CostMetrix Estimator Guide

8/14/2019 CostMetrix Estimator Guide

1/127

Parametric Cost Estimating Software

Version 3.0for Windows

Users Guide

ZZZ1QK\VRIW1FRP("3-).

(VWLPDWRU

%QUV/GVTKZ

(VWLPDWRUTM

("3-).


2/127

This page intentionally


3/127


Version 3.0for Windows

Copyright 1999, 2000, 2001 NHYSOFT, Inc.

All rights reserved.

(VWLPDWRU

%QUV/GVTKZ

(VWLPDWRUTM


4/127

%QUV/GVTKZ

(VWLPDWRUParametric Cost Estimating Software

Version 3.0

Copyright 1999, 2000, 2001 by NHYSOFT, Inc.26361 Ibeza Road

Mission Viejo, CA 92692-5233www.nhysoft.com

All rights reserved.

9th Edition, 010426

This manual and software product are both copyrighted and all rights are reserved by NHYSOFT, Inc. The distributionand sale of this product are intended for the use of the original purchaser only and for use on only one computer system.

CostMetrix and CostMetrix Estimator are trademarks of NHYSOFT, Inc.

Windows, Windows NT, Windows 95, and Windows 98 are registered trademarks of Microsoft Corporation.

TM


5/127

Software License Agreement

Do not use this Software until you have carefully read this Agreement, which provides the terms and conditions for itsuse. Installing the Software indicates that you have read, understand, and accept this Agreement. If you do not acceptthis Agreement, return the Software and accompanying items to the distributor within 30 days of purchase with a datedreceipt or invoice for a full refund. If you purchased the software directly from NHYSOFT, contact NHYSOFT and return it

with a dated receipt or invoice to NHYSOFT Returns, 26361 Ibeza Road, Mission Viejo, CA 92692-5233.

1. EVALUATION USE: This Software automatically installs into an Evaluation Mode which has some features disabled. APersonal Authorization Code is required to unlock disabled features and put the Software into the Normal Mode. You mayfreely use and distribute this Software in the Evaluation Mode for evaluation purposes only. You may use the Software forup to 30 consecutive calendar days in the Evaluation Mode, at the end of which you must uninstall it from your system.

2. LICENSE: NHYSOFT grants you a nonexclusive right to use this Software on a single computer in the Normal Mode.NHYSOFT will provide a Personal Authorization Code when you register this Software that will unlock the disabledfeatures and enable the Normal Mode on one unique computer. You may make one archival or backup copy of theSoftware for your own use. However, because the Software is protected by copyright laws, it is illegal: to modify, adapt,translate, rent, sublicense, loan, resell for profit, create derivative works based upon or network the software or any partthereof, or to distribute, break, or circumvent the Personal Authorization Code. The software also contains NHYSOFTtrade secrets, and you may not decompile or otherwise reverse engineer the Software.

3. SATISFACTION GUARANTEE: If you are not 100% satisfied with this Software, return it to the distributor within 60

days of purchase with a dated receipt or invoice for a full refund. If you purchased the software directly from NHYSOFT,contact NHYSOFT and return it with a dated receipt or invoice to NHYSOFT Returns, 26361 Ibeza Road, Mission Viejo,CA 92692-5233.

4. LIMITED WARRANTY: NHYSOFT warrants that the magnetic media upon which the Software is recorded is free fromdefects in materials and workmanship when used under normal conditions. NHYSOFT also warrants that the Softwarewill perform substantially as described in the User Manual. If the disks are defective, then return the Software toNHYSOFT Returns, 26361 Ibeza Road, Mission Viejo, CA 92692-5233 within 60 days of purchase with a dated receipt orinvoice and replacement disks will be mailed to you.

5. DISCLAIMER OF WARRANTIES: Except as expressly provided above, this Software and documentation is providedas-is and, to the maximum extent permitted by applicable law, NHYSOFT hereby disclaims all other warranties, expressor implied, that the Software, documentation, or other materials are fit for any particular purpose. NHYSOFT does notwarrant that the Software is free from bugs, interruptions, errors, or other program limitations. NHYSOFT does notguarantee the accuracy and/or usefulness of the results or solutions, even if performed in accordance with theprocedures, commands, and instructions contained in the enclosed material. NHYSOFT, its agents, employees anddistributors shall not be liable for technical, editorial, or other errors or omissions which may be contained in, or the

negligent preparation of this material. All warranties or guarantees given or made by NHYSOFT with respect to theSoftware are (1) for the benefit of the original purchase/licensee of the Software only and are not transferable, and (2)shall be null and void if a purchaser/licensee breaches any terms or conditions of this Agreement.

6. LIMITATION OF LIABILITY AND DAMAGES: Except to the extent of the above warranty of materials andworkmanship, the entire liability of NHYSOFT and its representatives for any reasons shall be limited to the amount paidby the customer for the Software purchased from NHYSOFT or its distributors. To the maximum extent permitted by law,NHYSOFT and its licensors, distributors, dealers or suppliers are not liable for any direct, special, incidental, orconsequential damages (including damages for loss of business, loss of profits or investment, or the like), whether basedon breach of contract, breach of warranty, tort (including negligence), product liability or otherwise, even if NHYSOFT orits representatives have been advised of the possibility of such damages and even if a remedy set forth herein is found tohave failed in its essential purpose. The limitations of damages or liability set forth in this Agreement are fundamentalelements of the basis of the bargain between NHYSOFT and you. You acknowledge and agree that NHYSOFT would notbe able to provide this product on an economic basis without such limitations.

7. MISCELLANEOUS: This Agreement sets forth the entire liability of NHYSOFT and its representatives and defines your

exclusive remedy with respect to the Software and is a complete statement of the agreement between you andNHYSOFT. This Agreement shall not limit any rights that NHYSOFT may have under trade secret, copyright, patent orother laws. The agents, employees, distributors, and dealers of NHYSOFT are not authorized to make modifications tothis Agreement, or to make any additional representations, commitments, or warranties binding on NHYSOFT. If anyprovision of this Agreement is invalid or unenforceable under applicable law, then it shall be, to that extent, deemedomitted and the remaining provisions shall continue in full force and effect. The validity and performance of thisAgreement shall be governed by California law (without reference to choice of law principles), and applicable federal law.This Agreement is deemed entered into at Mission Viejo, California, and shall be construed as to its fair meaning and notstrictly for or against either party.


6/127


(VWLPDWRUTM

%QUV/GVTKZ

(VWLPDWRU


7/127

viii

Table of Contents

Page

Whats New in Version 3.0 .......................................................................................................... xii

1. Introduction................................................................................................................................ 1What is CostMetrix?............................................................................................................... 1

What is parametric cost estimating?...................................................................................... 2

Benefits of using cost models for estimating ......................................................................... 5

What is CostMetrix ModelBuilder?......................................................................................... 6

Cost models and tasks .......................................................................................................... 7

The history of parametric estimating...................................................................................... 7

Cost estimating with CostMetrix Estimator ............................................................................ 9

For better estimating accuracy............................................................................................. 10

Key features of CostMetrix Estimator .................................................................................. 11

What is a high quality cost estimate? .................................................................................. 11

System requirements........................................................................................................... 11Installing CostMetrix Estimator ............................................................................................ 12

Uninstalling CostMetrix Estimator ........................................................................................ 12

Getting help.......................................................................................................................... 12

2. Overview ................................................................................................................................... 13

How CostMetrix Estimator works......................................................................................... 13

Tasks ................................................................................................................................... 14

Task types............................................................................................................................ 15

Summary tasks .................................................................................................................... 15

Parametric tasks .................................................................................................................. 16

Fixed Cost tasks .................................................................................................................. 16

Level of Effort tasks ............................................................................................................. 17Explicit Formula tasks.......................................................................................................... 17

Manual Entry tasks .............................................................................................................. 18

