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Abstract
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Contents
1. Int...
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Dale Shermon BA...
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QinetiQ Procure...
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Cost and Ris...
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Evidence – Perf...
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Cost Enginee...
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What’s The Proc...
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Case study - UK...
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Cost Engineeri...
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Analytical / D...
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Work Breakdown...
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Helicopter
Air...
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Detailed Build...
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Detailed Build...
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Disadvantages
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Analogy
• A co...
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Disadvantages
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Parametric Cos...
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Filling the ga...
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Parametric Cos...
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Selecting the ...
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Programme Life...
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FACET Param...
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Operational
An...
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Estimating Req...
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The reality?
R...
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Deterministic ...
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Recognising th...
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5
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2...
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£0M £100M £200...
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FACET WLC Mode...
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FACET WLC Mode...
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5.
Austerity –...
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0%
20%
40%
60%...
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Commonality / ...
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1 2 3 4 5 5 6 ...
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Recurring cost...
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100 off
50 off...
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500 missiles f...
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In-service cos...
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In-service cos...
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6.
Summary
UNC...
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Any questions?...
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Cost estimating in these times of austerity

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This presentation was given by Dale Shermon of Qinetiq to the members of APM's South Wales and West of England branch on Wednesday 4th June 2014. The event was kindly hosted by Diligenta in Bristol.

Being able to forecast the cost of projects has been challenging in the past, but now there is a need to explore the science of cost reduction too.

This presentation briefly discussed the three methods of estimating; analytical, analogous and parametric before studying parametric cost and schedule estimating in more depth. It considered the benefits of generating parametric estimates early in the project life cycle and other applications of parametric estimating when little information is available to the project manager.

The presentation reviewed the maturity of risk management and cost estimating in organisations and the effect this can have upon financial decisions made by project managers.

Finally, the presentation explored the means of making projects more cost effective using cost estimating relationships (CER) to explore cost saving measures suitable for these years of austerity.

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Cost estimating in these times of austerity

  1. 1. 06/06/2014 1 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Abstract • The presentation will review the maturity of risk management and cost estimating in organisations and the effect this can have upon financial decisions made by project managers. • This presentation will briefly discuss the three methods of estimating; analytical, analogous and parametric before studying parametric cost and schedule estimating in more depth. It will consider the benefits of generating parametric estimates early in the project life cycle and other applications of parametric estimating when little information is available to the Project Manager. • Finally, the presentation will explore means of making the project more cost effective using cost estimating relationships (CER) to explore cost saving measures suitable for these years of austerity. © Copyright QinetiQ Limited 2014 UNCLASSIFIED QinetiQ Proprietary QINETIQ/TIS/S&AS/PUB1401673 Cost estimating in these times of austerity Association of Project Managers (APM) South Wales and West of England Branch 4th June 2014 Dale Shermon QinetiQ Fellow / Head of Profession Cost Engineering
  2. 2. 06/06/2014 2 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Contents 1. Introduction 2. Cost and Risk Maturity assessments 3. Methods of cost estimating 4. FACET Parametric estimating 5. Austerity – project cost saving measures 6. Summary UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 1. Introduction
