CostMetrix ModelBuilder Guide

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Parametric Cost Model Development Software

Version 3.0for Windows

Users Guide

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Version 3.0for Windows

Users Guide

Copyright 1999, 2000, 2001 NHYSOFT, Inc.

All rights reserved.

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0RGHO%XLOGHUParametric Cost Model Development Software

Version 3.0

Copyright 1999, 2000, 2001 by NHYSOFT, Inc.26361 Ibeza RoadMission Viejo, CA 92692-5233

www.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 ModelBuilder are trademarks of NHYSOFT, Inc.

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

TM


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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 60days 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

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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 yourexclusive remedy with respect to the Software and is a complete statement of the agreement between you and

NHYSOFT. 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.


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Table of Contents

Page

Whats New in Version 3.0........................................................................................................................... iv

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

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

Benefits of using parametric cost models ................................................................................................ 5

How ModelBuilder works.......................................................................................................................... 6

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

The history of parametric estimating........................................................................................................ 8

Key features of ModelBuilder................................................................................................................. 10

Cost estimating with CostMetrix Estimator............................................................................................. 11

Better estimating accuracy..................................................................................................................... 11

High-quality cost models........................................................................................................................ 13

System requirements ............................................................................................................................. 13Installing ModelBuilder........................................................................................................................... 13

Uninstalling ModelBuilder....................................................................................................................... 13

Getting help............................................................................................................................................ 14

2. Overview .................................................................................................................................................. 16

Tasks ..................................................................................................................................................... 16

Task types.............................................................................................................................................. 17

Summary tasks ...................................................................................................................................... 18

Parametric tasks .................................................................................................................................... 18

Fixed Cost tasks..................................................................................................................................... 20

Level of Effort tasks ............................................................................................................................... 20

Explicit Formula tasks ............................................................................................................................ 21

Manual Entry tasks................................................................................................................................. 22

Parameters ............................................................................................................................................ 22

Quantity parameters............................................................................................................................... 23

Scale parameters................................................................................................................................... 24

Grade parameters.................................................................................................................................. 24

Computed parameters ........................................................................................................................... 25

Cost categories ...................................................................................................................................... 26

Escalation .............................................................................................................................................. 27

Cost and price........................................................................................................................................ 27

Overhead and G&A................................................................................................................................ 28

Summary................................................................................................................................................ 28

3. Getting Started with ModelBuilder ........................................................................................................ 30

Starting a new cost model...................................................................................................................... 30

Entering cost model summary information............................................................................................. 32

Creating the Task List ............................................................................................................................ 33

Basis of the CER.................................................................................................................................... 34

Entering the task description.................................................................................................................. 35

Creating quantity parameters................................................................................................................. 36


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Assigning parameters to tasks............................................................................................................... 38

Deleting parameter assignments ........................................................................................................... 40

Scale parameters................................................................................................................................... 40

Primary and secondary parameters ....................................................................................................... 43

Grade parameters .................................................................................................................................. 43

Running a model check ......................................................................................................................... 45Viewing and printing cost model reports ................................................................................................ 46

Changing the report logo image............................................................................................................. 48

Entering historical project cost data ....................................................................................................... 49

Registering a project .............................................................................................................................. 50

Adding a task record to the project cost database ................................................................................. 51

Percent completed option ...................................................................................................................... 53

Entering parameter values for historical projects................................................................................... 53

Entering historical labor hours ............................................................................................................... 55

Adding to the project history database................................................................................................... 58

Entering escalation factors..................................................................................................................... 62

Viewing and printing historical data reports ........................................................................................... 64Summary................................................................................................................................................ 65

4. Using the Solver...................................................................................................................................... 67

The Solver.............................................................................................................................................. 67

General form of the Solver CER ............................................................................................................ 70

The composite parameter X................................................................................................................... 72

Optimizing parameter ranges................................................................................................................. 73

Polynomial options................................................................................................................................. 75

