• Predictive Analytics for Improved Cost Management  



Blog



Original Post Date: Wednesday, April 14, 2010 The first time I remember hearing the term, “data driven estimating,” was at an ISPA/SCEA conference in Phoenix about 6 years ago. I thought I had a pretty good concept of what that meant. Then, I started hearing it more frequently about 6 to 9 months ago, and I wasn’t as sure of my understanding. So, I went to the Internet and Googled, “Data Driven Estimating.”  The first 3 pages yield links to statistical, engineering, and technical estimating founded on data; e.g. packet routing, data delivery rate, radar and rain gage data, ...
Original Post Date: Friday, May 21, 2010 Last month I blogged about the importance of cost realism, its roots and how as estimators we must always reflect the truth, no matter how unpopular. This month I want to share with you a recent experience on a Source Selection. As part of the Source Selection team, my role was to conduct a Cost Realism estimate on each of the performers submitting bids. I want to share with you a few insights from that experience. One of the first rules I always follow is to never ask engineers to provide data that ...
Original Post Date: Tuesday, October 12, 2010 When I glanced at the Washington Post on Sunday, the following headline screamed out: Defense cuts could slow D.C. economy for years The article basically covers how Defense Secretary Robert M. Gates is calling for reducing spending on "support contractors" by 10 percent each of the next three years as the Defense budget shrinks. As Washington DC is a hub for these types of companies, the impact is expected to be significant. According to the article, more than a quarter of national defense spending contains of outlays for service contracts. Among the largest companies ...
Original Post Date: Wednesday, November 10, 2010 I was recently struck by Ash Carter’s (Under Secretary of Defense for Acquisition, Technology & Logistics) Memorandum for Acquisition Professionals, Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending (14 September 2010). Within this broad sweeping memo, Ash Carter outlines 23 principal actions in five major areas aimed at increasing efficiency in Defense acquisition.  The first major area covered is “Target Affordability and Control Cost Growth”. Within this major area, program managers must treat affordability as a requirement before milestone authority is granted to proceed (starting with Milestone A). This ...
Original Post Date: Wednesday, June 23, 2010 Parametric modeling is excellent for all aspects of early-concept cost estimation, including go/no-go decisions downstream. So, in the spirit of bringing a transparency to (ethical) financial engineering… why not apply our craft to pricing “real-options”? The latter are essentially strategic opportunities for engaging resources (cost/schedule) into projects, ventures, investments, or even abandonments. The opportunity choice has value itself!  Unlike static project Net Present Value (often, but not exclusively, approximated with Discounted Cash Flow) assuming pre-defined decisions, real-options reflect the merit of flexibility. If an R&D or proof-of-concept presents viability/ marketability learning, the option has positive value, above ...
Original Post Date: Friday, June 25, 2010  Like titanium and other exotic metal-materials, “composites” (by definition, combinations of materials) offer significant weight-savings and reduced part counts, but at a price of high production cost. Sound contrarian to our parametric cost estimating view?   Not really. Complexity of manufacture is quite higher. Likewise process index and structural tooling values grow. Plus, design lead times drive developmental cycles. That said, understand that composites represent more than a material type. They can involve a highly labor-intensive approach to preparing, braiding/ winding, molding, bonding and modular assemblage. Yes, some aspects of braiding and molding lend themselves to automation—which then drives tooling ...
Original Post Date: Thursday, October 7, 2010 Ahhhh, the 80s… a challenging (but often confusing) time in an evolving computing world.  Working in 1985 as a software estimator as well as SQA engineer in a quality assurance department that “audited” real-time projects using new concepts like OOD & OOP… well, you get the picture.  It was a great time to get immersed into great work.  And the good news:  that company’s process as well as its developers were bullish on a young estimation/ quality types asking plenty of questions… as long as they were of the Yes-No variety.  And ...