  3. 3. 06/06/2014 3 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Dale Shermon BA, ACCA CDip (A&F) • Rolls-Royce, British Aerospace, Matra Marconi Space, UK MOD / SPS & PFG, PRICE Systems; • QinetiQ Fellow and Head of Profession Cost Engineer;  Council member and Fellow ACostE (FACostE)  Member of APM (MAPM)  Life member and Certified Parametric Practitioner (CPP) of ICEAA  Chairman and member of SCAF • Parametrician of the Year 2013 • Frieman award 2009 for “outstanding lifetime contribution to cost estimating” • ISPA St. Louis, Best Hardware paper, 2006, “TrueConcepts a methodology not a model” • ISPA Florida, Best Applications paper, 2003, “If a little knowledge is dangerous… what is a lot of knowledge?” UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 SCAF
  4. 4. 06/06/2014 4 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 QinetiQ Procurement Advisory Service (QPAS) Advice Services Evaluation Services QPAS AWARD - QinetiQ Commerce Decisions Ltd CostEngineering Programme&Project Management Requirements Acceptance ThroughLifeServices RiskManagement BusinessAnalysis UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Knowledge Based Estimating (KBE)
  5. 5. 06/06/2014 5 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 2. Cost and Risk Maturity assessments UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Why Conduct a Maturity Assessment?  Assess the quality and consistency of cost and risk management implementation  Understand cost and risks and their impacts across the enterprise  Improve cost and risk management to inform decision-making across the organisation portfolio  Realise tangible benefits in capability acquisition and support  Reduce duplication of effort, across organisations  Improve communications, where common issues are identified  Improve coherency and alignment, and share good practice “Major projects that have used the QinetiQ benchmarking tool and subsequently improved their risk maturity have reduced forecast overspend by an average of 20% of project value and forecast schedule overrun by 41 months” Source: NAO Major Projects Report 10
  6. 6. 06/06/2014 6 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Evidence – Performance Against Schedule 11 Current Schedule Performance vs Original Forecast of MOD Top 20 Major Projects 41% 46% 114% 47% 32% 51% 63% 54% 53% 42% 75% 8% 10% 0% 0% 0% 11% 0% 0% 20% 40% 60% 80% 100% 120% Typhoon(Nov-87) StingRay(May-95) NimrodMRA4(Jul-96) AstuteClassSub(Mar- 97) A400M(May-00) Type45Destroyer(Jul- 00) SupportVehicle(Nov-01) NGLAAW(May-02) Terrier(Jul-02) NavalEHF/SHFSat Comms(Aug-03) Soothsayer(Aug-03) MTADS(Sep-04) Watchkeeper(Jul-05) Falcon(Mar-06) Merlin(Mar-06) FutureLynx(Jun-06) AdvancedJetTrainer (Aug-06) TyphoonFuture Capability(Jan-07) Scheduleoverrunas%oforiginalforecast Risk Maturity Uncontrolled Risk Maturity @ Level 3+ Source: NAO Major Projects Report UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Evidence – Performance Against Cost 12 Current Schedule Performance vs Original Forecast of MOD Top 20 Major Projects -21% 28% 48% 0% 29% -7% -18% 6% -26% 42% -7% -1% -5% -1% 1% -5% -2% -30% -20% -10% 0% 10% 20% 30% 40% 50% Typhoon(Nov-87) StingRay(May-95) NimrodMRA4(Jul-96) AstuteClassSub(Mar- 97) A400M(May-00) Type45Destroyer(Jul- 00) SupportVehicle(Nov-01) NGLAAW(May-02) Terrier(Jul-02) NavalEHF/SHFSat Comms(Aug-03) Soothsayer(Aug-03) MTADS(Sep-04) Watchkeeper(Jul-05) Falcon(Mar-06) Merlin(Mar-06) FutureLynx(Jun-06) AdvancedJetTrainer (Aug-06) TyphoonFuture Capability(Jan-07) Currentoverspendas%oforiginalforecast Risk Maturity Uncontrolled Risk Maturity @ Level 3+ Source: NAO Major Projects Report
  7. 7. 06/06/2014 7 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 13 Cost Engineering Heath Check (CEHC) UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Why Electronic Voting • Well-established method of Group Decision Support • Provides a framework to consider arguments before expressing opinion • Votes are anonymous • Primarily interested in the reasons for the votes • Used to elicit opinion • Discussion is limited to clarification before voting • Divergence in votes may provide additional insight • Understand how the question and context relate to the project 14
  8. 8. 06/06/2014 8 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 What’s The Process? – Delphi Technique 1. Question is posed 2. Think! 3. Consider the question and context 4. Vote 5. Facilitated discussion 6. Voting results presented 7. Salient points recorded for analysis/reporting 8. Record the consensus view 9. Re-vote (as necessary) 10. Record the consensus view 15 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Case Study - Cumulative result of SCAF assessment 16 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 A1 A5 B1 B3 C4 C16 C15 C5 D3 D13 D6 A15 1. Schedule risk analysis tools 2. Technical data storage 3. Software estimating tools 4. Planning and communication Weak Excellent
  9. 9. 06/06/2014 9 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Case study - UK MOD Assessment of Cost Maturity 0.00 1.00 2.00 3.00 4.00 5.00 SCAF EACE MOD UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 3. Methods of Cost Estimating
  10. 10. 06/06/2014 10 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Cost Engineering • Estimating techniques include: 1. Analytical 2. Analogy 3. Parametric • Selecting appropriate methodology © Copyright QinetiQ Limited 2014 UNCLASSIFIED QinetiQ Proprietary QINETIQ/TIS/S&AS/PUB1401673 Analytical
  11. 11. 06/06/2014 11 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Analytical / Detailed Estimating • Traditional approach and understanding of ‘estimating’  Also known as “Bottom-Up” • Most common technique in cost proposals • Complete for each functional labour category against a breakdown structure:  Engineering  Manufacturing  Program Management  Quality  Tooling and Test UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Equipment or Produce Breakdown Structure (PBS) Helicopter Airframe Propulsion Engine Engine Control Engine Control software AV Application software Product Breakdown Structure (PBS) Work Breakdown Structure (WBS) Organisation Breakdown Structure (OBS) Focus on what is deliverable!