Parameters .......................................................................................................................... 18

Quantity parameters ............................................................................................................ 19

Scale parameters................................................................................................................. 19

Grade parameters................................................................................................................ 19

Computed parameters ......................................................................................................... 20

Cost categories.................................................................................................................... 20

Escalation factors................................................................................................................. 21

Cost vs. price ....................................................................................................................... 21

Overhead and G&A.............................................................................................................. 21

3. Creating a Cost Estimate......................................................................................................... 24

Opening a new cost estimate............................................................................................... 24

Entering project summary information ................................................................................. 26

Importing project summary information ............................................................................... 30

Selecting the cost model...................................................................................................... 30

Browsing the Task List......................................................................................................... 31


8/127

ix

Activating a parametric task................................................................................................. 32

Entering bid rates................................................................................................................. 36

Cost display options............................................................................................................. 38

Importing bid rates ............................................................................................................... 38

Viewing the cost breakdown report...................................................................................... 40

Viewing the CER basis......................................................................................................... 41Activating another Parametric task ...................................................................................... 42

Entering escalation rates ..................................................................................................... 44

Summary tasks .................................................................................................................... 47

Activating other Parametric tasks ........................................................................................ 47

Displaying the cost summary ............................................................................................... 48

Activating a Fixed Cost task................................................................................................. 49

Activating an Explicit Formula task ...................................................................................... 50

Displaying all active parameters .......................................................................................... 51

Activating a Level of Effort task............................................................................................ 52

Activating a Manual Entry task............................................................................................. 53

Adding a cost category to the estimate................................................................................ 55Adding tasks to the Task List............................................................................................... 58

Entering the task CER basis ................................................................................................ 60

Itemizing travel expenses .................................................................................................... 61

Documenting groundrules and assumptions ....................................................................... 65

4. Getting Results......................................................................................................................... 68

Review the cost estimate ..................................................................................................... 68

Cost estimate reports........................................................................................................... 69

Customizing the report logo ................................................................................................. 71

Customizing the report header............................................................................................. 72

Customizing the rationale .................................................................................................... 72

Report Viewer controls......................................................................................................... 74

Saving reports...................................................................................................................... 74

Using Microsoft Word to generate reports ........................................................................... 75

Customizing reports generated in MS Word........................................................................ 75

Cost risk analysis ................................................................................................................. 76

Displaying and entering cost risk information ...................................................................... 79

The Cost Risk Analysis report.............................................................................................. 80

Charts .................................................................................................................................. 81

Chart options........................................................................................................................ 84

Bid Metrics ........................................................................................................................... 85

Exporting schedule data to MS Project................................................................................ 85

Appendix A Sample Cost Estimate Reports............................................................................. 88

Schedule 1 Direct Labor Tasks and Rationale ................................................................. 90

Schedule 1a Groundrules and Assumptions .................................................................... 91

Schedule 1b Direct Cost Summary by Category............................................................... 92

Schedule 1c Tasks Descriptions....................................................................................... 93

Schedule 1d Basis of Estimate ......................................................................................... 94

Schedule 1e Parameters .................................................................................................. 95


9/127

x

Schedule 1f Task Dates and Performance Factors.......................................................... 96

Schedule 1g Escalation Factors ....................................................................................... 97

Schedule 2 Direct Material List ......................................................................................... 98

Schedule 3 ODC Summary............................................................................................... 99

Schedule 4 Direct Cost Summary by Task ..................................................................... 101

Schedule 5 Direct Cost Breakdown by Task................................................................... 102Schedule 6 Liaison Travel Costs .................................................................................... 105

Schedule 7 Proposal Bid Rates ...................................................................................... 106

Schedule 8 Proposal Cost Summary.............................................................................. 107

Schedule 9 Bid Metrics ................................................................................................... 108

Schedule 10 Cost Risk Analysis ..................................................................................... 109

Index............................................................................................................................................ 111

Authorization Code Request & Registration Form ................................................................. 114

Customer Support Form ........................................................................................................... 115


10/127

xi


11/127

xii

Whats New in Version 3.0

This is the third major release of the CostMetrix ModelBuilder and Estimator suite of parametriccost estimating software for Microsoft Windows-based personal computers. Here is a briefsummary of some of the new features in this release.

Computed parameter formulas in a cost model can now reference other computed parametersso there can be mathematical chains of variables that depend on each other. CostMetrixModelBuilder checks each formula to prevent circular references that cannot be resolved.

Explicit formula tasks can now use formulas that reference other explicit formula tasks sothere can be mathematical chains of explicit formula tasks that depend on each other.CostMetrix ModelBuilder checks each formula to prevent circular references that cannot beresolved.

The basis of the CERs for each task can now be documented in the cost estimate.

ModelBuilder now compiles and embeds cost variance information in the cost model for costrisk analysis. CostMetrix Estimator now includes a Risk Analysis report that shows the likelycost range for each task and the total estimate.

While the internal Report Viewer is still included, reports can now be generated in MicrosoftWord 97 or Word 2000. This feature requires that Word 97 or Word 2000 be installed onyour system.

There are also many subtle improvements under the hood of CostMetrix Estimator. These newfeatures and enhancements help make Estimator even more powerful, faster, and moreproductive. If you have an idea for an additional enhancement, please feel free to contact us atwww.nhysoft.com. We would like to hear it!


12/127

xiii


13/127

CostMetrix EstimatorUsers Guide

Introduction

Welcome to CostMetrix Estimator, a software program that will help youproduce faster, better project cost estimates. CostMetrix Estimator is apowerful and flexible estimating tool that lets you quickly and easily preparedetailed, well-documented project cost estimates based on custom-builtparametric cost models created using a companion software program calledCostMetrix ModelBuilder. These two tools, CostMetrix Estimator andCostMetrix ModelBuilder, are an integrated system that makes estimatingthe cost of complex projects much easier, faster, and more reliable.

This Users Guide describes the features and use of CostMetrix Estimatorfor creating cost estimates. If you will also be designing cost models, youshould first review the CostMetrix ModelBuilder Users Guide and thenreturn to this manual, starting in Chapter 3. This chapter includes thefollowing topics:

What is CostMetrix? What is parametric cost estimating? Benefits of using cost models for estimating What is CostMetrix ModelBuilder?

Cost models and tasks The history of parametric estimating Cost estimating with CostMetrix Estimator Key features of CostMetrix Estimator System requirements

Installing and uninstalling CostMetrix Estimator Getting help

CostMetrix is a revolutionary software suite from NHYSOFT, Inc., designedto facilitate the development and use of custom parametric cost estimating

systems in the engineering and manufacturing fields. CostMetrix makes iteasy to develop and validate powerful parametric cost models, and providesthe tools to automate the use of those cost models for project cost estimatingand cost risk analysis.

CostMetrix consists of two separate software modules; ModelBuilder and

Estimator. ModelBuilder was designed specifically to make the process ofdeveloping, validating, and documenting parametric cost models faster,easier, and less expensive. It offers an intuitive graphical user interface and

1

What isCostMetrix?


14/127

2 Chapter 1 Introduction


automates the statistical analysis functions needed to extract parametric costestimating relationships directly from historical project data.

CostMetrix Estimator lets you quickly and easily create parametric cost

estimates based on your CostMetrix ModelBuilder cost models. It also hasan intuitive point-and-click graphical user interface and simplifies andimproves the cost estimating process with the following key features:

Work elements displayed in a logical hierarchical tree Task-sensitive parameter display and editing Automatic escalation adjustments for material cost inflation Easy importing of bid rates and factors Automatic generation of rationale and basis of estimate documentation Graphical display of cost and resource profiles during the period of the

project.

Cost risk analysis to show the range of cost uncertainty that can beexpected with each estimate. Reports output directly to Microsoft Word.

This manual describes the features and use of CostMetrix Estimator. Thereader is referred to the users guide for CostMetrix ModelBuilder for adetailed description of that product.

