Overview of Cost Estimating

Summary

This chapter starts with a general presentation of the various approaches used for cost estimating.

It briefly describes the usual methods to get them, insisting on the fact that any cost estimate is based on comparisons,or analogies.Analogies can be quantitative or qualitative, the trend, with the disposal of computers, being to shift more and more often to the quantitative approach,which is the general meaning of parametric cost estimating.

However, it also shows that this technique is not synonymous of formulae: it has being used for quite a long time with tables or graphs, formulae being only the last avatar.

The most common ways for cost estimating are — beyond the mere catalogs — the heuristics, the expert judgment and, when the volume of the database is large, the case base reasoning (CBR) which is based on data organization.

Modelization is the current technique to operate parametric cost estimating.

A brief history is presented, only for showing that it has been, for centuries, in the mind of everybody who was concerned by cost estimating.

The foundations and the present definition of the technique (at the product or equipment level) are then introduced.

Eventually a definition is given of the two major ways of implementing this technique: specific models and general models.

In order to prepare an estimate you need (manufacturing a product is used for illustrating the concepts, but other examples could as well be taken: software development, construction, etc.):

• 1. To describe the product; the product description has two sides:

• The nature of the product. It is the response to the question: “What is it?” Is it a bicycle? a lawn mower? a satellite? a spare part? The nature of the product includes the quality level.

• The product size. This is a very important piece of information which has always to be considered: if only one variable is used (assuming the nature of the products to be considered is the same), it has to be the size.

• 2. To define the phase to be estimated: are you going to estimate the cost of the preliminary studies? of the full development? of the production? etc.

• 3. To describe the environment in which the phase will take place. This environment will have to take into account the tools you have, plus the constraints.

In this chapter we consider only the product description.

As cost estimating is based on a comparison between the result of past experiences and what has to be estimated, the concept of distance between products is a very important one.As the product size can be taken into account independently, distance is principally concerned by the product nature. A central problem for the cost estimator is to appreciate this “distance” between two products; most often the appreciation in not conscious, but cost estimators are encouraged to investigate the subject.

This subject is not so obvious as it seems. Take the example of an electronic box (such as a receiver). You may consider that the distance between two boxes is small if the receivers have about the same sensitivity, about the same bandwidth and work in a not too large frequency band. However, a very important cost driver is forgotten: it is the nature of the electronic components! Can we really compare two electronic boxes, one with components at 1μ and another one with components at 0.2μ? Certainly not and this is more important than any other cost driver. For electronic boxes, the nature of the components has to be taken into account (or at a minimum, the year during which the box was developed).

The same comment can be done for mechanical items: the material to be used is an important cost driver.