ACAP Cost Estimating Methodologies 1 — Questions and Answers
Question 1: What are the four primary cost estimating methodologies recognized in DoD cost analysis?
- Analogy, parametric, engineering build-up, and expert opinion (Correct answer)
- Regression, Monte Carlo, extrapolation, and interpolation
- Should-cost, will-cost, contractor estimate, and independent estimate
- Bottoms-up, tops-down, statistical, and historical
Correct answer: Analogy, parametric, engineering build-up, and expert opinion
DoD cost estimating guidance identifies these four core methods, each suited to different data availability conditions and program maturity levels.
Question 2: What is the 'learning curve' concept and how is it applied in Army cost estimating?
- As cumulative production quantity doubles, unit cost decreases by a fixed percentage, reflecting worker efficiency gains and process improvements (Correct answer)
- The cost of training Army personnel decreases as more soldiers are trained
- Unit costs increase with quantity due to diminishing supplier competition
- Learning curves apply only to software development, not hardware production
Correct answer: As cumulative production quantity doubles, unit cost decreases by a fixed percentage, reflecting worker efficiency gains and process improvements
The learning curve (or progress curve) models the well-documented phenomenon that unit production labor hours decline predictably with cumulative production, reducing per-unit costs at higher quantities.
Question 3: What is an 'engineering build-up' estimate and when is it most appropriate?
- A bottoms-up estimate built from detailed labor, material, and overhead costs for each component; most appropriate when design is mature and detailed technical data are available (Correct answer)
- An estimate built by analogy to a previously developed similar system
- An estimate constructed by engineering the parametric CER from first principles
- A rapid estimate prepared early in concept development using engineering judgment
Correct answer: A bottoms-up estimate built from detailed labor, material, and overhead costs for each component; most appropriate when design is mature and detailed technical data are available
Engineering build-up is the most detailed method and requires a mature design, but produces high-fidelity estimates by aggregating costs at the lowest WBS levels.
Question 4: What is a 'Cost Estimating Relationship (CER)' and what data is required to develop one?
- A mathematical equation relating cost to one or more technical or program parameters, developed using regression analysis of historical cost and technical data (Correct answer)
- A contractual relationship defining how contractor costs will be reimbursed
- A factor converting engineering estimates to contractor bid prices
- A lookup table of historical unit costs organized by system type
Correct answer: A mathematical equation relating cost to one or more technical or program parameters, developed using regression analysis of historical cost and technical data
CERs are derived through statistical regression of historical data, with cost as the dependent variable and technical characteristics (weight, power, speed) as independent variables.
Question 5: What is the 'coefficient of determination (R²)' and what does it indicate about a CER?
- It measures the proportion of variance in cost explained by the independent variable(s); a higher R² indicates a better statistical fit (Correct answer)
- It measures the ratio of explained cost to total program budget
- It indicates the number of data points used to develop the CER
- It measures the correlation between two independent cost drivers
Correct answer: It measures the proportion of variance in cost explained by the independent variable(s); a higher R² indicates a better statistical fit
R² ranges from 0 to 1; an R² of 0.90 means 90% of the variability in cost is explained by the CER, with a higher value indicating a more reliable relationship.
Question 6: In the analogy method, what is 'complexity factor' adjustment?
- A multiplier applied to the reference system's cost to account for differences in technical difficulty between the analog and the new system (Correct answer)
- The ratio of the new system's weight to the analog system's weight
- A discount factor applied when the analog system cost data is more than 10 years old
- An escalation factor for inflation between the analog program year and today
Correct answer: A multiplier applied to the reference system's cost to account for differences in technical difficulty between the analog and the new system
When the new system is more or less complex than the analog, a complexity factor adjusts the analog cost proportionally to reflect the estimated cost impact of that difference.
ACAP Cost Estimating Methodologies 1
What are the four primary cost estimating methodologies recognized in DoD cost analysis?