Cost Estimating Flashcards
Define Cost Estimation
A judgment or opinion regarding the cost of an object, commodity, or service.
Indirect costs that benefit multiple programs or contracts, and therefore cannot feasibly be charged directly to just one
overhead costs, also called burden
Define Life Cycle Cost.
the total cost to the Government for a system over its entire life, from beginning to end, including Program Acquisition cost, Operating and Support cost, and disposal costs
the relationship between the Life Cycle Cost Categories, as it pertains to the average cost of each category as it relates to the overall program cost for a typical program.
TMRR & EMD = 10% (R&D = 10%)
Production & Deployment / Operations & Support
Investment Cost = 15 - 30%
Operations & Support Cost = 50-70%
Disposal Costs
Two primary purposes of the Life Cycle Cost Estimate
- Serve as the cost input for decisions on whether to start, continue, modify, or terminate the development, production, and fielding of a system
- Provide the basis for budget requests to Congress
Three types of acquisition program cost estimates
Program Office Estimate (POE)
Component Cost Estimate (CCE)
Independent Cost Estimate (ICE)
Purpose of the Cost Analysis Requirements Description (CARD).
- Is used to prepare for all MDAP or MAIS program milestone or decision review, per the DODI 5000.02.
- Is used to develop the Program Office Estimate (POE), Component Cost Estimate (CCE), and Independent Cost Estimate (ICE).
- Describes the specifications of the program and assumptions the program office used in preparing the POE.
- Is provided to other groups that perform cost estimates on the program.
- Helps ensure all groups are costing out the same “program.”
Role of OSD Cost Assessment and Program Evaluation (CAPE)
CAPE prepares a separate and distinct cost estimate on MDAP / MAIS programs known as the Independent Cost Estimate (ICE)
List the five basic methods used to develop cost estimates
Analogy, parametric, engineering, actual costs, expert opinion
Analogy
Comparison of similar systems or components
Parametric
Statistical analysis to develop cost/performance relationships
Engineering
Detailed “Bottom-up” analysis of all materials, parts, and labor.
Actual costs
Extrapolation based on identical, or nearly identical, existing systems
Expert opinion
The Expert Opinion method, also called the Roundtable, Jury of Expert Opinion, or the Delphi Method, estimates the costs of various parts of a project based on responses from experts in the field.
Identify the simplest cost estimating technique
Analogy
the most accurate method
Actual costs
Two software cost estimate methods
Top-down
Delphi (Expert Judgment Method)
Define the Learning Curve Theory
The unit theory of the learning curve states that as the quantity of a product produced doubles, the recurring cost per unit decreases at a fixed rate or constant percentage. The best way to understand this theory is to look at the following example.
Defines recurring costs as those costs that vary with the quantity being produced, such as labor and materials.
The Federal Acquisitions Regulation (FAR)
For estimating direct manufacturing labor hours, contractors commonly accumulate …
historical realization factors for use in conjunction with labor standards
The underlying hypothesis is that the direct manufacturing labor man-hours necessary to complete a unit of production will decrease by a constant percentage each time the production quantity is doubled
True
The major factors affecting direct material costs are:
Escalation Utilization Rate Usage Spoilage Decrement
a cost that cannot be easily and conveniently traced to the particular cost objective under consideration
Indirect cost
Any management, financial, or other expense which is incurred by or allocated to a business unit and which is for the general management and administration of the business unit as a whole
G&A
reflects the purchasing power of a dollar in a specific year
“constant” dollar