Original Post Date: Monday, December 6, 2010  In his August blog-entry here, Zach Jasnoff outlined typical client perspectives for the different types of analyses that TruePlanning can accommodate. Working on a large project, we’ve experienced situations that, realistically, can happen where the initial intent and model structuring later have the boundaries of model appropriateness stretched. An Analysis of Alternatives (AoA), for example, is meant to measure deltas between baseline and its alternatives. If common costs “wash” then they can be excluded… which becomes an issue when treated as a Rough Order Magnitude for customer budgeting.  Likewise, if a ROM or Independent Cost Estimate ...
Original Post Date: Thursday, August 12, 2010 The late Norm Crosby’s “Quality is Free” taught us that an investment into quality is more than offset by prevention of defects based upon understanding of requirements. Only with the latter can lack of conformance (and subsequent costs) be captured and hence quality quantified. So how then is Parametrics relevant?  Parametric estimating is more than cost modeling. Our craft represents an initial consulting function into the accuracy and completeness of program planning concepts. Our customers trust us to know when to ask and when to supplement. Yes, we are mathematical and financial modelers too. But I’d suggest that “Parametrics is ...
Original Post Date: Thursday, July 17, 2014 Introduction Parametric cost estimates provide high quality, defendable estimates early in a project’s life cycle. This makes them ideal when producing bid and proposals. The nature of parametric cost estimates, however, requires the results of the estimate to be framed in terms of specific CERs and Activities and Resources. It is common for an organization to have a more granular set of Resources than the ones used to support the CERs. One approach to resolving this issue would be to use the TrueMapper application from PRICE Systems to map TruePlanning Resources to a more ...
Original Post Date: Friday, June 20, 2014 Proposal estimates based on grassroots engineering judgment are necessary to achieve company buy-in, but often are not convincing or not in sync with the price-to-win.  This contention can be resolved through by comparing the grassroots estimate to an estimate developed using data driven parametric techniques.  Parametric estimates apply statistical relationships to project data to determine likely costs for a project.  Of course, for a parametric model to properly support this cross check of the grassroots estimate, the proper data must be fed into the model.  This most likely requires the estimator to reach ...
Original Post Date: Wednesday, April 2, 2014 Introduction Parametric estimates provide reliable, reproducible, and flexible views into cost and effort so it’s only natural to want to include this data in a bid and proposal workflow. With TruePlanning 2014 big steps have been taken to make such integration seamless and easily reproducible.  New tools in the TruePlanning suite of products, as well as, integrations with some of the major bid and proposal software applications are at the heart of this new feature set. You can learn more about TruePlanning 2014 and the PRICE cost estimation models at our website, but let's ...
Original Post Date: Friday, October 4, 2013 The late Norm Crosby’s “Quality is Free” taught us that an investment into quality is more than offset by prevention of defects based upon understanding of requirements. Only with the latter can lack of conformance (and subsequent costs) be captured and hence quantified towards quality. So how then is Parametrics relevant? Parametric estimating is more than cost modeling. Our craft represents an initial consulting function into the accuracy and completeness of program planning concepts. Our customers trust us to know when to ask and when to supplement. Yes, we are mathematical and financial modelers ...
Original Post Date: Friday, October 4, 2013 In his August 2010 blog-entry, Zac Jasnoff outlined typical client perspectives for the different types of analyses that True Planning can accommodate.  Working on a large project, we’ve experienced situations that, realistically, can happen where the initial intent... and model structuring… later has the boundaries of model appropriateness stretched.  An AoA, for example, is meant to measure deltas between baseline and its alternatives.  If common costs “wash” then they can be excluded… which becomes an issue when treated as a Rough Order Magnitude for customer budgeting. Likewise, if a ROM or ICE of ...
Original Post Date: Friday, October 4, 2013 In Parametrics is Free, I acknowledged receiving (too late) “you should’ve known to ask that” over the years. Quality control after-the-fact is fine; but it’s better and cheaper to take a systematic approach to quality assurance as part of your estimating process. The sheer volume of what we model can often keep us so close to the details that we are unable to step back and put on our QA hat on for a sanity check. Enter Quality! On a very large project, our team has introduced a few regular cross-checks, notwithstanding typical ...
