I saw a demo today of our new labor rate calculator.  It takes in various labor rate drivers and computes a viable labor rate.   It even evaluates the cost of equipment, electricity, floor space, insurance, etc.

This is a great step forward in the “should cost” and will cost for product manufacturing.  Buying organizations can describe the problem and see what a fair labor rate for the region, country, machine, etc.  Mixed currencies are supported as well.

The following is a small example of the kinds of information that can be specified  In this case it is configured for manufacturing.

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I stumbled across a working draft of an excellent document on my hard drive, produced, I believe, by a gentleman from Texas Instruments some years ago.  I thought this list of why we estimate cost and schedule was excellent and still relevant.

Why We Estimate Schedule & Cost

• To scope proposed tasks
• To explore alternative system concepts

design to cost/budget

• To explore alternative design concepts
• To explore alternative proposals for enhancements and upgrades
• To identify key design elements
• To identify key process parameters

prioritize needs vs wants

• To identify key assumptions
• To identify and quantify uncertainties
• To identify tasks and their relationships
• To assess schedule feasibility
• To identify, allocate and schedule resources
• To assess an organization’s ability to perform within targeted costs
• To evaluate the consequences of internal and external constraints
• To establish achievable objectives
• To establish a basis for quality service
• To establish commitments
• To bound the risk against customer needs
• To balance levels of risk against customer needs
• To provide a basis of successful risk management

build vs buy analysis

• To prepare successful proposals
• To evaluate proposals from competing bidders
• To establish baselines for project tracking

enhance/reuse vs redesign analysis

• To predict life-cycle costs
• To predict returns on investments
• To provide information for establishing business and investment strategies

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3. Design To Cost Metrics Can Help Increase Project Value While Reducing Cost An interesting paperBy Quentin Redman and George Stratton in the...

The full document GAO assessment of Weapons Systems is an update to the 2007 assessment. 

It states “ Our review this year indicates that while the overall performance of weapon system programs is still poor; there have been some modest improvements in DOD’s acquisition outcomes: total cost growth on this year’s portfolio of 96 major defense acquisition programs has decreased marginally compared to the 2007 portfolio.”

Programs started in recent years have more knowledge about technology and design at key points in the acquisition process.

• Cumulative cost overruns are almost $296 billion in 2009 dollars
• 64  of 96 active defense programs reported increases in their projected cost since their initial cost estimate.

Sources of the problem:

While there are different ways to measure the extent and nature of cost growth, there is agreement between DOD and us on the sources of the problem:

(1) POOR REQUIREMENTS AND KNOWLEDGE: programs are started with poor foundations and inadequate knowledge for developing realistic cost estimates

(2) ARTIFICALLY LOW COST & SCHEDULE ESTIMATES WITH LOW TECHNOLOGY READINESS LEVELS: programs move forward with artificially low cost estimates, optimistic schedules and assumptions, immature technologies and designs, and fluid requirements

(3) REQUIREMENTS VOLITILITY: changing or excessive requirements cause cost growth

(4) REQUIREMENTS GROWTH and INADEQUATE  VALUE CONSIDERATION OF CHANGES: an imbalance between wants and needs contributes to budget and program instability.

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This week we received our first order for the official release of CostIQ, the case-based reasoning estimation engine for SEER.  It has been rewarding to see so many people using the pre-releases and lined up to procure CostIQ.

CostIQ is a Case-Based Reasoning system that can transform high level requirements and specifications into a cost modeling workup within a sophisticated cost estimating model (SEER).

CostIQ will generate robust estimates of effort, cost, schedule, risk and reliability for software, hardware, IT and manufacturing issues using the key functional and / or performance criteria as its inputs.

Case-based reasoning has been formalized as a four-step process:

1. RETRIEVE the most similar case or cases
2. REUSE the information and knowledge in that case to solve the problem
3. REVISE the proposed solution
4. RETAIN the parts of this experience likely to be useful for future problem solving

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The following are the bullet points from Dan’s paper on estimating best practices.  Using these best practices can increase project success dramatically.

