Forecasting Guidebook from the UK Ministry of Defense
Congratulations to Andy Nicholls and his team at Abby Wood, UK MoD for their cost forecasting guidebook. I found it clear, to the point and overall excellent piece of work. The cost forecasting guidebook may be downloaded here.
In preparing the guidebook, Andy wanted to stress the following:
“Forecasts of cost and schedule, performed by suitably qualified and experienced staff, are only as accurate as the data, programme information, assumptions and tool sets permit within the forecaster’s prevailing view of the industrial context necessary to develop and manufacture the new capability.” Andy Nicholls
I found the definitions of estimating versus forecasting very interesting and included them here:
What is a Forecast?
A technological forecast is a prediction of the future characteristics of useful machines, procedures or techniques
It therefore follows that a cost and or schedule forecast accounts for the cost and time needed for the subject of a technological forecast, the forecaster does not need to invent a machine or determine how any limitations may be surpassed only mention that they will be and to have a sound understanding of required technologies (see Technology Considerations).
The terms ‘Estimating’ and ‘Forecasting’ can be interchanged and often they are; however, Forecasting is different to Estimating and that difference lies within the definitions below:
“Forecasting” predicts a view(s) of the future, it is conducted ‘top down’ using less detail when procurement needs and Industrial environment have both uncertainty and major risks present. Forecasting is used in early programme phases to predict likely budget needs and to compare potential solution options.
Forecasting seldom considers development or production of items below ‘black box’, system or even platform level. Decimal points are rarely employed unless dealing in £Billions. Therefore a forecast cannot provide absolute costs or be ‘accurate’ in the normal sense of that word and is unlikely to be used for contract price setting unless considerable design detail is available.
“Estimating” calculates a view of costs today, the word implies accuracy and often an estimate can be within a few percent (typically within 5%) of actual costs or time taken. Cost estimating is usually performed “bottom up” and requires good design and manufacturing process detail with a sound understanding of the industry environment: development and manufacturing labour are developed using detail estimating techniques that include application of learner curves to piece part level if appropriate. Estimates are used to assist price setting for contract purposes and in value analysis.
The guidebook goes on to discuss consistent forecasting processes (one of my favorite topics) models, historical data, and inflation. I recommend downloading and studying this guidebook.
Thank you for reading “Dan on Estimating”, if you would like more information about Galorath’s estimation models, please visit our contact page or call us at +1 310 414-3222.
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