Cost Estimating Methodologies Flashcards
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What is a 'bottoms-up cost estimate' and what are its advantages?
Answer: An estimate built by summing detailed costs for every component, task, and resource; it is highly detailed and can be directly tied to the work breakdown structure
Bottoms-up estimates offer maximum traceability and granularity but require mature design data; they are often used to cross-check parametric estimates at later program stages.
What is the 'wrap rate' concept used in engineering build-up estimates?
Answer: A factor applied to direct labor to account for fringe benefits, overhead, and general and administrative expenses, converting direct labor cost to total burdened cost
The wrap rate bundles all indirect costs into a single multiplier on direct labor, simplifying the calculation of total labor cost from direct labor hours.
What is 'cost risk adjusted estimate' versus 'most probable cost' in Army cost estimating?
Answer: The risk-adjusted estimate reflects a probabilistic range with a chosen confidence level (e.g., 80th percentile), while most probable cost is the mode of the distribution
The distinction matters for budget adequacy: a 50th percentile most probable estimate has a 50% chance of overrun, while an 80th percentile risk-adjusted estimate reduces that risk to 20%.
What is a 'cost estimate crosswalk' in Army cost analysis?
Answer: A comparison table mapping elements of one cost estimate (e.g., program office) to corresponding elements of another (e.g., ACEA independent), enabling direct comparison of differences
Crosswalks allow analysts and decision-makers to identify where and why different estimates diverge, facilitating reconciliation and understanding of key disagreements.
What is the 'three-point estimate' technique and how is it used in Army cost analysis?
Answer: Using optimistic, most likely, and pessimistic cost values to characterize uncertainty for a cost element, often combined via PERT formula to estimate expected value and variance
The PERT formula [E = (O + 4M + P)/6] weights the three points to compute expected cost and derives variance for risk analysis, providing more information than a single point estimate.
What is 'cost-to-complete' (CTC) estimating in the context of Army program management?
Answer: Estimating the remaining cost needed to finish a program from its current status to completion, used to project final program cost
CTC is used throughout program execution to project whether remaining budget is sufficient, combining actuals to date with estimates of remaining work to forecast final cost.