Understand the project.
Make sure the individual assigned to perform the cost estimate understands the project:
content, schedule, driving requirements, impacts to other programs, etc. Establish a clear
set of groundrules and assumptions that gets communicated to both the technical and cost
analysts on the project team. Establish a WBS if one has not already been developed.
Collect cost estimating input data.
Each person responsible for a WBS element should review the existing or previous
systems to determine the most applicable analog to use for costing. The costs of the
analog should be obtained and normalized to constant year dollars. Technical details of
the historical analog such as quantities, engineering parameters (weight, power,
performance specifications, etc.), schedule, mission constraints, and levels of analysis
and testing should be understood and documented. The same technical details should be
collected and summarized for the new system being costed.
Prepare estimates.
Detailed comparisons of these technical details should then be made between the new
system being costed and the chosen analog in order to determine the appropriate
adjustments to make to the historical costs of the analog to derive the costs of the new
system. The amount of adjustment is a subjective judgment made by the technical analyst
and is based on the degree of similarity or differences of the systems being compared.
After the cost estimate of the new system is obtained, the analyst will spread the cost
estimate to the proposed schedule to determine annual funding requirements. Appropriate
inflation factors will be applied at this point to convert the estimate to real year
dollars.
The result of this activity will be the initial baseline cost estimate. This baseline
will be updated, as appropriate, as a consequence of the results of Box 4 and Box 5 below.
Perform supporting analyses.
Other analyses would be performed as required. These could consist of:
- trade studies to determine the cost effectiveness of alternative technical approaches,
- "what if" analyses to determine the cost impact of relaxing technical
requirements associated with the cost drivers,
- "what if" analyses to determine the cost impact of changing an assumption or
groundrule,
- comparisons and reconciliation's with other costing methodologies, and
- risk analyses to derive analytically the appropriate amount of reserve.
Document and review.
This would include documenting the results of the analyses, preparing briefings,
reviewing the results with project and center management, presenting and defending the
estimates to a Non-Advocate Review team, and, for larger projects, documenting a baseline
program cost commitment in accordance with NMI 7120.4 for annual revalidation purposes. |
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