Parametric Estimating Handbook, 4th Edition - …

1 International Society of Parametric Analysts Parametric Estimating handbook Fourth Edition April 2008 International Society of Parametric Analysts Parametric Estimating handbook , Fourth Edition Copyright 2008 (Unlimited Rights Granted to the US Government) ISBN # 0-9720204-7-0 . ISPA/SCEA Joint Office 527 Maple Avenue East, Suite 301 Vienna, VA 22180 703-938-5090 Fax 703-938-5091 Table of Contents List of Figures Preface Introduction Part One The Basics of Parametric Analysis CHAPTER 1 Parametric ANALYSIS OVERVIEW Best Practices of the Parametric Analysis Process .. 1-1 The Parametric Model Building Process .. 1-3 Parametric Model 1-13 Cost Estimating Relationships .. 1-16 Data Characteristics and 1-16 Data Normalization .. 1-20 CER Development .. 1-21 CER Validation.

2 1-23 Complex Models .. 1-24 Comparison of Complex Models and CERs .. 1-24 Complex Tools in the Estimating Process .. 1-25 Development of Complex Tools .. 1-26 How Good Is the Estimate? .. 1-33 Part Two The Application of Parametric Analysis CHAPTER 2 DATA COLLECTION AND ANALYSIS Data Types and 2-1 Data Sources .. 2-2 Routine Data Normalization Adjustments .. 2-5 2-6 Non-Recurring and Recurring 2-6 Cost Improvement Curve .. 2-7 Production 2-7 Significant Data Normalization Adjustments .. 2-8 Adjustment for Consistent 2-8 Adjustment for Anomalies .. 2-8 International Society of Parametric Analysts i TABLE OF CONTENTS Data Adjustment Analysis Example .. 2-9 Government Evaluation Issues .. 2-10 Other Considerations.

3 2-11 Resources .. 2-11 Information in the Wrong 2-11 Differences in Definitions of Categories .. 2-12 The Influence of Temporal 2-12 Comparability Problems .. 2-12 Database 2-12 CHAPTER 3 COST Estimating RELATIONSHIPS CER Development .. 3-2 Cost CERs .. 3-2 Overall CER Development Process .. 3-3 Development Database .. 3-4 Testing the Logic of a CER .. 3-5 CER Development Examples .. 3-5 Developing Simple CERs .. 3-6 Lessons Learned from CER 3-12 Curve Fitting and OLS Regression Analysis .. 3-12 Graphical Method .. 3-13 OLS Regression Analysis .. 3-13 Assumptions, Limitations, and Caveats of OLS .. 3-15 Multiple Regression .. 3-17 Curvilinear Regression and Cost Improvement Curve Analysis3-18 Testing the Significance of the 3-19 When to Use a CER.

4 3-23 Strengths .. 3-23 Weaknesses .. 3-23 Examples of CERs in 3-24 Construction .. 3-24 3-24 Weapons Procurement .. 3-24 CERs from the Defense Procurement and Acquisition Policy .. 3-25 Cost Estimating Relationship Definition .. 3-25 Steps for Developing a Cost Estimating Relationship .. 3-25 Identifying Situations for Use .. 3-26 Developing and Using Estimating Factors .. 3-27 Developing and Using Estimating Equations .. 3-27 Identifying Issues and Concerns .. 3-28 Evaluating CERs .. 3-29 Government Evaluation Criteria .. 3-29 Logical Data Relationships .. 3-29 Credible Data .. 3-31 ii International Society of Parametric Analysts Parametric Estimating handbook Strength of CER Relationships .. 3-31 CER Validation .. 3-31 Summary of CER 3-32 CHAPTER 4 COMPANY DEVELOPED COMPLEX MODELS Background.

5 4-2 General Definitions .. 4-2 Examples of Proprietary Models .. 4-3 The Model Development Process .. 4-4 Step 1: Identifying the Parametric Opportunity .. 4-6 Step 2: Preliminary Model Design .. 4-6 Step 3: Information Systems Needs .. 4-6 Step 4: Data Collection and Analysis .. 4-7 Step 5: Model Development .. 4-8 Step 6: Calibration and Validation .. 4-10 Step 7: Estimating System Policies and Procedures .. 4-11 Step 8: Internal Approval Process .. 4-12 Step 9: External Approval Process .. 4-12 Step 10: Model Maintenance .. 4-13 Evaluation Criteria .. 4-15 Cost Benefit Analysis .. 4-16 Information System Controls .. 4-16 Summary Example: Jet Engine Cost Model .. 4-17 Lessons Learned .. 4-17 Best Practices .. 4-18 CHAPTER 5 COMPLEX HARDWARE MODELS Background.

