Cost Estimation

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Cost Estimation

• March 14, 2007

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Project Environment

• Increased emphasis on accurate cost estimates
• Public demand that federal spending be controlled
• NASA
• Increased oversight by Congress and OMB
• Setting cost caps on all major activities
• Increased competition
• Established conditions for Project Cancellation
  Review
• required when any project exceeds its cost cap by
  20
• generally called when any competitively selected
  mission exceeds its cost cap

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Phase A Cost Estimation Process
Organizational Commitment Process
Engineering Cost Estimation
Formal Cost Estimate
Proposal Preparation
Cost Estimate Reconciliation
Cost Guidelines Required Inputs
Project Management Cost Estimation
Proposal Review
ICE Cost Report
Independent Cost Estimation

ICE Independent cost estimate
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Definitions

• Engineering or Grass-roots cost estimate
• Project Manager defines the boundaries
• Done by the people who do the work
• Project Management cost estimate
• Generally, a top down estimate based on
  parametric models or high-level analogies
• Independent cost estimate
• Performed by people outside the project
• Generally, using a different set of parametric
  models

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Cost Uncertainty

• Pre-Phase A (Step 1)
• General reliance on project management cost
  estimation
• Grass-roots performed for high risk components
• Yearly or quarterly granularity
• Phase A (Step 2)
• Detailed grass-roots estimation of entire project
  
• Monthly granularity
• Multiple cycles
• Multiple independent estimates obtained
• Cost impact of descope options quantified
• Organizational review and commitment
• Phase B
• Requirements baselined
• Preliminary technical design complete
• Integrated schedule with weekly granularity
• Project costs locked down by Confirmation Review

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Attributes of a Good Cost Estimate

• Developed at lowest WBS level
• Aligned with integrated schedule
• Grass-roots estimation performed by cognizant
  engineers with sound basis of estimate
• Based on validated historical data
• Identifies cost drivers and risk
• Estimates uncertainty
• Validated with several independent models
• Well documented work content and basis of estimate

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Grass Roots Estimation

• Collect and review cost-related documents (cost
  guidelines)
• Assumptions, schedule, WBS, spares philosophy,
  hardware flow, review requirements, etc.
• Divide project into small work elements
• Prepare cost estimate for each work element
• Labor
• Services (facilities, fabrication, etc)
• Procurements
• Travel
• Apply burden rates
• Enter data into a common costing tool to produce
  cost accounts for work elements
• Review integrated estimate with technical team
• Validate estimate by running models
• Baselined when the Project and Implementing
  Organizations agree on the scope, schedule, and
  cost

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Cost Stability

• Keys to stable cost estimates
• Early requirements definition and freeze
• Good planning
• Detailed cost guidelines by lowest level WBS
• Defined assumptions
• Credible basis of estimate
• Clear accountability for implementation
  responsibility
• Measurable metrics (milestones, rec/dels)
• Consistent tracking of status vs plan
• Early mitigation of critical path and high risk
  accounts

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Common Causes of Cost Growth

• Incomplete project definition
• Requirements creeep
• Project inheritance benefits not realized
• Inadequate margins
• Inability to make timely descope decisions
• New technology not ready
• Rec/dels performance, quality, and schedule slip
• Poor ICDs, communication and/or teaming
  arrangement
• Late product deliverables
• Underestimated software development
• Budget profile mismatched with expenditures needs

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Cost Risk

• Identified and assessed at the lowest appropriate
  level of the WBS
• Each element should be ranked both by impact and
  the probability of occurrence
• Develop budget estimate for included items
• Project develops and tracks a cost lien lists
• Validated models can also be used to provide a
  probabilistic model of cost to go

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Cost Distribution Function
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Cost Reserves

• Generally identified/quantified at the subsystem
  level
• Basis
• Heritage
• Degree of modification
• Complexity
• Is the item on the critical path?
• Is new development or technology required?
• Past performance
• Are long-lead procurements involved?
• Is an iterative test and retest program required?
  
• Availability of people and facilities

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JPL Project Cost Past Performance
Average Project Increase is 15
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LMA Contract Past Performance
Average Contract Increase is 26
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Budget Reserves
Definitions Budget Reserve Unencumbered
Budget Reserve/Estimated Cost to Go x 100 Total
Budget Estimated Cost to Go Unencumbered
Budget Reserve Notes 1. Cost to Go includes the
funded schedule margin, but excludes the launch
vehicle costs
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Historical Project Cost Analysis
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Mars Pathfinder Cost Data (FY95)
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Stardust Cost Data (FY97)
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Genesis Spacecraft Cost Data
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References

• JPL Project Management Training Notes
• NASA Project Management and Advanced Project
  Management Training Notes
• NASA Project Leadership Training Notes
• SMAD III Textbook, Chapter 20