  12. 12. 06/06/2014 12 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Work Breakdown Structure (WBS) PBS Project Management Engineering Manufacture, Assembly, Integration and Test Product Breakdown Structure (PBS) Work Breakdown Structure (WBS) Organisation Breakdown Structure (OBS) Usually accompanied by a Work Package Description: • Inputs • Output • Activities • Assumption / Dependencies • Duration / Effort UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Organisation Breakdown Structure (OBS) PBS WBS Project Manager Project Control Cost Engineering Configuration Control Travel and Subsistence costs Product Breakdown Structure (PBS) Work Breakdown Structure (WBS) Organisation Breakdown Structure (OBS)
  13. 13. 06/06/2014 13 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Helicopter Airframe Propulsion Engine Gear box Engine Control Project Management Engineering MAIT Project Manager Project Control Cost Engineering Configuration Control Requirements analysis Systems Eng. Electronic Eng. Mechanical Eng. Travel and Subsistence costs Computing costs Material cost Fabrication labour Machining labour Sub-contractor costs AV Application software Engine control s/w Product Breakdown Structure (PBS) Work Breakdown Structure (WBS) Organisation Breakdown Structure (OBS) UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Detailed Build Up (Cont…) • Estimated Labour – the Direct (booked) effort for a person;  Clearly identify all categories (functions) of labour required to complete the Work Package activities  For example, Project Management time  Calculated in hours for example;  7.5 hours per day  37 hours per week
  14. 14. 06/06/2014 14 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Detailed Build Up (Cont…) • Estimated Non-labour – the direct (billable) cost expenditure;  Can be material, services, sub-contract costs or other direct costs  For example, travel and subsistence  Clearly identify all categories (test facilities, computer facilities, test equipment, sub-contract support) of non-labour required to complete the Work Package activities  Calculated in single monetary units (£1,000), not thousands(£1k), millions (£1m), etc.  Identify the currency used, Pounds, Dollars, Euro UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Detailed Build Up (Cont…) Excluded • Overheads – the Indirect effort and costs that are not booked or billable directly to the project  For example, Security staff, Executive staff
  15. 15. 06/06/2014 15 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Detailed Build Up (Cont…) • When estimating resources or time consider the activity as a functions of size, complexity and productivity relative to previous activities that you have completed. • Resource (or time) = f (size, complexity, productivity)  Size = volume, weight, quantity, lines of code, surface area, power, thrust – the magnitude of the problem  Complexity = technology, materials, manufacturing process, design difficulty, novelty, number of interfaces, number of requirements, customer – level of difficulty  Productivity = tools, staff skills, scope of design, communications, language, access – achievement of the activity UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 # of Drawings x Drawing factor x Hours per Drawing Case Study - Detailed Hour Build Up • Estimated Number of Drawings = 100 • Drawing factor  Detailed drawing = 1.0  General Assembly = 1.5 • Engineering Dept. Standard = 40 Hours per Drawing • Engineering basis of bid is then submitted to Cost Engineering function for conversion to currency Resource (or time) = f (size, complexity, productivity)
  16. 16. 06/06/2014 16 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Disadvantages Advantages • Time and resource intensive • Omissions and duplications likely • Often subjective and can contain distortions • Changes can be time consuming • Detailed specifications are required • MS Excel spreadsheets can become complicated • Very Detailed • Well accepted methodology • High level of detail gives a perceived view of ‘accuracy’ • MS Excel usual choice of tool Detailed Build Up (Cont…) © Copyright QinetiQ Limited 2014 UNCLASSIFIED QinetiQ Proprietary QINETIQ/TIS/S&AS/PUB1401673 Analogy
  17. 17. 06/06/2014 17 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Analogy • A comparison between two systems or efforts  Based on a relative scaling of a data point  Determination of how much more or less the new system will be relative to the historical data point • Commonly used for ROMs and as cross-checks • Subjective complexity factors are used many times to adjust analogous system cost to new system • Requires minimal time and cost • Normally completed at the system or sub-system level UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Case study - Estimating by analogy Performance (Mach Speed) Unit Production Cost (UPC) (UK £) Old analogous system: Mach 1.5 £30 Million • New system speed is 2x old system • Cost of new system is therefore = 2 x £30m = £60m • Analogy normally assumes a Linear Relationship
