Problem Solving Theory And Cost Estimate Overview Flashcards
Cost Estimating
Cost estimating involves collecting and analyzing historical data and applying quantitative models, techniques, tools, and databases to predict a program’s future cost.
More simply, cost estimating combine science and art to predict the future cost of something based on known historical data that are adjusted to reflect new materials, technology, software languages, and development teams.
Cost Analysis
Cost analysis, used to develop cost estimates for such things as hardware systems, automated information systems, civil projects, manpower, and training, can be defined as
- The effort to develop, analyze, and document cost estimates with analytical approaches and techniques;
- The process of analyzing, interpreting, and estimating the incremental and total resources required to support past, present, and future systems—an integral step in selecting alternatives; and
- A tool for evaluating resource requirements at key milestones and decision points in the acquisition process
There are two main categories of cost estimates:
- A life Cycle Cost Estimate (LCCE) that may include independent cost estimates, independent cost assessments, or an assessment of total ownership cost (TOC)
- A Business Case Analysis (BCA) that may include an analysis of alternatives (AoA) or economic analyses
The DoD identifies four phases that a LCCE must address
research and development, procurement and investment, operations and support, and disposal.
LCCE’s. Life cycle cost estimates
Independent Cost Estimate (ICE)
Total Ownership
Cost Estimate
Business Case Analysis
AOA:
Analysis of alternatives and
cost effectiveness analysis
EA:
Economic analysis and cost benefit analysis
Rough order of magnitude
Independent cost assessment
Independent government cost estimate
Estimate at completion
Twelve Steps of a High-Quality Cost Estimating Process
- Define estimate’s purpose
- Develop estimating plan
- Define program characteristics.
- Determine estimating structure
- Identify ground rules and assumptions
- Obtain data
- Develop point estimate and compare it to an independent cost estimate
- Conduct sensitivity analysis
- Conduct risk and uncertainty analysis
- Document the estimate
- Present estimate to management for approval
- Update the estimate to reflect actual costs and changes
THE DIFFERENCE BETWEEN RISK, OPPORTUNITY AND UNCERTAINTY
•Risk is the probability of a loss or injury
•Opportunity is a favorable event or outcome
•Uncertainty is the indefiniteness about the outcome of a situation
ACEIT (Automated Cost Estimating Integrated Tools)
is a family of applications that support program managers and cost/financial analysts during all phases of any program’s life-cycle. The Automated Cost Estimator (ACE) is the estimating portion and heart of the ACEIT application suite.
Ri$k is a tool in aceit that allows you to analyze and calculate the cost uncertainty in your estimate
The following are key items that are automatically handled by ACE without needing the user to program the logic into the cost model.
Data normalization
• Inflation handling
• Time Phasing
• Learning Curve Analysis
• Estimate documentation
• Uncertainty Analysis
• Error-trapping
TECOLOTE FORMAL COST ESTIMATING PROCESS
- Identify User Requirements and Scope of Effort.
- Define the System.
- Define the Work Breakdown Structure (WBS).
- Establish Ground Rules and Assumptions.
5a. Collect Data and Analyze Schedules.
5b. Formulate an Automated Model.
- Develop/Select Methodologies
- Develop Point Estimate.
- Conduct What-If Analyses.
- Perform Crosschecks.
- Conduct Risk Analyses
- Time-Phase Estimate.
- Perform Cost Trade Studies
- Document the Analysis.
- Present the Results and Reconcile.
- Input to Budget Planning, POM, BES, and SAR Activities.
- Discuss why cost estimating is a critical element in any acquisition process.
It aids decision makers in evaluating resource requirements during milestone reviews and other important decision points.
Essential to planning the cost to design, manufacture, deliver and support a system
- Define affordability as it applies to acquisition programs
Affordability is the degree to which an acquisition program’s funding requirements for within the agency’s overall portfolio plan.
Affordability validates that the program’s acquisition strategy has enough $$ in the budget.
- Differentiate between cost estimating and cost analysis.
Estimating collects, analyzes historical data, and applies quantitative models, techniques, tools and databases to predicts a program’s future cost.
Simply, estimating combines science and art to predict the future cost of something based on historical data.
Analysis develops, analyzes and documents cost estimating.
- What is the scope and purpose of a Life Cycle Cost Estimate?
LCCE “cradle to the grave”
The last , present and future costs for every aspect of the program.
Research and Development
Procurement & Investment
Ops and Support
Disposal
- What is the scope and purpose of a Business Case Analysis?
Cost benefit analysis.