• Decide Why You Want An Estimate
• Map Estimation Goals To Estimate Process Maturity & Develop Plan To Achieve The Maturity
• Have A Documented, Repeatable Estimation Process
• Evaluate Total Ownership Cost; Not Just Development
• Estimate A Range And Pick A Point For The Plan
• Re-estimate The Program When It Changes
• Avoid Death Marches: Programs With Unachievable Schedules Are Likely To Fail And Drain Morale

• Keep A History: Start An Enterprise Database NOW
• Business Case: Evaluate ROI In Addition To Costs
• Convert Expert Spreadsheets Into A Common Language
• Make The Estimating Process As Simple As Possible; But No Simpler
• Be Proactive: The Process Is Important, The Tools Go Along With The Process
• Get Buy-in From Program Managers
• Hold People Accountable: Center Of Excellence Can Prepare Estimate But Program Managers Must Own Them
• Tie The Estimate To The Plan
• Track Progress Vs. Estimate Throughout The Life Cycle
• Estimate Schedule As Well As Effort (Cost) For Complete Picture
• Tie The Business Case Into The Estimating Process
• Attack Non-productive Rework As Part Of The Process
• Have clear definitions: What does complete mean.  What activities are included and excluded (E.g. development only or total ownership; help desk included or excluded, etc.)   Which labor categories are included and excluded in the estimate (e.g. are managers included?  Help desk? Etc.)
• Don’t ignore IT infrastructure and IT services costs
• Tracking defect sources can go along with the process

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I have been studying martial arts for the past year and a half.  I am not great but I am committed.

I was taking a private lesson recently.  I have been struggling during drills.  While I execute correctly much of the time, each time I execute a move I start analyzing it, even while I am executing the following move.

This proves to be a counter-productive approach.  I will often make mistakes in the following move because I am spending all my brain power thinking about what I just did right or wrong.

Estimating can have the same issues.  Data from past programs is useful. But we must look forward as well. Differences in technology, requirements, program volatility, developers, and much more make just looking at the past a dangerous proposition.

I recall a magazine that once wrote of SEER, “The journey is its own reward” — meaning that the act of thinking about the program being estimated and understanding the range of issues and opportunities makes the program better and the estimates more viable.

Each estimate should look forward to what the program’s issues will be in addition to looking back to prior programs. Yes, data is important, as indicated in the 10 step process.  And so is obtaining some understanding of the range of possibilities of the new system.

The following screenshot from SEER Metrics & Benchmarking illustrates the point.  After some analysis, a new system is much more costly than nearly all the systems with similar characteristics.   Had we just used data and not done the analysis we would have severely underestimated the new system. The journey is its own reward.

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Dr. Ricardo Valerdi of MIT sent me a pre-publication copy of his upcoming IEEE article. Here is the abstract:

“Engineering cannot wait until all phenomena are explained. Engineers may work effectively, often for centuries, with heuristics. This paper provides thirty one heuristics that have been inspired by the development and application of a systems engineering cost estimation model. The objective of this paper is to present such heuristics in a simple manner so that they can benefit systems engineering researchers and practitioners that develop, calibrate, and use cost models.”

I enjoyed the article (as I do with pretty much everything Ricardo produces).  Such simple truths. A few heuristics quoted from the paper follow:

“Don’t assume the original statement of the problem is necessarily the best, or even the right one.”

“Let the available data drive the application boundaries of the model.”

“Design the rating scale according to the phenomenon being modeled.”

The full article is available, as provided by Ricardo here: “Heuristics for Systems Engineering Cost Estimation.”

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If you estimate Electro Optical Sensors you will know what a challenge it can be.  That is why SEER-H’s ElectroOptical Sensor model was developed.   The following is feedback from a user:  SEER-H EOS  was within 6% of actuals and they thought they could have gotten even closer had they answered all the questions instead of just the first three.   The report follows:

A confirmation of the SpyGlass EOS estimating tool and platform influence factors.

I received a recent Government Procurement announcement for one of the systems in the EO Sensor model database  that provided the the unit’s cost and procurement history. The sensor is one of the projects in the CostIQ library.  I loaded the the procurement info into the CostIQ SEER-H EOS  project i.e. prior units, quantity buy and learning curve. SEER-H EOS projected a  production cost of $487,722 and the actual Government procurement cost was $458,000, within 6% of the actual. Note: I had only reset the 3 parameters noted above.