  18. 18. 06/06/2014 18 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Disadvantages Advantages • Can be subjective • Assumes a linear relationship between cost, time and technology • Can be difficult to obtain detailed level of information • Can be used early in a project with minimum data • Ideal for conceptual level estimating Analogy (Cont…) © Copyright QinetiQ Limited 2014 UNCLASSIFIED QinetiQ Proprietary QINETIQ/TIS/S&AS/PUB1401673 Parametric
  19. 19. 06/06/2014 19 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Parametric Cost Model • Commercially available cost models, for example:  FACET  SEER  TruePlanning • Cost Estimating Relationships (CER) is also considered a Parametric Cost Model • Parametric Cost Model  Is a mathematical relationship:  Cost to Cost  Performance to Cost  Statistical inferences UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Parametric Cost Modelling © PRICE Systems 2006 All rights reserved Historical Project Normalised Independent - Design - Performance Dependent - Cost - Schedule - Performance Cost Estimating Relationship (CER)
  20. 20. 06/06/2014 20 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Filling the gaps - International Data Non UK Vehicles BMP -3 Pandur Tracked Wheeled 2004 2006 2007? FV432 Scorpion Striker Spartan Warrior 1963 1972 1975 1978 1986 Shortland APC 1965 Fox 1973 Saxon 1976 (PV) Current UK Army vehicles Future UK Vehicle requirements Non UK Vehicles BMP -3 Pandur Tracked Wheeled Stingray 1988 1990 CV 9040 1993 1995 Pizarro 1998 Centuaro 1991 Simba 1993 Stingray CV 9040 Pizarro 1998 Centuaro Simba 2004 2006 2007? 1960 1970 1980 1990 2000 20101960 1970 1980 1990 2000 FV432 Scorpion Striker Spartan Warrior 1963 1972 1975 1978 1986 Shortland APC 1965 Fox 1973 Saxon 1976 (PV) Current UK Army vehicles Future UK Vehicle requirements FRES MRAV, Tracer, ABSV Indicative sample only from QinetiQ database which covers 72 types of AFV in current production and / or service UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Parametric Cost Model (Cont…) • Commonly used for:  ROMs  Proposal Costs  Trade Studies  Budgetary Estimates • Requires more time than Analogy, but considerably less time and cost than a Detailed Build Up
  21. 21. 06/06/2014 21 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Parametric Cost Model (Cont…) • Commercial Cost Model  Requires specialized training  Can be applied at all levels; system, subsystem, LRU, or SRU level  Used as sole estimating tool or independent cross-check of an estimate  Must be able to calibrate model to local experiences  Can be calibrated to reflect performance to cost effectiveness  Database is required for use as Basis of Estimate (BoE) UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Disadvantages Advantages • Trained personnel usually required • Regular calibration required to maintain Cost Estimating Relationships (CERs) • ‘Black Box’ syndrome • Can be produced in minimal time • Removes any bias • Consistent due to mathematics • Can also relate performance to cost • Can be used ‘Out Of The Box’ Parametric (Cont…)
  22. 22. 06/06/2014 22 © Copyright QinetiQ Limited 2014 UNCLASSIFIED QinetiQ Proprietary QINETIQ/TIS/S&AS/PUB1401673 Selecting the Most Appropriate Methodology UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 General Selection Criteria • The “most appropriate” methodology or methodologies is generally based on considerations such as:  Program phase  Program requirements stability/maturity  Availability of relevant historical data  Type of estimate required  Customer requirements and/or preferences  Time and/or manpower to complete estimate
  23. 23. 06/06/2014 23 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Programme Life Cycle Selecting the Most Appropriate Methodology Concept & Assessment Development / Demonstration Manufacture & Entry Into Service In Service Operation & Support Parametrics Analogy Engineering / Bottom Up Extrapolation From Actuals Gross Estimate Detailed Estimate UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Parametric AnalyticalAnalogous Little Confidence CostCost Time Parametric Analytical Analogous More Confidence Cost Time Multiple estimating methods provide confidence
  24. 24. 06/06/2014 24 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 4. FACET Parametric estimating UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Early Estimates set the budget! C A D M I D C A D M I D Cumulative Project Expenditure Decisions impacting upon Project Costs During this period of the project life there is the opportunity for projects to influence the Whole Life Cost at minimum expense to the overall project
