Dispersion, Scatter plots, Sescriptive statistics, outliers, prediction intervals

Learning Curve Analysis (CEB 06)

Remmie Arnold – Cost Analyst, Technomics, Inc.
Michael Gonzales – Lockheed Martin Company

The learning curve (cost improvement curve or experience curve) continues to be a standard in both the commercial and defense industry. This will explain in layman’s terms what a learning curve is and present the origins, equations, and accompanying steps of the two types of learning curve theory: cumulative average (or CUMAV) theory; and unit learning curve (or ULC) theory. These discussions will be accompanied by “toy” problems with perfect numbers to help demonstrate the concepts and the math involved.

Next, we will cover how to apply learning curve theory properly. We’ll present an “imperfect” example to illustrate how to choose between the two theories when fitting historical lot data. We will also describe how to derive learning curves based on lot data and demonstrate why an iterative approach is better than the direct approach for developing CUMAV curves from lot data. We’ll discuss how to apply learning curves to new programs, look at some examples of industry average curves, and mention theories on factors affecting the learning curve slope (LCS).

This session covers the Core Knowledge section of Module 07 Learning Curve Analysis of CEBoK. CEU Credit: 0.15

Keywords: learning curve, CUMAV, unit learning theory, ULC, LCS, slope, lot mid-point, lot data

Basic Cost Risk (CEB 07)

Eric Druker – Senior Associate, Booz Allen Hamilton
Greg Hogan – Senior Technical Expert, Air Force Cost Analysis Agency

This session will provide motivation for the need for risk analysis and introduce the basic types and uses of risk. It will focus on the practical execution of the general risk analysis process, with step-by-step instructions: (1) Develop a point estimate; (2) Identify the risk areas in the point estimate; (3) Determine uncertainty around the point estimate; (4) Apply correlation between uncertainty distributions; (5) Run the Monte Carlo simulation; (6) Assess the reasonableness of results; (7) Calculate, allocate, and phase risk dollars; and (8) Tell the risk story – show the results. While the emphasis is on an Input-Based approach, Outputs-Based and Scenario-Based approaches are also presented, and the pros and cons of all three discussed. Additional topics covered include assessing uncertainty and the Risk Cube method. This session introduces significant new material not found in Module 09 Cost and Schedule Risk Analysis of CEBoK.

CEU Credit: 0.15

Keywords: cost growth, cost risk, probability model, risk cube, risk progression

Basic Probability and Statistics (CEB 08)

Timothy Anderson – Senior Project Leader, The Aerospace Corporation

This will be a review of the statistical and probability concepts relevant to cost estimation and uncertainty analysis. Topics covered will include descriptive vs. inferential statistics; measures of central tendency; measures of dispersion; and important probability distributions and their linkage to cost estimates. We will also introduce the concept of a random variable; Monte Carlo simulation; the Inverse CDF method; and thoughts on the differences between the normal and lognormal distributions.

Keywords: Uncertainty, Probability, Random Variable, Statistics, Distributions, Monte Carlo Simulation, Correlation

Basic Software Cost Estimating (CEB 09)

Michael Metcalf – Cost Analyst, Technomics, Inc.
Harold Van Herringen – Senior Metrics Consultant/ Software Cost Engineer, Sogeti Nederland

Almost every system developed today for commercial or government use involves a significant software component. This session will convey the principles of this critical area of specialized cost estimating. It addresses the basics of software development and some of the things to look out for in software estimating, and includes specific examples of applying software estimating techniques.
To help make the presentation more realistic, we’re using a number of estimating relationships and ideas from the seminal texts Software Engineering Economics and Software Cost Estimation with COCOMO II by Barry Boehm (for details on these books, see the Resources section at the end of the presentation). Boehm is a leader in the field of software cost estimation and while there are many others, Boehm’s work is publicly available through his books. Much of the work done by other experts is available only through their commercial models and even then, the relationships on which those models are built may not be provided. We’ll list some of the more common commercial models that you may want to explore.

This session covers the Core Knowledge section of Module 12 Software Cost Estimating of CEBoK.
CEU Credit: 0.15

Keywords: Software, SLOC, ESLOC, COCOMO, waterfall, agile, incremental, evolutionary, spiral, function point

Basic Economic Analysis (CEB 10)

Blaze Smallwood – Cost Analyst, Booz Allen Hamilton
Omar Mahmoud – Lead Associate, Booz Allen Hamilton

This session covers the Core Knowledge section of Module 13 Economic Analysis of CEBoK. It will be of particular interest to anyone studying for the ICEAA certification exam.

An economic analysis (EA) is “a systematic approach to the problem of choosing the best method of allocating scarce resources to achieve a given objective” [Ref. DoD Instruction 7041.3]. An EA, in effect, helps guide decisions on the “worth” of pursuing an action that departs from status quo.

The session provides a practitioner’s perspective for conducting an economic analysis (EA) by reviewing EA concepts, terminology, variables and measures-of-merit. By accounting for monetized costs, monetized benefits, opportunity costs and time-value-of-money (“discounting”), an EA enables one to calculate economic measures-of-merit. This session provides the steps needed to calculate discounted costs and benefits that provide the basis for calculating economic measures-of-merit such as Net Present Value (NPV), Uniform Annual Cost (UAC), Savings/Investment Ratio (SIR), Internal Rate of Return (IRR) and Payback Period. By learning these steps of an EA, the student will have the basic tools needed to develop an EA in support of OMB, DoD, and/or other federal agency instructions.

CEU Credit: 0.15

Keywords: Economic Analysis, Discounting, objective, assumptions, alternatives, parameters, benefits

Contract Pricing (CEB 11)

Marie Colitti – Cost SME, NSWC Dahlgren Division

This session takes a holistic view of the contracting and contract pricing from a cost estimator’s viewpoint, with emphasis on acquisition planning, contract pricing and cost/price analysis. The discussion of acquisition planning will focus on contract types, specifically how cost risk is shared between parties and the profit/fee potentials commensurate with that risk. Illustrative examples of each contract type will be discussed. The use of cost estimating techniques to establish a basis of estimate (BOE) as the foundation of the cost/price proposal (i.e. cost pricing) will be explained in detail. The session will end with a discussion of cost/price comparative analysis process used to evaluate proposal reasonable and establish an objective basis for comparison and validation of a system’s cost.
This session covers the Core Knowledge section of Module 14 Contract Pricing of CEBoK.

CEU Credit: 0.15

Keywords: Contract vehicle, fee, profit, margin, firm-fixed price, fixed price incentive, cost plus incentive fee, contract plus award fee, Basis of Estimate (BOE)

Basic EVM (CEB 12)

Ashlin Smith – Cost/Acquisition Analyst, Technomics, Inc.
Emily Foglia – Cost Analyst, Technomics, Inc.

This session will provide an introduction to the basic concepts of earned value management (EVM), with a focus on practical application in support of a project or program. Specific topics will include basic EVM components and data elements, as well as standard earned value analysis techniques. A sample case study will be introduced and built upon throughout the session to demonstrate and reinforce these basic principles of EVM.

This session covers the Core Knowledge section of Module 15 Earned Value Management (EVM) of CEBoK. Additional EVM information is addressed in CEA 05 – CPR Data (Formats 1-5) and INT 08 – EVM Advanced.

CEU Credit: 0.15

Keywords: Earned Value, Performance Management Baseline, control account, work package, budgeted cost of work performed, actual cost of work performed, management reserve