Module 3 - Parametric Estimating

Question 1

What is the parametric estimating technique used for?

Answer 1

Developing cost estimates based on relationships between a project’s technical, programmatic, and cost characteristics

It examines the resources consumed during development, manufacture, maintenance, and/or modification.

Question 2

List the four activities in the basic parametric estimating approach.

Answer 2

• Data Collection
• Cost Drivers
• Cost Estimating Relationships (CERs)
• Parametric Model

These activities are derived from the overall cost estimating process.

Question 3

What are cost drivers?

Answer 3

Parameters that influence the amount of money spent on an item

They are independent variables in Cost Estimating Relationships (CERs).

Question 4

What is a Cost Estimating Relationship (CER)?

Answer 4

An equation that captures the relationship between cost drivers and cost

CERs can range from simple arithmetic means to complex multivariate regressions.

Question 5

True or false: Cost passengers are the same as cost drivers.

Answer 5

FALSE

Cost passengers represent major system components that account for the majority of the system’s cost, while cost drivers influence spending.

Question 6

What are the three primary estimating techniques used by cost estimators?

Answer 6

• Analogy
• Parametric Estimating
• Engineering Build-Up

Each technique has its own strengths and weaknesses in different stages of the acquisition cycle.

Question 7

Fill in the blank: A parametric model is composed of multiple _______ combinations and other algorithms.

Answer 7

CER

Cost drivers are identified through examination of historical costs and technical data.

Question 8

What is the advantage of using parametric estimating?

Answer 8

• Versatility
• Objective quantitative inputs
• Easily traceable equations
• Easily adjustable input parameters

These advantages enhance the accuracy and flexibility of cost estimates.

Question 9

What does the R² value indicate in regression analysis?

Answer 9

The explanatory power of the model

It is one of several statistical measures derived from regression analysis.

Question 10

What is the purpose of scatter plots in cost analysis?

Answer 10

To visualize relationships between cost drivers and costs

They help identify potential cost drivers through correlation.

Question 11

What is the definition of parametric estimating according to the Parametric Estimating Handbook (PEH)?

Answer 11

A technique that develops cost estimates based on relationships between a project’s characteristics

It includes technical, programmatic, and cost characteristics.

Question 12

What are the three types of simple multipliers in CERs?

Answer 12

• Rate
• Factor
• Ratio

Each type serves a different purpose in estimating costs.

Question 13

What is the iterative process in data collection?

Answer 13

Continually adding data as new sources are identified

This process helps refine cost estimates over time.

Question 14

What is the role of Subject Matter Experts (SMEs) in cost driver identification?

Answer 14

Provide insight into cost drivers based on deep understanding of the system

Their expertise helps identify parameters that logically drive costs.

Question 15

Fill in the blank: Cost drivers are not to be confused with cost _______.

Answer 15

passengers

Cost passengers represent major components with the highest dollar values in the Work Breakdown Structure (WBS).

Question 16

What does the parametric approach capture?

Answer 16

Design decisions or requirements with numerical parameters

It helps predict how costs can be influenced.

Question 17

What is the first step in developing CERs?

Answer 17

Select the Variables

This involves determining the independent variable and corresponding data collection methodology.

Question 18

What does CER stand for in the context of cost estimation?

Answer 18

Cost Estimating Relationship

CERs are used to establish relationships between cost drivers and costs.

Question 19

In the equation y = a + b1x1 + b2x2 + … + bnxn, what do a and b represent?

Answer 19

• a: constant term
• b: coefficients determined by regression analysis

These values are essential for defining the relationship in a linear model.

Question 20

What is the purpose of validating CERs?

Answer 20

To ensure the CER accurately represents data not used in its development

Validation may involve graphical exploration and regression analysis.

Question 21

What does the Prediction Interval (PI) methodology capture?

Answer 21

Uncertainty in OLS estimates

PI increases as estimates deviate from the core data set.

Question 22

What does calibration of a CER involve?

Answer 22

Resetting the y-intercept to pass through a desired point

Calibration is used to correct analogies or adjust estimates to specific experiences.

Question 23

What is a complex parametric model typically comprised of?