  25. 25. 06/06/2014 25 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Operational Analysis • Identify Acquisition cost • Identification of In-service cost • Top level trade off • Performance • Design • Programme issues. • Down selection of options • Multiple platform solutions. Key Decision made at the very beginning of a project need to be based on sound information such as; Cost Estimating aims UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Combining Performance and Design
  26. 26. 06/06/2014 26 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Estimating Requirements? Requirements Cost Concept Design ?It’s not possible to estimate capability or requirements without a design UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Estimating early concept design Requirements Cost Concept Design Therefore we create a concept and estimate it to a high tolerance
  27. 27. 06/06/2014 27 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 The reality? Requirements Cost Final Design Then discover the design is not the same as the concept? UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Requirements based Design plus estimate Requirements Cost Final Design What is required is early relationship between requirements, design and forecast cost
  28. 28. 06/06/2014 28 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Deterministic prediction for X In-service date Costperunitmass Prediction X Y UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Recognising the uncertainty in the input In-service date Costperunitmass Prediction X Distribution Y
  29. 29. 06/06/2014 29 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Recognising the compound error of CER and input In-service date Costperunitmass Prediction X Distribution Y UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Case studies
  30. 30. 06/06/2014 30 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 0 5 10 15 20 25 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Date ProgrammeCostsFFrBn Case study - Charles De Gaulle; Programme Costs Programme authorised First steel cut First block Official Launch Start of sea trials Commissioned FFr 15.6 Bn First published estimate of the Programme cost April 1992 FFr 17.2Bn FFr 18.8Bn FFr 20 Bn Last Programme cost estimate Sept 2000 FFr 20.38 Bn Estimated Programme cost. Using FACET and only technical data available in 1992 28% cost growth between first and last official programme costs Less than 2% difference between FACET and last official programme cost UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 0 2 4 6 8 10 12 14 16 18 20 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Date ProgrammeCostsEuroBn Case study - Eurofighter Development Costs Less benefit of EAP demonstrator FACET Official Feasibility study French withdraw Start Project Definition Development start Production start 110% cost growth between first and last official programme costs Less than 8% difference between FACET and last official programme cost
  31. 31. 06/06/2014 31 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 £0M £100M £200M £300M £400M £500M £600M Option 3 Option 2 Option1 MoD Indicative Design Commercial Design (risk to performance from under sizing) (Size well matched to MoD requirements) 281 397 366 486 437 519 470 550 492 563 Bands show spread of ± standard error about estimate Programme cost (1994 prices) Key LCU EH-01 Spot Flag Capability Reduced Cost Options Case study - Balance of Investment (BOI) • Buying a new ship with a limited budget:  Identify alternative options;  Estimates quickly with tolerances on the estimates;  Analyse what is afforable;  Consider cost- effectivness. UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 FACET Model
  32. 32. 06/06/2014 32 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 FACET WLC Models : Input Screen UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 FACET WLC Models : Input Screen 1,000 kg reduction
  33. 33. 06/06/2014 33 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 FACET WLC Models : Results Screen UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 FACET Cost Context Model Output The context model provide a rapid evaluation capability of quotation and internal estimates
  34. 34. 06/06/2014 34 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 5. Austerity – project cost saving measures UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Non-recurring cost • Non-recurring costs are defined as those which only happen once in a project. • Non-recurring costs can be either; • duration-related, for example project management, or • task-related, for example conducting a stress analysis.
  35. 35. 06/06/2014 35 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 0% 20% 40% 60% 80% 100% 120% 0 1 2 3 4 5 6 7 PercentageallocatedtoeachNation Number of Nations Development cost versus participating nations 100% funded by one nation Proportional funding by nations International cooperation - theory Winning space! UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 New design High Non-recurring Cost Low Low High Percentage New Winning space!
