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Cost%20Factors

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Title: Course Overview Author: R. L. Brown Last modified by: danussba Created Date: 5/20/1997 6:22:20 PM Document presentation format: On-screen Show – PowerPoint PPT presentation

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Title: Cost%20Factors


1
Cost Factors
  • Chapter 13

2
Introduction
  • We tend to think of cost estimating relationships
    (CERs) as complex equations with a number of
    independent variables.
  • However, a CER can be as simple as a ratio
    between two variables.
  • A CER in which COST is directly proportional to a
    single independent variable is known as a COST
    FACTOR.
  • A Cost Factor is expressed as either a ratio or a
    percentage, and is used as a multiplier of an
    independent variable.
  • Examples
  • POL costs (POL Factor) x (Miles traveled)
  • SE/PM costs (SE/PM Factor) x (Recurring
    hardware)
  • Software costs (Software Factor) x (Lines of
    Code)

3
Cost Factor Development
  • Identification of cost drivers
  • Miles traveled causes POL cost
  • Recurring hardware causes SE/PM cost
  • Lines of code causes software cost
  • Specification
  • It is assumed the relationship is LINEAR, and the
    intercept is zero.
  • Selection of analogous systems
  • Analogous systems should have the same cost
    driver, and follow a similar functional form.

4
Cost Factor Development
  • Data Collection
  • Collect ACTUAL cost data, not BUDGET data.
  • Normalization
  • Usually no need to normalize for inflation
    (unless data spans multiple years), since the
    factor is represented as a percentage.
  • Still need to normalize for quantity, e.g., T1.

5
Example
  • Suppose we want to estimate the EMD peculiar
    support equipment (PSE) cost for the (new)
    APG-195 radar.
  • We are currently in the Program Definition and
    Risk Reduction (PDRR) phase of acquisition, and
    have no detailed description of the PSE other
    than that it will be similar to previous systems
    such as the APG-180.
  • Consultation with technical experts has led us to
    believe the PSE cost is driven by recurring
    hardware (Prime Mission Equipment).
  • EMD cost data were collected on six radar systems
    which are analogous to the APG-195.

6
Example
APG-180 Cost Performance Report
7
Example
  • For contracts that are not yet complete, use LRE
    costs.
  • The PSE cost factor is calculated as follows

8
Example
  • Assume that after calculating the factors from
    each of the six analogous systems our results
    look like the following
  • Judgment now plays a role in whether we
  • Average the factors
  • Select an individual factor
  • Use some other method
  • On the other hand, what if our factors looked
    more like this?
  • Would you still take an average?
  • Does our original assumption hold true?

9
Strengths Weaknesses
  • There are often times when we have limited
    visibility into the task that we are estimating.
  • Sometimes we need to fill in a hole in our
    estimate
  • Another use of cost factors is as a sanity check
    of the primary estimating methodology.
  • The Cost Factor methodology has often been
    criticized for its simplicity. But remember the
    principle of parsimony. All else being equal,
    use the simplest technique available.
  • Also remember that this is but one of several
    tools in the cost estimators toolbox.
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