More Trouble with Estimating at the 80th Percentile
This presentation addresses the recommendation within the Weapon System Acquisition Reform Act (WSARA) of 2009 that defense acquisition program cost estimates be reported at the 80th percentile of their cost probability distributions. The goal of this recommendation is commendable. Defense acquisition program costs have typically been under-estimated. Thus, it is believed that planning for cost at the 80th percentile will reduce the number of defense programs being placed in the unenviable situation of discovering that cost growth has caused the program budget to be insufficient.
Unfortunately, this philosophy has a major weakness in that it is unlikely to achieve its goal. Cost estimates are established on programs as they are defined at a certain point in time – usually before requirements changes, engineering changes, scope growth, and schedule creep occur, which inevitably cause cost growth. Choosing an 80th percentile cost estimate before these events happen will do little to alleviate the problem of cost growth. It would be better to anticipate the events and include them in the cost estimate up front. This presentation identifies the nature of the problem and makes recommendations that can mitigate the problem.
Mr. Timothy P. Anderson is a technical manager for MCR, LLC’s Technical Leadership Group, and a professional cost analyst and operations research analyst with over fifteen years experience, primarily in the context of Department of Defense (DoD) weapon systems and national security space acquisition. Prior to arriving at MCR, Tim was a senior project leader at The Aerospace Corporation. His areas of interest are cost analysis, cost uncertainty analysis, operations research, and decision analysis. Mr. Anderson served for 20 years in the U.S. Navy and began working in the cost estimating field in 1994 while assigned to the Naval Center for Cost Analysis. Following that he served as a military professor at the Naval Postgraduate School, teaching cost estimation, operations research, and other technical courses. He retired from the Navy in June 2001. Mr. Anderson has a B.S. in Industrial and Operations Engineering from the University of Michigan, and an M.S. in Operations Research from the Naval Postgraduate School. He is a SCEA certified cost estimator/analyst; a board member of the Washington D.C. Area chapter of SCEA; an adjunct professor in the Systems
Engineering/Operations Research Department at George Mason University; an adjunct professor of Engineering Economics and Cost Estimation for the Naval Postgraduate School (Distributed Learning Programs); and a frequent presenter of topics related to cost estimating and cost uncertainty analysis at forums including the Society of Cost Estimating and Analysis (SCEA), the Military Operations Research Society (MORS), the DoD Cost Analysis Symposium
(DoDCAS) and the Space Systems Cost Analysis Group (SSCAG).