  36. 36. 06/06/2014 36 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Commonality / modularity in development High Non-recurring Cost Low Low High Design Repeat Winning space! UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 New Adapted Deleted Translated 0% Test 0% Code 0% Design Auto Generation ?% Design ?% Code ?% Test Reused 100% Test 100% Code 100% Design Software development is a non-recurring activity Winning space!
  37. 37. 06/06/2014 37 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 1 2 3 4 5 5 6 7 8 9 1011121314151617181920 Capability Years in-service Incremental Traditional Incremental development versus ‘big bang’ Winning space! UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Time Cost Lower complexity Higher complexity Time Now Cheaper but less capable technology Not desirable for Defence Market forces = technology maturity
  38. 38. 06/06/2014 38 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Recurring cost • Recurring costs are defined as those which occur repeatedly in a project. • Recurring costs tend to be task- related (rather than duration- related), for example manufacturing components. UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Overlapping schedule Development Production Delayed schedule Development Production Optimisation of the schedule Optimised schedule Development Production Winning space!
  39. 39. 06/06/2014 39 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 100 off 50 off UPC50 UPC100 Learning or Cost improvement curve Assumes: • Low turnover of staff; • Consistent manufacturing process; • Single shift pattern; • Single facility; UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 100 off 50 off x UPC100 Learning or Cost improvement curve Acquire 50 off items from a total batch of 100 off Assumes: • that you only pay for the items you require • you take evenly over the period • there is a customer for the other 50 off
  40. 40. 06/06/2014 40 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 500 missiles from a larger production batch £- £200,000 £400,000 £600,000 £800,000 £1,000,000 £1,200,000 £1,400,000 £1,600,000 500 1,000 1,500 2,000 2,500 3,000 Total Production Quantity UnitProductionCost(UPC) £@constant2011ec Case Study - Commonality / modularity in production Winning space! UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 100 off 50 off 50 off Equal learning and un-learning Breaks in production Winning space! Common reasons are: • Design changes; • Introduction of major production methods improvements; • Replacement of worn tooling; • Funding limitations; • Strikes;
  41. 41. 06/06/2014 41 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 In-service cost • In-service costs are defined as costs which occur following the manufacture of the platform, system or service. • As such they have a tendency to be event based, such as failures or maintenance opportunities. • In-service cost can be duration- related or task-related, but the tasks will have a rhythm or periodicity. UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 In-service costs  Reliability Infant mortality Wear out System Life (Years) Number of failures Reduce optimise in-service cost: • Anticipate obsolescence / regulatory requirements; • Monitor fleet failures rates; • Reduce usage through synthetic training;
  42. 42. 06/06/2014 42 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 In-service costs  Reliability Midlife update System Life (Years) Number of failures UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 In-service costs • Reduce Required Spares Holdings  Improve repair pipeline times  Improve/optimise spares holdings  Pool key assets between Nations  Optimise storage and transportation • Reduce Repair Costs  Cost optimise repair capabilities, national vs international  Improve utilisation of maintenance and fault data to improve maintenance policies and anticipate  Challenge industrial cost base  Design out cost drivers
  43. 43. 06/06/2014 43 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 6. Summary UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Summary • Reviewed cost and risk maturity assessment – How good are your numbers? • Consider three estimating methodologies to add confidence to your cost predictions; • Utilise parametrics cost modelling as a source of independent cost estimating (ICE) and prompt areas of cost saving; • Identified some Austerity measures that can be deployed to reduce potential costs.
  44. 44. 06/06/2014 44 UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 Any questions? QinetiQ Building 240 The Close Bristol Business Park Coldharbour Lane Bristol BS16 1FJ United Kingdom Tel +44 (0)117 953 8455 Mobile +44 (0)7785 522 847 dshermon@QinetiQ.com www.QinetiQ.com/als Dale Shermon QinetiQ Fellow / Head of Profession Cost Engineering QinetiQ Building 240 The Close Bristol Business Park Coldharbour Lane Bristol BS16 1FJ United Kingdom Tel +44 (0)117 953 8455 Mobile +44 (0)7785 522 847 dsherm on@QinetiQ .com www.QinetiQ .com/als Dale Sherm on QinetiQ Fellow / Principal Consultant UNCLASSIFIED QinetiQ Proprietary © Copyright QinetiQ Limited 2014 QINETIQ/TIS/S&AS/PUB1401673 www.QinetiQ.com

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