Original Post Date: Friday, October 4, 2013 Like titanium and other exotic metal-materials, “composites” (by definition, combinations of materials) offer significant weight-savings and reduced part counts, but at a price of high production cost. Sound contrarian to our parametric cost estimating view? Not really. Complexity of manufacture is quite higher. Likewise process index and structural tooling values grow. Plus, design lead times drive developmental cycles. That said, understand that composites represent more than a material type. They can involve a highly labor-intensive approach to preparing, braiding/ winding, molding, bonding and modular assemblage. Yes, some aspects of braiding and molding lend themselves ...
Original Post Date: Friday, October 4, 2013 Parametric modeling is excellent for all aspects of early-concept cost estimation, including go/no-go decisions downstream. So, in the spirit of bringing a transparency to (ethical) financial engineering… why not apply our craft to pricing “real-options”? The latter are essentially strategic opportunities for engaging resources (cost/schedule) into projects, ventures, investments, or even abandonments. The opportunity choice has value itself! Unlike static project Net Present Value (often, but not exclusively, approximated with Discounted Cash Flow) assuming pre-defined decisions, real-options reflect the merit of flexibility. If an R&D or proof-of-concept presents viability/marketability learning, the option has positive ...
Original Post Date: Friday, October 4, 2013 Ahhhh, the 80s… a challenging (but often confusing) time in an evolving computing world. Working in 1985 as a software estimator as well as SQA engineer in a quality assurance department that “audited” real-time projects using new concepts like OOD & OOP… well, you get the picture. It was a great time to get immersed into great work. And the good news: that company’s process as well as its developers were bullish on a young estimation/ quality type asking plenty of questions… as long as they were of the Yes-No variety. And ask ...
Original Post Date: Friday, October 4, 201 My "Real Options Valuation" blog suggested the use of parametrics in real options valuation. I’d like to offer the generalized use of our type of modeling in valuing tangible assets. Typically, fundamental analysis evaluates the intrinsic value of securities. I won’t attempt to compete with Warren Buffet here. But it is certainly the case that a company, or portfolio of securities reflecting many companies, is based in part on the market value of its product assets and their potential for future earnings, as well as other objective and subjective considerations. In parametric estimation, ...
Original Post Date: Wednesday, September 25, 2013 In Government contracting all contracts are made up of a network of suppliers. The Prime contractor who won the overall bid usually has a supply chain of vendors from whom they receive their products and services. In addition they have Subcontractors who provide services under a contracted agreement of work. These vendors and subcontractors most likely have their own network of suppliers which allows for a cost-effective supply chain that extends across America and to other nations. Vendors sell identical or similar products to different customers as part of their regular operations. These ...
Original Post Date: Wednesday, September 25, 2013 During a recent Analysis of Alternatives (“AoA”) consulting project, our customer asked that we provide more insight into TruePlanning’s System and Assembly objects, which in our AoA context we termed Systems Engineering/ Program Management (SE/PM) and Alternative Integration/ Test, respectively. The customer’s challenge was understanding our parametric model’s treatment of principally hardware-COTS objects, combined with other cost, purchased service and training objects.Our Chief Scientist, Arlene Minkiewicz, provided us with insights that I’d like to share with you, as well as my views on how we at PRICE systems have consistently used these parent ...
Original Post Date: Wednesday, September 25, 2013 Every day we use tools like TruePlanning to build up detailed parametric cost estimates.  We could spend weeks collecting data and design information, and weeks honing details on risks and uncertainties.  When we finally get to reasonable point estimate, or even a distribution of probable estimates, there are always more questions.  Of course the range of queries depends on the purpose of the estimate, and who your consumer is.  If you are preparing an estimate for a competitive proposal, a company executive may be your consumer.  They may want to know, “What is the ...
Original Post Date: Wednesday, September 25, 2013 After we spend time building up a point estimate, a cost estimator always has to do some additional work to break the estimate down into terms their estimate consumer will understand, or to perform different comparisons for various analyses.  Sometimes, you need to map the estimate into a Standard Work Breakdown Structure or Cost Element Structure.  Sometimes you want to compare to a bottom-up or grass-roots estimate.  Or, if you are planning budgets or manpower out into the future, you need details.  We have to speak a lot of languages in order to ...