Cost estimating is a critical business function in industries such as manu-facturing, engineering, and contracting. In many cases, the accuracy of theproject cost estimates can determine the ultimate success or failure of thecompany. Parametric cost models are powerful tools that can provideaccurate project cost estimates in a fraction of the time and effort of tradi-tional methods. Indeed, they are so effective that the U.S. Department ofDefense (DoD) stated in the. the Parametric Estimating Handbook1 thatusing parametric cost models "can result in significantly reduced proposaldevelopment, evaluation, and negotiation costs, and associated cycle timereductions".

In its simplest terms, a cost model is a set of algorithms (mathematicalformulas) for estimating cost. These algorithms model the keyrelationships between project variables and cost. CostMetrix ModelBuilderuses a graphical user interface to help you build sophisticated cost models

for your projects. Once developed, a CostMetrix ModelBuilder cost model isa very powerful business tool that can be used with CostMetrix Estimator forcost proposals, internal budgeting, and strategic decision making.

Parametric cost models fall into two categories; commercial andproprietary(company-developed). Commercial parametric estimating models contain1The Parametric Cost Estimating Handbookis available through the International Society ofParametric Analysts (ISPA) and can be downloaded from the parametric cost estimating website at www.ispa-cost.org/PEIWeb/.

What is parametriccost estimating?


15/127

Chapter 1 Introduction 3


generic algorithms and estimating methods based on a database of industry-wide data, encompassing many different products. A company must calibratea commercial parametric model to make it useful for estimating of the costsof that specific organization, before it is used as a basis of estimate forproposals submitted to the Government or higher-tier contractors.

According to the Parametric Estimating Handbook, one key reasoncompanies develop proprietary parametric cost models is because they havespecific estimating needs that cannot be met using commercial parametricmodels. In many instances the algorithms and estimating methods in acommercial cost model do not adequately represent the specific products,cost-drivers, technologies, processes, or business culture of a particularcompany.

Unfortunately, few specialized tools are available to assist the individual orcompany in the development or use of proprietary cost models, particularlycost models that rely heavily on historical cost data for the derivation ofCERs. Spreadsheet programs are the most commonly used tools for this

purpose but they have significant shortcomings. For example, it typicallyrequires a substantial time investment to develop a workable layout andstructure for cost model design with effective algorithms for parametric CERderivation, especially for those who are less than seasoned cost modeldevelopers.

Deploying spreadsheet-based cost models to a group of estimators presentscertain logistical problems such as how to ensure that the most recentversion is being used, and how to prevent estimators from altering keyfeatures like CERs, either accidentally or intentionally. Spreadsheetprograms can result in fragile estimating tools that can be easily misusedby unfamiliar users and may require the intimate knowledge of the developer

to operate effectively.Spreadsheet-based cost models can also be difficult and labor intensive tomaintain. Frequently, only the original developers understand them wellenough to perform regular maintenance functions, and/or explain them toauditors. As a result of all of these issues, many companies have limitedsuccess developing proprietary parametric cost models, or they avoid tryingat all.

ModelBuilder and Estimator are an integrated set of software programsfrom NHYSOFT, Inc., developed specifically to assist companies indeveloping and using proprietary parametric cost models. These programswere designed to overcome the real-world challenges of parametric cost

model development and deployment described above. CostMetrixModelBuilder is used for cost model development and CostMetrix Estimatoris used for generating cost estimates.

The figure below shows a diagram of the cost model development processrecommended by theDoD Parametric Estimating Handbook. CostMetrixModelBuilder and CostMetrix Estimator were designed to perform or assisteight of the ten major steps.


16/127



Identifying the Parametric Opportunity

Preliminary Model Design Information Systems Needs

Data Collection/AnalysisModel Development

Calibration/Validation EstimatingPolicies/Procedures

Internal Approval ProcessExternal Approval Process

Model Maintenance

steps where CostMetrix ModelBuilder and Estimator aid costmodel development and use

=

1

2

5

6

9

10

3

4

7

8

CostMetrix ModelBuilder makes the process of developing, validating, anddocumenting cost models faster, easier, and less expensive than usingconventional tools such as spreadsheets. The software provides an easy touse graphical user interface that was created specifically for cost modeldevelopment and maintenance. Using its unique CER Solver, CostMetrixModelBuilder can automatically derive parametric cost estimatingrelationships (CERs) from historical data compiled from a companys priorprojects. It also analyzes the quality of the cost estimating relationships itderives using standard statistical measures of accuracy and correlation tohelp the developer assess the cost model quality.

A CostMetrix ModelBuilder cost model is easy to maintain and update withnew project data, even by someone other than the original developer. Itprovides comprehensive documentation of the cost model details andstatistics to make auditing easy, and produces a robust cost model that can be

easily deployed directly to estimators or stored on a server for easy versionmanagement.

CostMetrix Estimator is the second part of the integrated cost estimatingsystem. It lets estimators quickly and efficiently produce cost estimatesbased on the cost estimating relationships contained in CostMetrixModelBuilder cost models. It has intuitive graphical user interface that isdesigned specifically for parametric cost estimating, with a checklist formatfor selecting tasks, and convenient prompts for needed parameter values.


17/127



CostMetrix Estimator can import labor bid rates, record groundrules andassumptions, automatically adjusts material and other direct costs forinflation based on escalation tables, and use manual cost entries for specialcases such as when suppliers or other organizations submit bids that must beadded to the cost estimate.

CostMetrix Estimator provides comprehensive output with summary anddetail cost reports to help the estimator evaluate the results and document theestimate, and the rationale that explains how the estimate was derived forarchive and audit purposes. It also provides charts of cost by month duringthe proposed project to identify resource needs and reveal spending profiles.Of course the completed estimate can be saved electronically on disk forarchive, review, or editing.

Some of the many benefits of using parametric cost models for estimatingare:

More reliable estimates with less subjectivity A cost model derived andvalidated using historical cost data will be much less subjective thanpersonal estimates and will prove consistently more reliable.

Much faster estimates and estimate revisionsA cost modelcan eliminatemuch of the labor and tedium associated with creating cost estimates.Estimates that might take many hours to prepare by manual methods can begenerated in minutes with a cost model. Estimate revisions can also be madequickly and easily.

Consistently higher estimate quality with minimal estimator-to-estimator

variability A good cost model can allow less experienced estimators toproduce estimates comparable in quality to the best estimators in theorganization because the critical estimating rules are built into the costmodel and do not rely upon the estimators personal experience.

Track cost trends and productivity using the metrics developed with the

cost model A cost model can provide important cost and performancemetrics which measure the productivity and efficiency of an organization.

Implement design-to-cost with a cost model Since it facilitates rapid costestimating, a good cost model allows project parameters to be quicklyiterated and optimized to achieve cost targets, and that is the fundamental

basis of design-to-cost.

Reduced cost of estimating With a cost model, cost estimates can beprepared in a fraction of the time compared to manual methods, saving laborcosts as well as cycle time. The time associated with developing a costmodel can be easily recovered many times over by the savings realizedthrough subsequent estimates.

Benefits of usingcost models for

estimating


18/127



Highly supportable cost estimates A supportable cost estimate is one thathas a reasonable and logical basis. A good cost model uses objective dataand methods, thus providing a sound basis for estimating which canwithstand the scrutiny of audits.

CostMetrix ModelBuilder builds cost models in a way that is analogous tothe way a finite element program builds structural models for stress analysis.A finite element program can model complex structures by breaking themdown into small pieces, each of which can be accurately characterized usingvarious types of standard elements. In other words, complex structures areanalyzed as the sum of many simple elements. Once built, a finite elementmodel can be subjected to various load cases to accurately predict stresses,strains, etc.

