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Skinning Cats with Cost Estimating Methodologies -Part 1

By PRICE® Customer Success TeamMay 20, 2020

“There’s more than one way to skin a cat”.

Certainly, you have heard the age old adage… This timeless proverb means that there is more than one way to solve a problem or accomplish a task (no need to skin anything!). This adage applies itself firmly to the cost estimating and analysis field too.

The two primary methods for estimating the software development cost of a project are through a detailed bottom-up estimate and a top-down parametric estimate. In addition to these two tried and true methods, new methods have been developed based on program data that has been gathered over the past 50 or more years.

One interesting method, called the “Improved Method for Predicting Software Effort and Schedule” (“Improved Method” for short) has been developed by a team that included Wilson Rosa, a renowned expert in the field of cost estimating and economics (Rosa, 2008). The “Improved Method” applies the direct effect of Application Types on software cost and schedule (Rosa, Etal, 2007).

In this blog series, I will explore the advantages and disadvantages of the bottom-up, parametric, and “Improved Method” cost estimating methodologies. I will then use data from a U.S. Army program to estimate program cost using all three cost estimating methods and compare their normalized output.

Below will highlight the advantages and disadvantages of the Bottom-up Estimate:

  • Advantages
    • Detailed estimate at lowest levels of the WBS/CES/PBS
    • Normally Auditable
    • Tasks and Parameters defined
  • Disadvantages
    • Only useful after detailed design
    • Time Consuming
    • Relies heavily on SME/analogous program inputs
    • SME estimates/inputs not always reliable
    • Overly detailed
    • Potential oversight of some inputs/costs
  • Effort/material input/cost required to estimate cost come from:
    •  Subject Matter Expert (SME) Opinion/Estimate
      • Labor Hours
      • Material Dollars
      • Program Phase (Color of Money/Appropriation Classification)
    • Analogous Program Actuals
      • Labor Hours
      • Material Dollars
      • Program Phase (Color of Money/Appropriation Classification)

As you can see, doing a bottom-up estimate requires a considerable amount of time and data input. Bottom-up estimating has its advantages in that it is more supportable and detail oriented. However, that does not mean that the bottom-up estimate is the most accurate.

In the second blog we will look at the advantages and disadvantages of Parametric estimating.