Original Post Date: Wednesday, September 25, 2013 I’ve recently had a number of users ask, “How do I model life cycle costs for a missile that just sits on a shelf?”  I had never actually tried to model this, but of course I know it’s possible.  So I turned to some of my fellow PRICE experts, and found that of course this is not the first time anyone has ever tried to model this kind of thing… Many ordnance weapons such as mortar shells, torpedoes, bombs, missiles and various projectiles are stockpiled until they are actually needed. These weapons ...
Original Post Date: Tuesday, December 18, 2012 One of the biggest challenges estimators face is defending their estimates.  You may trust in your estimate, but how do you get others on board who might be unfamiliar with parametric estimating?  Showing comparisons of your project to similar completed projects is one of the best methods of defending your choice of inputs and your final results.  It’s also a method that nearly everyone understands.  Unfortunately, relevant, high quality data to compare with isn’t always available. There are 2 important trends related to this problem.  First, high quality data is being protected more so than ...
Original Post Date: Thursday, September 27, 201 I am frequently questioned by clients and prospects about the applicability of PRICE’s parametric software estimation model to agile software development projects.  There are several ways one could respond to this.  My first thought is that if a shop is truly agile, they don’t need an estimation tool.  They know their development team velocity because agile teams are committed to measurement.  They also either know when they need to make a delivery – in which case whatever amount of software they’ve build by that point will be released.  Alternatively they may know ...
Original Post Date: Thursday, September 27, 2012 I am frequently questioned by clients and prospects about the applicability of PRICE’s parametric software estimation model to agile software development projects.  There are several ways one could respond to this.  My first thought is that if a shop is truly agile, they don’t need an estimation tool.  They know their development team velocity because agile teams are committed to measurement.  They also either know when they need to make a delivery – in which case whatever amount of software they’ve build by that point will be released.  Alternatively they may know a ...
Original Post Date: Wednesday, May 18, 2011  Parametrics is more than estimating. It represents the complete process of capturing and utilizing (often with calibration) non-cost drivers, as well as associated programattics and configuration levels. The Wiki definition of systems engineering immediately speaks to project complexity, life cycle management, and logistics. Any question that parametrics and systems engineering are interrelated?  In many of our customer organizations, affordability and cost-benefit analyses have migrated to system engineering functions. How and where does your organization perform these analyses?  As we enhance our capabilities and applications, it’s beneficial for all concerned to understand your adaptation of parametrics within the core ...
Original Post Date: Tuesday, March 29, 2011 “I think we have an obligation to work with industry to ensure that our suppliers do not just remain world class in defence, but aspire to be world-class manufactures that can withstand comparison to other industries.” Chief of Defence Procurement, Sir Robert Walmsley Is this a practical proposition or is it a pipe dream?  The following excerpt from Dale Shermon’s Systems Cost Engineering attempts to make the case that this type of comparison is possible. Many of the statements in proposals and marketing literature stating the superiority of a company are anecdotal or at best qualitative ...
Original Post Date: Wednesday, March 16, 2011 In Parametrics is Free, I acknowledged receiving (too late) “you should’ve known to ask that” over the years. Quality control after-the-fact is fine; but it’s better and cheaper to take a systematic approach to quality assurance as part of your estimating process. The sheer volume of what we model can often keep us so close to the details that we are unable to step back and put on our QA hat on for a sanity check. Enter Quality! On a very large project, our team has introduced a few regular cross-checks, notwithstanding typical math check-sums.   A round table peer ...
Original Post Date: Monday, February 28, 2011 What follows is PRICE's interpretation of the DOD-HDBK-343, which addresses design, construction and testing requirements for a type of space equipment. Within the document are specified several levels of Class Definitions for space programs, space vehicles and space experiments. The classes are briefly described below. Class A - High Priority, Minimum Risk Class B - Risk with Cost Compromises Economically Re-flyable or Repeatable Minimum Acquisition Cost HDBK-343, originally published in 1986, was reviewed and found to be still valid in 1992.  We can't due ...