In a similar way, CostMetrix ModelBuilder models the cost of a complexproject by breaking it down into individual elements or tasks, each of whichcan be estimated using various types of standard relationships or algorithms.The cost of a complex project can then be readily estimated as the sum of thecost of the individual tasks.

Each task in a CostMetrix ModelBuilder cost model can have its own uniquealgorithms for calculating cost. CostMetrix ModelBuilder lets youincorporate cost estimating relationships you may have previouslydeveloped, plus it includes a powerful Solverthat can automatically derivecost estimating relationships from past project cost data. This is a powerfulcapability that no other cost estimating system offers.

A cost model needs a user interface to make it useful for estimating.CostMetrix Estimator was designed specifically for this purpose. It allowsyou to create cost estimates quickly and efficiently using any CostMetrixModelBuilder cost model. It makes selecting tasks and entering parametersfor cost estimates easy, and it offers a complete set of reports to documenteach cost estimate. These reports are comprehensive enough to support costproposals in both the government and commercial contracting domains.

These two tools, CostMetrix ModelBuilder and CostMetrix Estimator are anintegrated system that can dramatically reduce the time and labor required tocreate high-quality project cost estimates. In a typical scenario, a few keyindividuals in a department or division use CostMetrix ModelBuilder to

develop cost models for each project type that is commonly bid. Toolsincluded in CostMetrix ModelBuilder allow you to assess and validate thequality of the cost model as it is being developed. Once the cost models arecompleted, tested, and approved by management for bidding purposes, theyare distributed to each individual in the organization that generates projectcost estimates, along with the CostMetrix Estimator software. CostMetrixEstimator can read the contents of CostMetrix ModelBuilder cost models butcannot edit them, so there is no chance that the basic estimating algorithmswill be accidentally (or intentionally) altered by estimators.

What is CostMetrixModelBuilder?


19/127



When cost estimates are prepared using CostMetrix Estimator, managementwill have more confidence in the cost proposals because the estimatingalgorithms are well established and are pre-validated. This simplifies thereview process greatly and expedites the flow of the estimate through the

typical approval steps.

The cornerstone of a CostMetrix ModelBuilder cost model is the Task List; ahierarchical set of work or cost elements. Cost estimators select tasks fromthis list to be included in each project cost estimate. Each task in the TaskListhas unique cost estimating relationships (except Summary tasks andManual Entry tasks described below).

A Parametric task is employed when CostMetrix ModelBuilder is used toderive cost estimating relationships based on parameters and cost datacollected from prior projects.

A Fixed Cost taskis used when the cost of a task is a fixed amount of labor,material, or other direct costs.

ALevel of Effort taskis used when the cost of a task is proportional to itsduration. The cost/week (in hours and/or dollars) is defined in the cost modeland the estimator specifies the duration of the task.

AnExplicit Formula taskis used when the cost estimating relationship is afunction explicitly defined by the cost model designer. It may involveconstants and parameter values, or it can be a function of the cost of othertasks in the cost model.

AManual Entry taskis used when the cost estimate for a task must beentered manually. This type is frequently used when a cost estimate for atask must be provided by an outside organization, such as a subcontractor.

A Summary taskis used in a cost model to break a major activity down intomultiple subtasks. The Summary Taskserves as a cost summary for a groupof subordinate subtasks.

Therefore, there are six different types of tasks you may encounter whenusing CostMetrix Estimator.

A key goal in the development of CostMetrix ModelBuilder and CostMetrixEstimator was to make it easier to employparametric estimating techniqueswhich are recommended by the U.S Department of Defense (DoD) as thebest practice for cost estimating. According to the DoD, a parametric costestimate is one that uses cost estimating relationships and associatedmathematical algorithms (or logic) to establish cost estimates. Aparametric

Cost models andtasks

The history ofparametricestimating


20/127



cost model is a group of cost estimating relationships used together toestimate entire cost proposals that consist of multiple cost elements.

Parametric cost modeling techniques were first developed in the 1950s bythe Rand Corporation for the DoD for estimating the cost of new military

acquisition programs. Rand Corporation, a think-tank for independentanalysis had a staff of cost analysts that proved to be early pioneers in the artand science of cost analysis. Rand developed the basic tool of the parametriccost estimating technique, which they called the cost estimating relationship(CER), to predict the cost of aircraft as a function of variables such as speed,range, and altitude.

The cost estimating relationships Rand developed did not attempt to analyzethe cost of a project at the lowest levels of activity. Instead, they focused onthe high-level cost drivers. They discovered that meaningful relationshipscould be developed between the cost of fighter aircraft and parameters suchas speed, range, and altitude. They could further improve estimatingaccuracy by breaking costs down into major categories and refiningparameters, but they focused on extracting cost trends from high-level datarather than building cost estimates using a bottoms-up approach. Thisresulted in cost models that were easy and fast to use.

Rand concluded that well-designed parametric cost models are powerfulestimating tools that can be surprisingly accurate for predicting the cost ofeven complex systems, and are much easier and faster to use than discretemethods which involve a laborious buildup of labor hours and materials on atask-by-task basis. And they concluded that parametric cost estimating tech-niques could save both Industry and the Government time and money in the

evaluation and definition cycle of proposals and contracts.

Initially, the U.S. government used parametric estimating techniques toprepare budgets for future hardware acquisition, and to evaluate theproposals of defense industry contractors for cost-plus contracts. Since themid 1980s, the government auditing agencies have encouraged defensecontractors to adopt parametric estimating methods because they haveproven to be more reliable, less time-consuming, and less costly to prepare,and are much easier to audit than traditional bottoms-up estimates.

In 1994, the Department of Defense launched theJoint Government/IndustryParametric Estimating Initiative Steering Committee to study ways to

enhance the use of parametric estimating techniques. This Committeesponsored the development of the Parametric Cost Estimating Handbook2, ageneral guide for implementing and evaluating parameter-based estimatingsystems. This handbook is the industry guide for parametric cost estimating

2The Parametric Cost Estimating Handbookis maintained by the International Society of

Parametric Analysts (ISPA) and can be downloaded from the parametric cost estimating website at www.ispa-cost.org/PEIWeb/.


21/127



and has a wealth of useful information for anyone involved in costestimating.

According to the Parametric Cost Estimating Handbook, it is important thatall cost estimating relationships be carefully tested for validity using

historical cost and labor hours and standard statistical approaches. In otherwords, parametric cost estimating relationships should be derived from andtested against historical data whenever possible. The handbook sayshistorical cost and labor hours data are required as a basis for estimating,and parametric estimating is no exception. A method that uses the cost ofpast projects, analyzed in a disciplined manner, invariably yields morereliable results than a subjective estimate.

CostMetrix ModelBuilder was designed to make history-based parametriccost models much easier to develop. For further details on the features anduse of CostMetrix ModelBuilder for cost model development, the reader isreferred to the CostMetrix ModelBuilder Users Manual.

CostMetrix Estimator is a cost estimating program for use with CostMetrixModelBuilder cost models. Using the CostMetrix Estimator program andCostMetrix ModelBuilder cost models, you can quickly create fullydocumented estimates (cost proposals) with rationale. The amount of timeand effort required to produce cost estimates is dramatically reduced usingCostMetrix Estimator compared to traditional bottoms-up estimatingtechniques.

CostMetrix Estimator was designed to allow a group of cost estimators to

use a cost model for generating cost proposals. These estimators may havehad little or no involvement in the creation of the cost model. Therefore, theuser interface for CostMetrix Estimator is designed to make the estimatorsinputs and options as simple and intuitive as possible. Tasks are selectedwith the mouse and prompts are provided for any needed parameter values.CostMetrix Estimator also displays helpful hints like task definitions andunits for parameters.