I would expect if I were to do a detail analysis of the procurement/procurement history and tweaked SEER-H EOS the results would even more closely matched the actual procurement cost.

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Jim Ryan of Computer Aid pointed out, during the SEER / Tracer alliance conference,  that the manufacturing revolution was able to provide continuous cost reductions and dramatically  lower costs.  He had examples of:

• Steel 8 hours / ton vs. 25
• GM: 28 hours per car vs. 100
• GE: Constant stream of 10% per year cost reductions
• Motorola, Et Al: Six sigma 3.4 failures per million

The way this was achieved:

• Measure like crazy
• Establish aggressive targets
• Use data to make decisions
• Recognize and reward accomplishments and progress
• Create a learning culture
• Treasure every cycle of learning

Jim points out that all these approaches apply directly to information technology but… we have not seen the revolution occur.   He showed how IT productivity has remained flat or slightly declining over the years.

Jim also pointed out that productivity between the 1st and 4th quartile is about 6 times higher than the first quartile

The core principals of the IT revolution are:

• Defined Standard Repeatable Processes
• Process, Performance Product Metrics
• Quality Focus (Quality checks early, not just checklists at the end… code reviews, design reviews)
• Standard cost model…
• End to End process management
• Metrics
• Continuous Improvement

Jim has seen a 50% cost reduction in the work using these approaches within Computer Aid.  These are supported by Tracer.

I (Dan) will be speaking on estimate maturity and how Similar results can be achieved by focusing on estimating process maturity.  Estimating process maturity should be part of a mature project management process.

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If you are interested in government acquisition reform be sure to register for this webinar.  Bob Hunt, Galorath VP of Services, was a senior Pentagon official the last time around and will share both what was learned from before and how to apply these to the current WSARA (Weapons System Acquisition Reform Act).  Here is the webinar invitation.

Acquisition Reform (WSARA) And How It Impacts Your Estimations: Looking Forward And Lessons Learned

Weapons systems acquisition reform has been a recurring topic within the Department of Defense for many years.

Mr. Bob Hunt, Galorath’s V.P. of Professional Services, was a Senior Pentagon official during the previous Acquisition Reform initiatives. He has since been active in the contractor community.  Mr. Hunt will offer a unique perspective on how these acquisition reforms will impact both the Government and the contractor estimating communities.

This WebEx will discuss the unique implications of the latest reform on the cost and schedule estimating process, including:

 Cost Assessment & Program Evaluation

Directors of DT&E and Systems Engineering Performance Assessments & Root Cause Analysis

 Assessment of Technology Maturity

 Trade-Offs in Cost, Schedule and Performance

 Critical Cost Growth in MDAPs

 Earned Value Management

Required Reports

 Cost Assessment & Program Evaluation

 How some of the SEER applications can be advantageously applied for Pre-milestone A estimates

 And much more!

Much (or some) of this has been tried before, e.g. Goldwater-Nichols Department of Defense Reorganization Act of 1986; also discussed in The Cost Analysis Improvement Group: A History by Srull, Margolis, and McNicol. WSARA is being driven by the continued and sometimes surprising growth in the cost and schedule of Major Defense Acquisition Programs (MDAPs).
——————————————————-
Date and Time
——————————————————-
March 9, 2010
8:30 am, Pacific Standard Time (GMT -07:00, San Francisco)
11:30 am, Eastern Standard Time (GMT -05:00, New York)
4:30 pm, London, England

——————————————————-
Presenter
——————————————————-
Bob HuntVP of Services, Galorath Incorporated

——————————————————-
To register for the online event
——————————————————-

This complimentary event requires registration with a corporate email address.

1. Go to https://galorathevents.webex.com/galorathevents/onstage/g.php?t=a&d=669660618
2. Click “Register”.
3. On the registration form, enter your information and then click “Submit”.

Once the host approves your enrollment, you will receive a confirmation email message with instructions on how to join the event

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