Compares facts and other details among competing alternatives: life-cycle costs, methods, effect of cost, schedule and performance, and Risk. Then recommends the best alternative
- What is the purpose of the following estimate types:
a. Independent Cost Estimate/Assessment
b. Rough Order of Magnitude
c. Analysis of Alternatives
ICE - large, takes months, independent, validates
ROM - small group, quick and not a budget-quality cost estimate.
AOA - large, takes months, compares
- Why is it important to understand the purpose, scope and time constraints of an estimate in very specific terms? Provide examples.
So that the estimate is accurate and credible.
How it’s developed.
What will be included.
If not timely then the quality could fail.
- Describe what the technical baseline of an estimate is.
What are cost driving technical baseline input parameters?
Assumptions about the unknown and agreed upon by management from the beginning so their risks are known.
The baseline for developing LCCE’s
Cost driving are WBS and they vary.
- What are the benefits of utilizing a MIL-STD-881 WBS to build an estimate?
Provides uniformity and consistency in its approach to developing WBS
- Provide examples of estimate Ground Rules.
Base year of the estimate
Inflation indicators
Sunk costs
Time-phasing if the estimate
Program schedule
- What is the purpose of delineating and vetting Cost Estimate assumptions?
To outline the confidence the team has in the ability to achieve the schedule so that it can be documented and presented to mgt
- Identify 3 major assumption areas where optimism is commonly prevalent.
Technology maturity
Define a realistic maturity
Documentation and discuss risks
- Discuss the importance and challenges of the data collection step of the estimating process.
Data is the foundation of every cost estimate
- Briefly describe the following methodologies:
a. Analogy
b. Engineering Build Up
c. Parametrics
d. Staffloading
Uses cost of a similar program to estimate the new one
Engineering builds the overall cost estimate by summing or rolling up detailed estimates done at lower levels of the WBS-grass roots
Parametric - statistical relationship historical cost and program, physical and performance characteristics. Top down approach
Staff is appropriate when the number of people who need to support a particular activity are available.
- Why are estimates time phased?
Determine budget requirements
- Discus s the importance of the following statement: “The estimate is spread over the life of the program according to the program schedule, acquisition strategy and according to the rules for the appropriations from which it is funded
To be in time and within budget
- What is a sensitivity analysis? Provide examples.
Examines the effects of changing assumptions, ground rules or key technical input parameters. Allows how sensitive a program is.
% if software reused
Reuse vs new
- What information does a sensitivity analysis provide to decision makers?
Data from past may not be relevant to the future.
- Differentiate between risk and uncertainty.
Risk is the probability of loss
Uncertainty is indefiniteness or unknown the outcome of a situation
- What are the limitations of a Point Estimate?
Model of things getting out of hand. Schedules slipping, missions changing,
- What information does a risk analysis provide to decision makers?
Knowing early what risks there are so that contingencies can be made. They need this to make wise decisions.
- Provide 3 purposes for documenting a cost estimate.
1)
2)
3)
- Validity of estimate
- Enough info for someone who doesn’t know about it could recreate or update it
- Analyzing changes in program costs
Valid and credible, show all parameters and have a documented trail
- Why is it important to obtain Management Approval of a cost estimate?
It’s not valid until management has approved
- Differentiate between cost estimate documentation and substantiation
Communicating or estimated versus have evidence to support
- What are the best practices for validating an estimate?
Well documented
Comprehensive
Accurate
Credible
- Why is it important to automate an estimate?
Data normalization
Inflation handling
Time phasing
Contains specific features ACEIT that is structured with algorithms and automated to quickly respond and process info.
- Crosschecks compare the results of the primary cost estimating methodologies with results from alternative methods. What is the purpose and importance of this estimate step?
It’s supports the primary cost estimate and improves the teams confidence
Polya defined problem solving as the process that an individual engages to bring about a solution to a non-routine situation/dilemma.
What was his 4 steps to problem solving?
- Understanding the problem-recognizing what is asked for and evaluating data
- Devising a plan- respond direct
- Carrying out the plan-implementing
- Looking back-double check work
SLOC
Source Lines of Code
ACWP
Actual cost of work performed - actual cost.
AUW
Authorized unpriced work. Contract if work approved, but not yet negotiated.
BAC
Budget at Completion- sun if all budgets during any wbs
BCWP
Budget cost for work performed. % of the work completed vs the budget - earned valued
BCWS
Budget Cost for work scheduled- planned value
the budgeted cost for the work scheduled to be done. This is the portion of the project
LRE
Latest revised estimate
Rules of engagement
Bona fide need - basic principle of appropriation .needs to be legitimate
Propriety of Funding - funds go to right appropriation
Anti deficiency act- prevent over allocation
BY, CY, TY
Base Year - raw
Constant Year - Specific Year
Then Year - weighted