When you start a cost estimate with CostMetrix Estimator, you select whichCostMetrix ModelBuilder cost model to use as the basis. CostMetrixEstimator extracts the tasks and cost estimating relationships from the costmodel and encapsulates them into a cost estimate file. You then use a menu

to select the tasks that apply to the project you are estimating and enterproposal-specific data such as parameter values, bid rates, etc. You are thenready to review the cost estimate and expenditure profiles and print summaryand detailed cost proposal reports. The entire process can take just minutesto complete.

A CostMetrix ModelBuilder cost model is not modified when a cost estimateis created. Each cost estimate is saved in a separate file with a .cefextension,

Cost estimatingwith CostMetrixEstimator


22/127



which can be reopened with CostMetrix Estimator at any time for review orrevision. Any future changes made to a CostMetrix ModelBuilder costmodel will not affect prior estimates created with that cost model.

Ease of use and speed are two very desirable characteristics in a costestimating system. However, the most important characteristic is that itprovides reliable predictions of the cost to perform future projects.CostMetrix ModelBuilder and CostMetrix Estimator are designed to notonly reduce the time required to create estimates, but also to improveestimate accuracy.

It may not be obvious that a parametric estimate could be as reliable as atraditional bottoms-up compilation of labor hours and materials. However,the DoD found that parametric estimating techniques, when properlyapplied, are almost always superior to bottoms-up methods. In fact, the DoDdetermined that parametric techniques are a credible cost estimatingmethodology that can provide accurate and supportable contractor estimates,lower cost proposal processes, and more cost-effective estimating systems.

History-based parametric cost models are typically much more accurate thanbottoms-up estimates for several reasons:

1. They are based on past project data, so they are more objective and areless likely to be influenced by the estimators biases about the project.

2. Parametric cost models can be built to account for subtle variations inproject conditions or groundrules, which are hard to accurately accountfor in bottoms-up cost estimates.

3. Parametric cost models can be updated to account for changing businessconditions or process changes.

4. A parametric cost estimate can be revised quickly and easily if require-ments or groundrules change.

The concept ofcost estimatingaccuracy varies from business to business.For example, a contractor that builds tract homes that are essentiallyidentical may need to estimate his future costs to within a few percent to beable to bid competitively against other contractors. On the other hand, anengineering manager on a high-technology development project may be veryhappy if he can predict his costs to within 15%, knowing the typical costrisks inherent to developing a new product.

Competitive pressures often determine the accuracy a particular businessneeds in its cost estimates. If gross profit margins are 50%, then an accuracy

of20% may be adequate to bid jobs and ensure profitability. If the marketonly allows a gross profit margin of 10%, a much more accurate cost modelis needed. Businesses that bid fixed-price jobs typically require moreaccurate cost estimates than those that bid on a time-and-materials basis.

For betterestimatingaccuracy


23/127



An important factor in determining how accurate your cost estimatingsystem can be is to understand how well controlled your processes are forperforming the project. If the processes are well-defined, controlled andconsistently executed, the costs incurred will generally have very predictabletrends. In such a case, a well-designed parametric cost model should be able

to predict the costs quite accurately. However, if the processes or the peoplethat perform them vary substantially from one project to the next, the costswill vary significantly, and no cost model will be able to predict the cost offuture projects with high accuracy.

There are many benefits of using CostMetrix Estimator for cost estimating.Here are a few:

It uses a friendly graphical user interface for cost estimate preparationwith intuitive point and click, and drag and drop operations.

CostMetrix Estimator provides a consistent user interface andmethodology for all cost estimates regardless of cost model.

The cost estimating relationships are built into the cost model so theestimator does not have to derive them with each cost estimate.

Cost models can be validated and approved by management inadvance so only the specific project options and parameters need to bechecked when a cost estimate is prepared.

Cost models can be easily and quickly updated and deployed toestimators so they can track the most current project trends andbusiness conditions.

CostMetrix Estimator provides a complete set of reports to documentyour cost estimate.

CostMetrix Estimator cost estimates are completely auditable.

CostMetrix Estimator performs cost risk analysis based on costvariance statistics contained in CostMetrix ModelBuilder cost models.

CostMetrix Estimator was developed to help you create high-quality costestimates. What does high-quality mean in the context of cost estimates? Ahigh-quality cost estimate has the following key characteristics:

1. Its accuracy is understood and quantitatively validatedbased on pastproject performance.

2. It provides theflexibility necessary to allow you to tailor estimates forthe unique characteristics of each project you estimate.

3. It produces supportable estimates, i.e., they are derived by reasonablededuction which can be logically explained.

4. It is auditable, i.e., itis well documented including the means by whichestimating relationships are derived and validated.

For best performance, the computer system requirements for CostMetrixEstimator are:

Key features ofCostMetrixEstimator

What is a highquality costestimate?

Systemrequirements


24/127



Microsoft Windows 95/98 or Windows NT 4.0 or later.

A Pentium 133 or higher processor.

A minimum of 32 MB of RAM. Approximately 15 MB of available hard disk space.

A VGA color monitor with 640 x 480 resolution or higher and 256colors or higher (800 x 600 and 16,000 colors is better).

To install CostMetrix Estimator on your computer:

1. Start Windows and insert the CostMetrix ModelBuilder CD-ROM intoyour CD-ROM drive.

2. Using theMy Computericon or Windows Explorer, open a directory ofthe CD-ROM, and open the folder calledEstimator Install.

3. Double-click the file called setup.exe.

4. Follow the instructions on the install screens until the install is finished.

If you need to uninstall CostMetrix Estimator to update to a newer version orfor any other reason, follow these steps:

1. Click on the Start button and select Settings/Control Panel.2. Double click on the Add/Remove Programsutility.3. On the Install/Uninstall tab, select CostMetrix Estimator from the list of

installed programs, and clickAdd/Remove.4. Follow the on-screen instructions to remove CostMetrix Estimator from

your hard drive.

NOTE: It is safe to remove all shared files in the CostMetrix Estimator installationdirectory during an uninstall, and you should always do so before installing a laterversion of CostMetrix Estimator.

In addition to this manual, CostMetrix Estimator has an online help systemyou can access with the F1 function key. You can also open the help systemwindow by selecting Help Topics from the Help menu.

InstallingCostMetrixEstimator

UninstallingCostMetrixEstimator

Getting help


25/127


Overview

This chapter provides an overview of the terms and concepts you should befamiliar with when using CostMetrix Estimator, and it will prepare you tobegin the tutorial in Chapter 3 entitled Using CostMetrix Estimator. This

chapter also provides some helpful background information on cost modelprinciples for cost estimators.

The topics covered in this chapter are:

How CostMetrix Estimator works Tasks

Parameters

Cost categories Escalation factors Cost vs. price Overhead and G&A

CostMetrix Estimator produces project cost estimates based on costestimating algorithms contained in CostMetrix ModelBuilder cost models,and inputs provided by the estimator that apply to each specific project.When you start a cost estimate with CostMetrix Estimator, you select thecost model to use as the basis of the estimate. For example, you might haveseveral different cost models for different products you produce or servicesyou provide. When you select the one that applies, CostMetrix Estimatorreads the cost model file and extracts the cost model information such as thetasks, parameters, cost estimating relationships, etc.

CostMetrix Estimator allows you to customize each cost estimate byselecting the tasks, parameter values, and bid rates that apply. CostMetrixEstimator then calculates the cost of each task based on the cost estimatingrelationships stored in the cost model. You can also add supplemental tasksthat are not included in the cost model if needed, entering the cost estimatesmanually.

2

How CostMetrixEstimator works


26/127

14 Chapter 2 Overview


When you have completed the task selection and parameter data entry, youcan print a comprehensive set of reports to fully document your costestimate, including the tasks, parameters, period of performance, and thelabor, material, and other direct cost breakdown, etc. And of course you cansave your estimate on your hard drive or floppy disk for future reference or

updates.