How the Solver works ............................................................................................................................ 75

Solver controls ....................................................................................................................................... 76

Running the Solver................................................................................................................................. 78

The Parameter Correlation report .......................................................................................................... 81Prediction accuracy reports ................................................................................................................... 81

Taking manual control of the CER solution............................................................................................ 82

Refining the cost model ......................................................................................................................... 83

Update the project data.......................................................................................................................... 85

Rerun the Solver .................................................................................................................................... 86

Adding the New Design Fraction parameter .......................................................................................... 87

Rerun the Solver .................................................................................................................................... 88

Cost risk analysis ................................................................................................................................... 89

Compile the cost model ......................................................................................................................... 92

5. Using Nonparametric Tasks...................................................................................................................94

Fixed Cost tasks..................................................................................................................................... 94

Entering the basis of CER for a fixed cost task ...................................................................................... 97

Entering cost risk for a fixed cost task ................................................................................................... 97

Level of Effort tasks ............................................................................................................................... 98

Explicit Formula tasks .......................................................................................................................... 101

Summary tasks .................................................................................................................................... 107

Manual Entry tasks............................................................................................................................... 108

Compiling the cost model..................................................................................................................... 109


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6. Advanced Topics................................................................................................................................... 111

Guidelines for selecting parameters .................................................................................................... 111

Assessing cost model accuracy........................................................................................................... 112

Step 1 - Verify historical data accuracy................................................................................................ 113

Step 2 Look for missing parameter assignments .............................................................................. 113

Step 3 - Consider the quality of the historical cost data ....................................................................... 113Step 4 - Consider the variability in your processes .............................................................................. 114

Using computed parameters................................................................................................................ 114

Creating a computed parameter .......................................................................................................... 115

Run the Solver to update the cost equations ....................................................................................... 119

Bidding itemized travel expenses......................................................................................................... 121

Defining bid metrics ............................................................................................................................. 121

Merging cost model files ...................................................................................................................... 123

Saving reports ...................................................................................................................................... 124

Final cost model preparations.............................................................................................................. 125

Appendix A - Sample Cost Model Reports.............................................................................................. 128

Cost Model Summary........................................................................................................................... 130

Task List............................................................................................................................................... 131

Basis of CERs...................................................................................................................................... 132

Parameter List...................................................................................................................................... 133

Parameter Details ................................................................................................................................ 134

Cost Categories ................................................................................................................................... 135

Labor Parameter Assignments ............................................................................................................ 136

Material Parameter Assignments ......................................................................................................... 137

ODC Parameter Assignments.............................................................................................................. 138

Explicit Formula Tasks......................................................................................................................... 139

Fixed Cost Tasks ................................................................................................................................. 140

Level of Effort Tasks ............................................................................................................................ 141

Bid Metrics ........................................................................................................................................... 142

Projects ................................................................................................................................................ 143

Project Parameters .............................................................................................................................. 145

Project Tasks ....................................................................................................................................... 147

Project Direct Cost by Category........................................................................................................... 149

Project Direct Cost by Task.................................................................................................................. 154

Escalation Factors ............................................................................................................................... 156

Parameter Correlation.......................................................................................................................... 157

Labor Prediction Accuracy ................................................................................................................... 158

Material Prediction Accuracy................................................................................................................ 160

ODC Prediction Accuracy .................................................................................................................... 162

CER Coefficients.................................................................................................................................. 164

Cost Variance and Risk ....................................................................................................................... 168

Index...........................................................................................................................................................170

Authorization Code Request & Registration Form.................................................................................173

Customer Support Form........................................................................................................................... 174


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iv

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 brief

summary of some of the new features in this release.

Computed parameter formulas can now reference other computed parameters so you cancreate a mathematical chain of variables that depend on each other. CostMetrixModelBuilder checks each formula as you enter it for circular references that cannot beresolved.

Explicit formula tasks can now use formulas that reference other explicit formula tasks soyou can now create a mathematical chain of explicit formula tasks that depend on each other.