Original Post Date: Thursday, February 17, 2011 My June blog entry suggested the use of parametrics in real-options valuation. This month, I’d like to offer the generalized use of our type of modeling in valuing tangible assets.  Typically, fundamental analysis evaluates the intrinsic value of securities. I won’t attempt to compete with Warren Buffet here. But it is certainly the case that a company, or portfolio of securities reflecting many companies, is based in part on the market value of its product assets and their potential for future earnings, as well as other objective and subjective considerations. In parametric estimation, we take a top-down ...
Original Post Date: Wednesday, January 12, 2011  TruePlanning 2010 SR1 estimation software is now available as an upgrade for existing PRICE customers. The most significant update to this version of TruePlanning is the capability to use both parametric estimating models as well as analogous data to produce estimates. This capability validates and increases the defensibility of estimates. TruePlanning provides a framework that allows content driven parametric models to be estimated in one system. Most notably, hardware, software, IT and Systems of Systems (SoS). No other commercially available estimating tool can make that claim. However, whereas in previous versions estimates relied on ...
Original Post Date: Thursday, January 6, 2011 Today, PRICE Systems, Senior Research Analyst, Bob Koury, will be presenting on Will Cost/Should Cost management. The presentation will focus on two main requirements mandated in the Ash Carter memo (mentioned here several times): Developing Should Cost/Will Cost targets and establishing Affordability as a requirement.  An example will be provided of how parametric estimating models were used to establish “Should Cost” targets and how they can be used by a budget authority (government or Industry) to be an informed consumer of contractor or sub-contractor bids. The demonstration portion of this webinar will focus on ...
Original Post Date: Wednesday, October 27, 2010 Here’s a cool project.  The Bloodhound Project  is focused on building a land vehicle capable of breaking the 1000mph speed barrier.  The mission of the project is twofold.  The first is to “overcome the impossible using science, technology, engineering and mathematics”.  But the second is more interesting – this project is intended as motivation for the upcoming generation to embrace technology related fields.  Britain doesn’t have enough students interested in such fields and they are worried about their ability to compete in technological forays going forward. But how much should something like this ...
Original Post Date: Friday, December 18, 2009 The cost estimating community mourns the loss of a true pioneer this week. Our thoughts and prayers are with his family. Frank Freiman has a special place in the history of PRICE Systems as his innovative work is directly responsible for the company’s existence today. This is a classic case of where one man can truly made a difference. Thousands of estimators across the world have benefited and continue to benefit from his accomplishments. Frank began studying the applications of statistical quality control as an officer in the US Army during World War ...
Original Post Date: Wednesday, September 16, 2009 While most of the books on the topic of parametric modeling take a look at detailed techniques and fundamentals, such as building parent/child relationships or the mathematics behind models, Systems Cost Engineering, takes a more practical perspective to answer a very basic question:  What can parametric estimating do for my organization and how can we implement it?  The book covers an array of business processes that can be dramatically improved with the application of a standardized parametric cost estimating framework. These processes exist across multiple phases of a program's lifecycle such as early concept planning through development and production. Chapters are ...
Original Post Date: Thursday, August 13, 2009 Let’s start with a simple test. Which is greater: the number of six-letter English words that have "n" as the fifth letter or the number of six-letter words ending in "ing"? If you are like most people you’re thinking the correct answer is six-letter words ending in "ing". But most people are wrong. And the reason is simple, people rely on what they can easily recall. Since it’s much easier to think of 6-letter words ending in "ing" the fact that people come to that conclusion isn't surprising. Psychologists refer to this as availability bias. ...
Original Post Date: Friday, August 1, 2008 Whether you are pricing a competitive bid, or you are trying to get a new product to market, estimating accuracy will determine your success or failure.  When pricing a competitive bid, you first want to “ghost the competition” to determine a price-to-win.  Parametric estimating models allow you to quickly estimate the cost of recently priced items from your competition to determine their bidding margins and target a likely price-to-win for a new competition.  I recently worked with one of our clients who has an extensive database of competitive bids from which he can determine ...