Making revisions to a CostMetrix Estimator cost estimate is very easy. Youcan quickly add or remove tasks, change parameter values or rates, andinstantly recalculate the cost breakdown. Therefore, you can use CostMetrixEstimator to easily evaluate different proposal options, comparing cost andbid parameters, and using it as a powerful design-to-cost3 tool. For example,you can use it to determine the project parameters required to achieve adesired target cost.

To use CostMetrix Estimator effectively, there are a few cost model termsyou should be familiar with. The next few sections of this manual define

these terms so you will understand their meanings and relationships whenyou encounter them in the tutorial of Chapter 3. If you are already familiarwith CostMetrix ModelBuilder, you might want to skip directly to Chapter 3.

CostMetrix Estimator uses an activity-based cost model approach, meaningthat a project is broken down into discrete activities or cost elements whichare called tasks. Each task is an independent entity and has its own costestimating relationships for labor, material, or other direct costs (ODC). Thisactivity-based approach allows the cost estimator the flexibility to select thetasks that apply to each cost proposal and omit those that are not appropriate.

For example, you might have a task calledAnalysis that includes severalsubtasks representing the various types of analysis that might be performedon a project. There could be Thermal analysis, Stress analysis,Reliabilityanalysis, etc., as shown below.

Analysis - Thermal Analysis Stress Analysis Reliability Analysis

In this example,Analysis is called a summary taskbecause it represents thesum of the cost of all the subtasks under it. The tasks underAnalysis are

independent activities and each one of these could also be further brokendown into subtasks by the cost model designer if appropriate to provide theestimator with flexibility in selecting task elements that may be needed forproposals. Not every project would necessarily require every type ofanalysis, so the estimator can choose the analysis tasks that should beincluded for each estimate. Therefore, the list of tasks serves as a checklist to

3Design-to-cost is a term for the process of tailoring a product design, including itscharacteristics, features, and performance to meet a specific cost target.

Tasks


27/127

Chapter 2 Overview 15


help the estimator include all the tasks and costs that apply to a project,while omitting those that do not. The example cost estimate described inChapter 3 illustrates a simple Task Listwith multiple hierarchical levels.

NOTE: CostMetrix ModelBuilder allows Task Listswith up to six indentured levels soyou can have extremely detailed project cost model structures.

Each task in the Task Listhas it own unique cost estimating relationships(except Summary tasks andManual Entry tasks described below) that arederived by CostMetrix ModelBuilder from past project cost data, or aredefined explicitly by the cost model designer.

Government contractors refer to the task list as a Work Breakdown Structure(WBS) and each task is called a WBS element. Government document MIL-STD-881B provides guidelines for creating a WBS for the Department of

Defense and its contractors. However, familiarity with that specification isnot required to use CostMetrix ModelBuilder.

There are six different types of tasks that you may encounter in a CostMetrixEstimator cost estimate. The primary difference between the types of tasks isthe way the cost estimating relationships are derived or computed. The typesare:

Summary tasks

Parametric tasks

Fixed Cost tasks

Level of Effort tasks Explicit Formula tasks

Manual Entry tasks

The sections that follow describe each type of task in greater detail. Theexample cost model described in Chapter 3 illustrates how each one can beused.

A Summary task serves as a cost summary for a set of related subtasks. ASummary task does not actually have a cost estimating relationship of its

own; its cost is simply the sum of the cost of all the subtasks under it.Summary tasks can have other Summary tasks beneath them, so you canbuild multi-level task structures to represent complex task hierarchyrelationships.

Task types

Summary tasks


28/127



AParametric task is used in a cost model to predict the cost of a workelement based on specific user-defined parameters and past project cost data.The cost model designer specifies the parameters and provides historicalproject data to CostMetrix ModelBuilder, which then derives mathematicalcost estimating relationships (i.e. algorithms) that predict cost based on the

parameter values.

The general form of a Parametric task cost equation is shown below forlabor, material and ODC costs derived based on a parametric relationship.

Labor Cost = fL(P1, P2, P3 ...) in units of labor hours

Material Cost = fM(P1, P2, P3 ...) in units of $

ODC Cost = fO(P1, P2, P3 ...) in units of $

where P1, P2, P3 ... are user-defined parameters and fL(P1, P2, P3 ...), fM(P1, P2, P3...),andfO(P1, P2, P3 ...) are functions which are derived by CostMetrixModelBuilder based on the historical cost data entered by the cost modeldesigner.

When you activate a Parametric task in CostMetrix Estimator, it will presenta list of parameters for which you must enter values based on the specificproject you are estimating. CostMetrix Estimator will then automaticallycalculate the labor, material and ODC cost estimates for that task.

A Fixed Costtaskproduces a fixed cost estimate. In other words, the cost is

always the same. It is not a variable amount that depends on projectparameters or variables. Fixed Costtasks are commonly used for fixed setupor tooling charges. The cost estimate for this type of task is pre-defined bythe cost model designer. It is not parametrically derived from prior cost databy CostMetrix ModelBuilder.

The general form of a Fixed Costtask cost equation is shown below forlabor, material and ODC costs.

Labor Cost = CL in units of labor hours

Material Cost = CM in units of $

ODC Cost = CO in units of $

where CL, CM, and COare constants defined by the cost model designer.

When you activate a Fixed Costtask in CostMetrix Estimator, the cost isadded directly to the project estimate. No parameter values are required.

Parametric tasks

Fixed Cost tasks


29/127



ALevel of Efforttask produces a cost estimate that is duration dependent.That is, it is proportional to the duration of the task. The cost (be it labor,material, ODC, or some combination of these) is incurred at a constant rateduring a fixed period of performance. The cost model designer predefines

the cost per week for this type of task; it is not parametrically derived fromprior cost data by CostMetrix ModelBuilder.

The general form of theLevel of Efforttask cost equation is shown below forlabor, material and ODC costs.

Labor Cost = LL * t in units of labor hours

Material Cost = LM * t in units of $

ODC Cost = LO * t in units of $

where LL, LM,andLOare constants (hours/week or $/week) defined by the costmodel designer and t is the duration of the task in weeks.

When you activate aLevel of Efforttask in CostMetrix Estimator, you mustspecify the start and end dates of the task. The cost of the task is thencomputed by CostMetrix Estimator based on the cost per week specified inthe cost model.

AnExplicit Formula task is used in a cost model when the cost modeldesigner defines a cost estimating relationship explicitly, rather than having

CostMetrix ModelBuilder derive it from historical project data. The formulafor the cost calculation is specified in the cost model and can includeparameter values entered at the time that the project estimate is prepared.

The general form of theExplicit Formula task cost equation is shown belowfor labor, material and ODC costs derived based on a parametricrelationship.

Labor Cost = fL(P1, P2, P3 ..., CiL) in units of labor hours

Material Cost = fM(P1, P2, P3 ..., CiM) in units of $

ODC Cost = fO(P1, P2, P3 ..., CiO) in units of $

where fL(P1, P2, P3 ..., CiL), fM(P1, P2, P3 ..., CiM), and fO(P1, P2, P3 ..., CiO) are explicitfunctions entered by the cost model designer, P1, P2, P3... are parameter valuesentered by the estimator, andCiL, CiM, and CiOare the labor, material, and ODCcosts of other tasks in the cost model.

Level of Efforttasks

Explicit Formulatasks


30/127



When you activate anExplicit Formula task in CostMetrix Estimator, it maypresent a list of parameters for which you must enter values based on thespecific project you are estimating. CostMetrix Estimator will thenautomatically calculate the labor, material and ODC cost estimates for thattask.

AManual Entry taskis used in a cost model when the cost estimate for atask must be entered manually by the estimator. This task type is often usedin cases where subcontractors provide separate estimates for specific parts ofan overall project.Manual Entry tasks can also be used when no other basisis available to predefine the method of estimation. In such cases, bottoms-upestimating methods can be used until adequate historical cost data isaccumulated with which you can convert theManual Entry task into a

Parametric task. You can also addManual Entry tasks to the cost estimate inCostMetrix Estimator for tasks that were not anticipated when the costmodel was designed.

