What Percentile Are We At Now (And Where Are We Going?)
For decades nearly all cost estimators have held to the premise that their estimates were at the 50th percentile, and most risk analysts have built their work on the presumption that this is so. This paper will show that it is unlikely that this key premise was ever true, and will explore the ramifications of the premise being false. Among other implications, this issue bears very strongly on current initiatives by many contractors (and agencies) to allow for cost growth in their proposals (and budgets.)
The paper will be based on past cost growth studies, which show conclusively that cost estimates are low nearly 80% of the time (suggesting most estimates are at around the 20th percentile), and on the experience of the authors in conducting risk analysis on both independent government cost estimates and major contractor proposals over a period of almost two decades, which closely conforms with historical cost growth analysis.
Having made the case that virtually all current cost estimates are really at significantly lower percentiles than convention holds, the paper will discuss what the ramifications are for the well-intentioned desire to shift estimates to achieve more confidence, unknowingly based on a fictitious 50th percentile.
Richard L. Coleman
Richard L. Coleman is a Naval Academy graduate, received an M. S. with Distinction in Operations Research from the U. S. Naval Postgraduate School and retired from active duty as a Captain, USN, in 1993. His service included tours as Commanding Officer of USS Dewey (DDG 45), and as Director, Naval Center for Cost Analysis. At Northrop Grumman, he has worked extensively in cost, CAIV, and risk for the Missile Defence Agency (MDA), Navy ARO, the intelligence community, NAVAIR, and the DD(X) Design Agent team. He has supported numerous ship programs including the DDG 1000 class, DDG 51 class, Deepwater, LHD 8 and LHA 6, LPD 17 class, Virginia class SSNs, CVN 77, and CVN 78. He is the Director of Independent Cost Estimation for Northrop Grumman Information Systems and conducts Independent Cost Evaluations on Northrop Grumman programs. He has more than 65 professional papers to his credit, including five ISPA/SCEA and SCEA Best Paper Awards and two ADoDCAS Outstanding Contributed Papers. He was a senior reviewer for CostPROF and CEBoK and lead author of the Risk Module. He has served as Regional and National Vice President of SCEA and is currently a Board Member. He received the SCEA Lifetime Achievement Award in 2008.
Eric R. Druker
Eric R. Druker CCE/A graduated from the College of William and Mary with a B.S. in Applied Mathematics in 2005 concentrating in both Operations Research and Probability & Statistics with a minor in Economics. He is employed by Booz Allen Hamilton as a Senior Consultant and currently serves on the St. Louis SCEA Chapter’s Board of Directors. Mr. Druker performs cost and risk analysis on several programs within the Intelligence and DoD communities and NASA. He was a recipient of the 2005 Northrop Grumman IT Sector’s President’s award and the 2008 TASC President’s award for his work on Independent Cost Evaluations (ICEs) during which he developed the risk process currently used by Northrop Grumman’s ICE teams. In addition to multiple SCEA conferences, Eric has also presented papers at the Naval Postgraduate School’s Acquisition Research Symposium, DoDCAS and the NASA PM Challenge. He has also performed decision tree analysis for Northrop Grumman Corporate law, built schedule and cost growth models for Hurricane Katrina Impact Studies and served as lead author of the Regression and Cost/Schedule Risk modules for the 2008 CostPROF update.
Peter J. Braxton
Peter J. Braxton holds an AB in Mathematics from Princeton University and an M.S. in Applied Science (Operations Research) from the College of William and Mary. He currently works as a cost and risk analyst as part of the Independent Cost Estimation
(ICE) function within the new Northrop Grumman Information Systems sector. He has worked to advance the state of knowledge of cost estimating and risk analysis, Cost As an Independent Variable (CAIV), and Target Costing on behalf of the Navy Acquisition Reform Office (ARO), the DD(X) development program, and other ship and intelligence community programs. He has co-authored several professional papers, including SCEA/ISPA International Conference award-winners in CAIV (1999) and Management (2005). He served as managing editor for both the original development of the acclaimed Cost Programmed Review Of Fundamentals (CostPROF) body of knowledge and training course materials and its successor, the Cost Estimating Body of Knowledge (CEBoK). He serves as SCEA’s Training Chair and as a Northrop Grumman Technical Fellow. He was named SCEA’s 2007 Estimator of the Year for contributions in Education, and received both a TASC President’s Award and Northrop Grumman Corporate Contracts, Pricing, and Supply Chain Award in 2008.
Bethia L. Cullis
Bethia L. Cullis is an Operations Research Analyst at Northrop Grumman Information Systems (IS). Her main focus is Independent Cost Evaluations (ICEs) at both the Sector and Corporate Level, as required by IS, Shipbuilding, and Technical Services. In addition to her ICE work, Ms. Cullis has supported numerous ship programs including DD(X), the DDG 51 class, LHD 8 and LHA 6, the LPD 17 class and CVN 21. She is the lead or co-author of five professional papers, presented at various forums including the SCEA 2007 & 2008 Conferences, ISPA/SCEA 2008 Conference and the 2007 Naval Postgraduate School’s Acquisition Research Symposium. For the past three years she has taught at the SCEA national conference. She was the lead author for the Contracts and Data Analysis modules in the 2008 update to CEBoK. Before joining Northrop Grumman in 2004, Ms. Cullis completed her undergraduate degree in Economics and English at Case Western Reserve University. She also worked as an analyst for Newry Corporation, a competitive consulting firm in Cleveland, OH.
Christina M. Kanick
Christina M. Kanick graduated from the University of Pittsburgh in 2006 with a B.S. in Industrial Engineering. Over the past year, she has been employed by Northrop Grumman as an Operations Research Analyst. She supports the CG(X) Team conducting cost and risk analysis. She has performed research for the Air Force Cost Analysis Agency (AFCAA) to develop cost estimating relationships (CERs). In addition, Ms. Kanick was a member of the TASC proposal support team, which was called in by the Northrop Grumman Corporate Staff, in the KC-30 Tanker, as well as the DD(X) Independent Cost Evaluation Team and on other Independent Cost Evaluations (ICEs) in addition to performing risk analysis for Intelligence Community customers.