“Elementary” Cost Estimating

Summary

This chapter is just an introduction to the subject of basic cost estimating at the equipment or product level, the word “product” having to be understood in a very large context.

It starts with the minimum: just one data point is available in the database which is similar enough to the product to be estimated for allowing a direct analogy. It considers the case where no other information is available and the case where we have an idea on how the cost changes with the size.

It then considers the case where two data points are available for making an analogy, investigating the linear and the non-linear approaches.

Eventually it looks to the case where only two data points are available and two parameters are necessary in order to derive a cost figure.

All the concepts can easily be extrapolated. But the real and more interesting question is: “What can be done if we have several data points available and a few parameters (less than the number of data points of course) are necessary?” This will be the subject of Volume 2.

“Elementary” cost estimating investigates what can be done when a very limited number of data points are available for preparing the cost estimate of a new product.

In such a situation, it is obvious that the nature of the product has to be the same: when the number of data points is limited (sometimes to one), we have no way, with the exception of the judgment, to take into account a change in this nature. For the same reasons, the quality level and the production environment must be similar.

As the nature is the same, the only difference between the products in the database and the product to be estimated is the size, which is, as it was said in the previous chapter, one of the most important cost drivers.