No algorithms are used forManual Entry tasks. All manual entry costestimate data are entered by the estimator in separate labor, material, andODC categories.

Parameters are the project variables that have a direct impact on projectcost. If you are a circuit board designer, the number of components on thecircuit board might be one of the parameters in your cost model forestimating the cost of designing it. The inference is that cost increases as thenumber of components increases. Likewise, if you are a civil engineer, the

length of a bridge might be a parameter in your cost model to estimate thecost to construct it. CostMetrix Estimator can handle simple linear costrelationships as well as complex nonlinear relationships between parametervalues and cost.

Parameters are not limited to numerical quantities. They can also be non-numerical values such as complexity factors, quality factors, etc. Forexample, if you were a carpet installer, you would have padding in severalquality grades at different costs. Your cost model might have a parameter forthe quality grade with several different grade values (Grade A, Grade B,...etc.).

CostMetrix Estimator utilizes four different types of parameters, each ofwhich is described below.

Manual Entrytasks

Parameters


31/127



The simplest parameter type is aquantity parameter, which is a simplenumerical value such inches, acres, number of showers, components on thecircuit board, etc. CostMetrix Estimator will list each quantity parameter andcan display the units you should use when entering the values.

A cost model may have predefined limits on the range of acceptable valuesfor quantity parameters. You may not be able to enter values above a certainmaximum or below a certain minimum. This is sometimes implemented in acost model to limit parameter values to a range of known validity.

In the real world, not every parameter has a simple numerical value. Forexample, complexity factors and quality factors typically dont have anatural numerical value. For these, it is often best to rank them on a relativebasis. Scale and grade parameters were created to address these cases.

A scale parameteris a parameter with a specified numerical range that ispresented with a set of descriptive reference values. This parameter type isoften used for variables that may be somewhat subjective or difficult toquantify otherwise.

CostMetrix Estimator will show each scale parameter along with its list ofreference values and descriptions. You can use these descriptions asreference points when assigning a value for each future project whencreating estimates. For example, suppose you have a design complexity scaleparameter with a range from 1 to 5. The name of a past project could beassociated with each integer reference value. You could compare thecomplexity of a future project you are estimating to the known complexity of

the past projects listed in the scale definition and pick a numerical value thatis appropriate. In other words, you would rank the parameter value inrelation to the other known projects.

Unlike a gradeparameter, which must be assigned one of the specific valuesin the grade list, a scale parameter is a continuous range and you mayinterpolate between the predefined reference values. For example, you couldenter 3.5 for the complexity value if you thought it fell between the 3 and 4reference values.

A grade parameteris a non-numerical parameter that can be used to define a

variable that must be one of several specific values. Assume for example,you develop software for commercial and military customers. If the cost ofmilitary software development is typically higher than commercial softwaredevelopment, you might have a grade parameter with two possible values;commercial and military. A grade parameter must have a valuecorresponding to one of the discrete values in the list of options. CostMetrixEstimator will show each grade parameter along with a list of valid inputs.

Quantityparameters

Scale parameters

Grade parameters


32/127



Computed parameters are calculated automatically by CostMetrix Estimatorbased on a formula entered by the cost model designer. As an estimator, younever have to directly enter a value for a computed parameter. CostMetrixEstimator will prompt you for any related parameter values that may beneeded to calculate the value of a computed parameter.

Project costs fall into three types; labor, material, and other direct costs(ODC). Labor costs are the hourly pay and/or salary costs associated withthe personnel performing or supporting the work. Since salaries and payrates change with time, CostMetrix Estimator computes labor estimates inunits of labor hours. It then calculates labor cost estimates by multiplying theestimated labor hours by the labor rates (i.e. $/hr) that will be in effect at thetime the work will be performed.

Material costs consist of the purchased materials, supplies, or parts requiredor consumed in the actual execution of the work. For example, a contractorsmaterial might include lumber, nails, saw blades, cement, insulation, etc.

ODC is a general category that covers all costs that are not labor ormaterials. Common examples are travel and reproduction expenses, legalfees, licenses and permits, finance charges, etc.

Within these three broad cost types are a number of specific cost categories.Labor categories correspond to the pay grades or salary grades of thepersonnel on the job. For example, labor categories could be ProjectManager, Sr. Engineer, Machinist, Clerk, etc. Each labor category has aspecific direct labor rate ($/hr) associated with it.

Material categories could includeRaw Materials, Parts, Supplies, etc.,whereas ODC categories might beEquipment Rental, Travel, Legal Fees,etc. Material and ODC categories are used in a cost model to distinguishbetween various types of expenses.

Labor Material

Project Manager

Sr. Engineer

Engineer 1

.

.

.

Cost Types in

each Task

Other Direct

Costs (ODC)

Raw Material

Purchased Parts

Supplies

.

.

.

Travel

Reproduction

Subcontracts

.

.

.

Computedparameters

Cost categories


33/127



The cost models you use should include the appropriate labor, material andODC categories for your bidding purposes. For example, if all material costsare to be lumped together, only one material category calledMaterial mightbe included in the model. If the cost model designer collected and sorted

different types of material into specific categories, CostMetrix Estimatorwill provide a breakdown of the material estimates into those categories. Thesame is true for labor and ODC.

If you performed two identical projects a year apart in time, you wouldprobably not incur the same material or ODC expenses. Even if all otherproject variables could be controlled and held constant, inflation will usuallycause material and ODC costs to rise from year to year. This factor should beaccounted for in a cost estimating system. Inflation of material and ODCcosts with time is handled by escalationfactors in CostMetrix Estimator.

Escalation is an accounting term for material inflation. CostMetrixModelBuilder cost models include escalation factors for prior years, whichare used to adjust the actual material and ODC costs in the database up to thedate the cost model is compiled. CostMetrix Estimator allows you to enterprojected escalation factors for future years. It will then adjust the materialand ODC estimates to account for escalation from the cost model compiledate, up to the midpoint of the specified period of performance for each task.All this is handled automatically for you. You just have to provide theescalation factors if you want to take advantage of this feature.

The terms costandprice are often confused when discussing cost estimatingsystems. Using a literal interpretation, the cost is what your company orbusiness pays to execute a project. The price is what you charge yourcustomer for the project. The difference between the cost and the price isyour profit or fee.

CostMetrix Estimator can add a fee to your estimates to produce a projectprice (i.e. cost proposal) if you desire. And it can produce reports fromsummary-level to very detailed with your company logo on them, which youcan provide directly to customers for project proposals.

CostMetrix Estimator uses a traditional method of applying overheadandgeneral and administrative (G&A) expenses. CostMetrix Estimator firstcalculates costs at the direct level, i.e. costs without overhead or G&Aexpense applied. It allows you to enter the burden rates, which are applied tolabor, material, and ODC expenses. It will then apply the overhead andG&A rates you specify and the fee, if any, with subtotals provided at eachlevel.

Escalation factors

Cost vs. price

Overhead andG&A


34/127



This chapter described some of the key terms used in CostMetrix Estimatorand explained some of the main concepts of the program. Of course, it iseasier to learn how these principles are applied while actually using thesoftware. Therefore, Chapter 3 is presented in the form of a tutorial, buildinga sample project cost estimate. After reading Chapters 1 and 2 and installing

CostMetrix Estimator on your system, you are ready to begin Chapter 3 andstart using the program.