Answer 23

• Multiple CERs
• Other cost estimating techniques

These models are often used for Life Cycle Cost (LCC) or Total Ownership Cost (TOC) estimates.

Question 24

What is the significance of the R² value in regression analysis?

Answer 24

It represents the ratio of explained variation to total variation

A higher R² indicates a better explanatory variable.

Question 25

What is the **hypothesis** in the site activation example?

Answer 25

Site activation cost can be calculated as a function of the number of workstations ## Footnote This relationship is used to develop a cost estimating relationship (CER).

Question 26

What does the term **multicollinearity** refer to?

Answer 26

Significant correlation between two cost drivers ## Footnote It complicates the use of both drivers as explanatory variables.

Question 27

What is the expected outcome when using **multiple regression analysis**?

Answer 27

To create a CER using multiple independent variables ## Footnote This approach is used when multiple cost drivers are believed to explain costs better together.

Question 28

What is the relationship between **cold iron hours** and **crew size** in the multivariate CER example?

Answer 28

Both are positively correlated with purchased services costs ## Footnote Longer port stays and larger crews increase costs.

Question 29

What should be done if new data significantly differs from previous data in a CER?

Answer 29

Investigate reasons for the difference ## Footnote This could involve checking data normalization procedures or changes in technology.

Question 30

What is the **main goal** of a complex parametric model?

Answer 30

To provide a range of cost estimates including risk and uncertainty ## Footnote Outputs should be specific to the analysis goal.

Question 31

What does the **constant term** in a regression model represent?

Answer 31

The y-intercept of the regression equation ## Footnote It is not always statistically significant.

Question 32

What is the **hypothesis** regarding purchased services in the Navy surface ship class example?

Answer 32

Cost will be positively correlated to cold iron hours and crew size ## Footnote Utilities are assumed to be the biggest cost driver.

Question 33

What is the **preferred approach** for the development of cost estimates until actual cost data is available?

Answer 33

Parametric costing techniques ## Footnote Parametric estimating is often considered the hallmark of cost estimators.

Question 34

List the **four steps** involved in the parametric estimating process.

Answer 34

* Collecting data * Identifying cost drivers * Developing CERs * Building a parametric model ## Footnote These steps are essential for creating accurate cost predictions.

Question 35

What does **CER** stand for in the context of parametric estimating?

Answer 35

Cost Estimating Relationships ## Footnote CERs are based on historical data from similar programs to predict project costs.

Question 36

What are **cost drivers** in parametric estimating?

Answer 36

Independent variables that influence the amount of money spent on a project ## Footnote These variables are crucial for developing accurate cost estimates.

Question 37

True or false: **COTS cost models** are generally slower to build and execute than those developed from scratch.

Answer 37

FALSE ## Footnote COTS cost models are generally quicker to build and execute but may lack visibility into the underlying methodology.

Question 38

What do **Cost Response Curves (CRCs)** encapsulate?

Answer 38

An entire cost model in a single equation ## Footnote CRCs relate total or phase costs to specific attributes or decision variables.

Question 39

What is the difference between **uncertainty** and **risk**?

Answer 39

* Uncertainty: Variance a data point might experience * Risk: Measuring uncertainty of a future event related to cost and schedule constraints ## Footnote Risk involves identifying future events, their likelihood, and consequences.

Question 40

What does **sensitivity analysis** address in cost estimation?

Answer 40

Uncertainty in the overall variability of the cost output ## Footnote It determines which inputs have the most impact on cost.

Question 41

What is the purpose of **Monte Carlo simulations** in cost estimation?

Answer 41

Change two or more inputs simultaneously to calculate correlation coefficients ## Footnote These coefficients represent the statistical relationship between inputs and cost output.

Question 42

What does a **Weight Estimating Relationship (WER)** estimate?

Answer 42

The weight of an item by establishing a relationship using driving variables ## Footnote For example, crew size may drive the amount of outfitting required on a ship.

Question 43

What does a **Schedule Estimating Relationship (SER)** predict?

Answer 43

The amount of time it will take to complete a task ## Footnote SERs are used to estimate project timelines.