6 5-1 Overview of Hardware Cost Modeling .. 5-2 The Parametric Cost Modeling Process .. 5-6 Define Objectives .. 5-6 Data Collection and Analysis .. 5-7 Model Calibration .. 5-7 Model Validation .. 5-10 Forward Estimating .. 5-11 Commercially Available Hardware Models .. 5-12 Lessons Learned from the Use of Complex Hardware Models .. 5-12 Best Practices .. 5-14 Conclusions .. 5-14 International Society of Parametric Analysts iii TABLE OF CONTENTS CHAPTER 6 COMPLEX SOFTWARE MODELS Background .. 6-1 Software and Programming Languages .. 6-4 Software Development 6-4 Software Support .. 6-8 Software Capability Maturity Model Integration (CMMI) 6-9 Manager s Checklist for Validating Software Cost and Schedule Estimates.

7 6-13 Software Estimating Techniques .. 6-13 Overview of Software Parametric COST Models .. 6-15 Function Point Models .. 6-15 Conversion of Function Points to SLOC .. 6-18 Object Points .. 6-19 Use Case Points (UCPs).. 6-19 Normalized Use Cases (NUCs) .. 6-20 Cost Model Selection .. 6-20 Step 1: Determine User Needs .. 6-20 Step 2: Select Candidate Models .. 6-21 Step 3: Choose the Most Appropriate Model or Models .. 6-21 Step 4: Reevaluate the Choice .. 6-22 Intelligent Use of Software Models .. 6-22 Input 6-23 Model Validation .. 6-23 COCOMO II .. 6-24 Example: REVIC Revised COCOMO Model .. 6-24 Example: Software 6-25 Future Directions of Software Estimating .. 6-26 New Development and Support Concepts .. 6-26 Reuse and COTS Integration.

8 6-26 New Cost 6-26 Lessons 6-27 Best Practices .. 6-28 6-29 CHAPTER 7 GOVERNMENT COMPLIANCE Regulatory Compliance .. 7-1 The Truth in Negotiations Act (TINA) .. 7-2 FAR, DFARS, and Estimating Systems .. 7-3 Cost Accounting Standards (CAS) .. 7-5 Federal Acquisition Regulations and Sundry Issues .. 7-7 Subcontracts .. 7-8 Earned Value Management System (EVMS) and Contractor Cost Data Reports (CCDR) .. 7-10 iv International Society of Parametric Analysts Parametric Estimating handbook Best Practices .. 7-10 Parametrics and the Government Review Process .. 7-11 General Estimating System Requirements .. 7-12 Parametric Estimating System Requirements .. 7-13 Parametric -Based Proposals .. 7-19 Best Practices.

9 7-21 Technical Evaluation of Parametrics .. 7-22 Authority to Evaluate Parametric Techniques .. 7-22 Cost Modeling Process for CERs .. 7-23 Projecting Beyond the Historical Range .. 7-27 Breaks in Production .. 7-29 Personnel Reassignments and Relearning .. 7-29 Best Practices .. 7-30 CHAPTER 8 OTHER Parametric APPLICATIONS Tailor Applications to Customer 8-1 Considerations When Applying 8-2 When and How to Use the Various Tools and Techniques .. 8-3 General Applications .. 8-3 Forward Pricing Rate Models .. 8-4 Subcontractor Price or Cost Analysis Using Vendor Data .. 8-6 Cost As an Independent Variable (CAIV) .. 8-9 Risk Analysis .. 8-11 Bid/No Bid Analysis .. 8-13 Conceptual Estimating .. 8-13 Independent Cost estimates (ICEs) .. 8-14 Design to Cost (DTC).

10 8-15 Life Cycle Cost 8-15 Budget Planning 8-17 Proposal Evaluation, Red Team Reviews .. 8-17 Should Cost Studies .. 8-17 Estimate at Completion (EACs).. 8-18 Costing by Phase of 8-18 Trade Studies .. 8-18 Sensitivity Analysis .. 8-19 Basis of Estimates (BOE s) .. 8-19 Affordability and Cost Realism .. 8-20 Cost Spreading .. 8-22 Summary .. 8-23 CHAPTER 9 INTERNATIONAL USE OF PARAMETRICS 9-1 General Applications .. 9-1 9-1 Regulatory 9-2 International Society of Parametric Analysts v TABLE OF CONTENTS 9-5 General Applications .. 9-5 9-5 Regulatory 9-5 United 9-8 General Applications .. 9-8 9-8 Regulatory 9-8 Appendix A Model Builders - Commercial Software Descriptions Appendix B Detailed Math of Cost Estimating Relationships Appendix C Frequently Asked Questions Appendix D Related Web Sites and Supplementary Information Appendix E Parametric Estimating Checklists Appendix F Memorandum of Understanding for Parametric Models Appendix G Parametric Cost Estimating Initiative Closure Report Appendix H Space Systems Cost Analysis Group Risk Summary Appendix I Space System Cost Analysis Group.