Summary


35/127




36/127


Creating a Cost Estimate

This chapter is a tutorial that guides you step-by-step through the creation ofa sample cost estimate, along the way showing you how to use the featuresof CostMetrix Estimator. As you progress youll learn about:

Opening a new cost estimate

Entering estimate summary information and the estimators rsum

Selecting the cost model Selecting the tasks that apply to the project Entering the task parameter values and start and end dates Entering bid rates and escalation

Estimating with fixed cost, level of effort, and explicit formula tasks

Using manual entry tasks Bidding itemized travel expenses Documenting groundrules and assumptions Viewing the cost summary

New users should work through the sample estimate described in this chapter

to become familiar with the features and functions of CostMetrix Estimator.Keep in mind that this is a sample cost model designed primarily for trainingpurposes. The tasks and parameters you use day-to-day will depend upon thecost models you use.

In this chapter youll create a cost estimate for a fictitious company calledJohnson Turbopump Technology that designs and manufactures turbopumpsfor research and industrial applications. In this exercise, you will play therole of J.D. Phillips, a Project Manager at JTT in the EngineeringDepartment, who is creating a cost estimate for a proposal to design a new

pump code named Cyclone.

To get started, launch CostMetrix Estimator and examine the main windowon your screen. You can resize the window by dragging the lower right handcorner to the desired proportions. When you close CostMetrix Estimator itwill remember your window size and position preferences for your nextsession. The data fields on this window are presently blank and some buttonsare disabled because a cost estimate has not been opened yet. You must start

3

Opening a newcost estimate


37/127

Chapter 3 Creating a Cost Estimate 25


a new cost estimate or open an existing estimate file (with a .cef extension)to activate these controls.

Before starting a new cost estimate, take a look at the key features of themain window. Directly below the main menu is the speedbutton barwhich

provides quick access to commonly used functions, such as starting a newestimate, saving an open estimate, or changing display fonts. Pause yourmouse over each button for a moment to see a brief description of eachbuttons function.

Next to the button bar are the main function buttons. In the creation of a costestimate, you will generally progress from left to right through the functionsaccessed by these buttons. You will use each of these functions as youprogress through this lesson.

The left side of the main window contains the Task List, which will display ahierarchical menu of the work elements in the cost model. Each item in thelist is called a Taskbecause each represents a discrete element of work. Itsorganized in a hierarchical outline that can contain multiple levels of tasksand subtasks to represent very complex job structures. You can increase thewidth of the Task Listsection to accommodate long task names by clicking

Task List panel

Task direct cost display

Task information

Main Function Buttons

Project summaryinformation

Splitter bar

Speedbuttons


38/127

26 Chapter 3 Creating a Cost Estimate


the mouse pointer on the vertical splitter bar along its right hand edge anddragging it to the right.

The upper right region of the window is the Project Summary, whichcontains key top-level information about the project you are estimating. The

information displayed in this section will come from the Project Informationdialog box, which you will use shortly.

Below the Project Summary is the Task Detail section where detailedinformation about each task is displayed and entered.

The lower right region of the window is the Task Direct Costsection, whichdisplays the cost estimate computed by CostMetrix Estimator for theselected task, excluding overhead, G&A, and fee, if any.

Select Newfrom the File menu now to start a new cost estimate.

The Project Information dialog box shown below will appear whenever acost estimate is started or opened. It allows you to enter top-level infor-mation about the estimate and the author. It can be reopened and edited atany time in the cost estimate creation process by clicking on the Project Infobutton in the main window.

The upper section includes information about the project that you arecurrently estimating. A description of each item is given below.

Entering projectsummaryinformation


39/127



Project Name: The name of the project you are estimating.

Project No.: Used to assign a unique project number to eachproject in your company or department.

Task Name: If your estimate is only one part of a largerproject, use this line to enter a secondarydescriptive name for the specific part of theproject your estimate covers. For example, theProject Name could be Project Alpha and the

Task Name could be Electrical SystemsDesign.

Estimate Rev.: A user-assigned estimate revision letter ornumber. Used to identify successive revisions ofthe same estimate. Two commonly used

sequences are - (dash) for the original and A, B,C ... for subsequent revisions; and 1 for theoriginal and, 2, 3 ... for subsequent revisions.

Proposal No.: Used to assign a unique number to eachproposal produced by your company ordepartment.

WBS Item No.: This is the work breakdown structure number ofthe work being estimated (only applies if yourcompany uses Work Breakdown Structures).

Option/Bid Code: Option codes (sometimes called bid codes) areused when a proposal includes one or moreoptions. The basic program and options aregiven separate codes to identify how to sort thecost summary.

Customer/Requestor: The customer name (or requestor name forinternal cost estimates).

Project Start Date: The planned start date of the project.

Responsible Org.: The name of the organization responsible forthis project work breakdown item.

Responsible Code: The organization code or ID of the organizationresponsible for this project work breakdownitem.

Performing Org.: The name of the organization performing thisproject work breakdown item. (Sometimes the


40/127



responsible organization and the performingorganization are not the same.)

Performing Code The organization code or ID of the organizationperforming the work for this work breakdown

item.

Brief Project Description: A brief description of the work to be performed.This text will appear on the estimate cover sheet(Schedule 1) as the project description.

Cost Model: This is the name of the cost model used to createthe estimate (handled automatically byCostMetrix Estimator).

Cost Model Compile Date: This is the date the cost model was compiled

(handled automatically by CostMetrixEstimator).

The lower section of the dialog box identifies the cost estimator and theorganization making the estimate. These fields should be self-explanatory.

Enter the project information into the Project Information dialog box asshown in the figure on page 26 for the Cyclone project.

NOTE: At the time this manual was written, the project dates for this estimate were in

the future. However, by the time you read it, the example dates may be in the past.Remember that the dates used in this example are purely for illustration. Obviously,you will normally use CostMetrix Estimator to estimate future projects.

In the bottom left hand corner of this dialog box is a button labeled

Estimators Rsum. Click on this button to open theEstimators Rsumdialog box (you can also open this dialog box by selecting EstimatorsRsum from the View menu). The estimators rsum is a brief descriptionof the qualifications of the person creating the estimate, which will appearon the estimate cover sheet report (Schedule 1 on theReports dialog box).

Enter the brief rsum shown in the dialog box on the next page.


41/127



You can also import the rsum from a simple text file, eliminating therepetition of typing it in for each estimate. Start by typing a short rsum

using the WindowsNotepadprogram. Save it as an ASCII text (.txt) file. Toimport it into CostMetrix Estimator, follow the steps below.

Importing a rsum:

1. Click on the Import button on theEstimators Resume dialog box. The

Open dialog box will appear.

2. Select the (.txt file) that contains the rsum you wish to import andclickOpen. The rsum is imported.

and then click on the OK button to close the window.

Click on the OK button to close theEstimators Resume dialog box, thenclickOKagain to close the Project Information dialog box and return to themain window. You will now see the project name, task name, proposalnumber, etc., listed in the Project Summary section for immediate reference.

Before going on, save the new cost estimate file using a name of your choicesuch as CycloneBid.cef by selecting Save As from the File menu andnavigating to a convenient directory for storing user data.

NOTE: If you are using an evaluation version of CostMetrix Estimator, or if you have

not registered your software and entered the Personal Authorization Code, you willnot be able to save your file at this time. Instead, you will see a registration dialogbox. If you are evaluating CostMetrix Estimator, simply continue on with the tutorialwithout saving.


42/127



Instead of typing in the project summary information for each cost estimate,you can import this information from an existing cost estimate. This savestime if you are creating several cost estimates in a series where most of theproject summary information is the same.

Importing project summary information:

1. Click on the Import from File button on the Project Informationdialog box. TheImport Project Information dialog box will appear.

2. Select the cost estimate (.cef file) that contains the information you wishto import and clickOpen. The project information is imported.

You can now edit the information to suit the cost estimate you are creating.Notice that the estimators resume is also imported with the summaryinformation.

The next step is to select the cost model to use for this estimate. CostMetrixEstimator is a general-purpose estimator so you could have many differentcost models for estimating different types of projects based on the needs ofyour company. You can select the cost model to use

CostMetrix Estimator Guide

Documents

Transcript of CostMetrix Estimator Guide