Fifteen Undeniable Truths About Project Cost Estimates, or Why You Need an Independent Cost Estimate
All project cost estimates are wrong, some more so than others. It is exceedingly difficult to accurately estimate the cost of a large project (e.g., major defense acquisition project). Reasons for this are manifold, but the primary causes seem to be general uncertainty, insufficient technical detail, unanticipated design/technical changes, funding and schedule perturbations over the acquisition life cycle, other programmatic “difficulties,” and otherwise attempting to predict the future with imperfect information. The end result is that project cost estimates tend to be too low, with early estimates being the most likely to be understated. At the other end of the spectrum, the most comprehensive cost estimates are typically perceived to be too high. This is because they may include provisions for events that are likely to happen beyond the plan of the project. Unfortunately, high estimates can kill a project before it even starts. For that reason it seems that sometimes we don’t want to know the truth. But isn’t it better to know now rather than later? The true cost of a project tends to lie somewhere in between these two extremes, and unless the acquisition community begins to understand this, we will always be making bad resource allocation decisions. This presentation describes fifteen undeniable truths about project cost estimates, knowledge of which will help cost estimators produce better estimates, and decision makers make better decisions regarding their projects. The presentation also makes the case that independent cost estimates are vital to narrowing the gap between optimistic project estimates and the real cost of a project.
Timothy P. Anderson
Mr. Timothy P. Anderson, Vice President for Technical Services at iParametrics, LLC, has over 18 years of extensive experience as a Professional Cost Analyst and Operations Research Analyst, primarily in the area of Department of Defense (DoD) weapon systems and civil and national security space acquisition. His areas of interest are cost analysis, cost uncertainty analysis, risk 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. 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. Prior to joining iParametrics, he served as Director of NASA Program Assessments at The Aerospace Corporation.
Mr. Anderson is well known throughout the international cost estimating community as a subject matter expert on cost estimating risk and uncertainty. He has over nine years of experience as an adjunct professor of Engineering Economics and Cost Estimation for the Naval Postgraduate School (Systems Engineering Department) and as an adjunct faculty member of George Mason University. He was also recently appointed as an adjunct faculty member of the Air Force Institute of Technology.
Mr. Anderson is an ICEAA certified cost estimator/analyst; a board member of the Washington Capital Area chapter of ICEAA; and a frequent presenter of topics related to cost estimating and cost uncertainty analysis at forums including the International Cost Estimating and Analysis Association (ICEAA), the Military Operations Research Society (MORS), the DoD Cost Analysis Symposium (DoDCAS) and the Space Systems Cost Analysis Group (SSCAG). Tim received the 2010 SCEA (now ICEAA) Cost Estimator of the year award for technical achievement at the 2010 joint ISPA/SCEA conference.