The Solver is now faster and produces even better cost estimating relationships than before. You can now edit the Solver parameter exponents and CER coefficients directly if you desire

and ModelBuilder will update the CER accuracy statistics based on your changes.

You can now document the basis of each CER in the cost model. Parametric tasksautomatically receive the following standard basis description (which can be edited):

The cost estimating relationships for this task were derived by CostMetrix ModelBuilderbased on a parametric analysis of the historical cost data contained in this cost

ModelBuilder now compiles and embeds cost variance information in the cost model for costrisk analysis in CostMetrix Estimator. This is a major advance that will markedly improvethe estimating process.

There are also many subtle improvements under the hood of CostMetrix ModelBuilder. Thesenew features and enhancements help make ModelBuilder even more powerful, faster, and moreproductive. If you have an idea for an additional enhancement, please feel free to contact us at

www.nhysoft.com. We would like to hear it!


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CostMetrix ModelBuilderUsers Guide

Introduction

Welcome to CostMetrix ModelBuilder, the personal computer softwarethat will help you develop and validate high-quality parametric cost modelsfor estimating the cost of virtually any type of project or process.

CostMetrix can help you produce more accurate cost estimates in afraction of the time of conventional methods.

This users guide will introduce you to CostMetrix ModelBuilder and showyou how to use the powerful features it offers for developing parametric costmodels. This chapter includes the following topics:

What is CostMetrix? What is parametric cost estimating? Benefits of using parametric cost models How ModelBuilder works Cost models and tasks A brief history of parametric estimating Key features of ModelBuilder Cost estimating with CostMetrix Estimator

Estimating accuracy System requirements Installing and uninstalling ModelBuilder

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

ModelBuilder and CostMetrix Estimator. CostMetrix ModelBuilder wasdesigned specifically to make the process of developing, validating, anddocumenting parametric cost models faster, easier, and less expensive. Itoffers an intuitive graphical user interface and automates the statisticalanalysis functions needed to extract parametric cost estimating relationshipsdirectly from historical project data.

CostMetrix Estimator lets you quickly and easily create parametric cost

1

What isCostMetrix?


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2 Chapter 1 Introduction

ModelBuilderUsers Guide

estimates based on your ModelBuilder cost models. It also has an intuitivepoint-and-click graphical user interface and simplifies and improves the costestimating 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 be

expected with each estimate. Reports output directly to Microsoft Word.

This manual describes the features and use of CostMetrix ModelBuilder.The reader is referred to the users guide for CostMetrix Estimator 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 Parametric Estimating Handbook1that usingparametric cost models can result in significantly reduced proposal devel-

opment, 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 characteristics and cost. CostMetrixModelBuilder uses a graphical user interface and a cost estimatingrelationship Solver to help you build sophisticated cost models for yourprojects. Once developed, a CostMetrix ModelBuilder cost model is a verypowerful business tool that can be used with CostMetrix Estimator for costproposals, internal budgeting, and strategic decision making.

Parametric cost models fall into two categories; commercial andproprietary(company-developed). Commercial parametric estimating models containgeneric algorithms and estimating methods based on a database of industry-wide data, encompassing many different products. A commercial parametricmodel must be calibrated to make it useful for estimating the costs of aspecific company or department.

1The Parametric Cost Estimating Handbookis available through the International Society of

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

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Chapter 1 Introduction 3


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 parametric

models. 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 thispurpose 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 CER

derivation, 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 developerto 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.

CostMetrix ModelBuilder and CostMetrix Estimator are an integrated setof software programs from NHYSOFT, Inc., developed specifically to assistcompanies in developing and using proprietary parametric cost models.These programs were designed to overcome the real-world challenges ofparametric cost model development and deployment described above.

CostMetrix ModelBuilder is used for cost model development andCostMetrix Estimator is 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.


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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

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5

6

9

10

3

4

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8

ModelBuilder makes the process of developing, validating, and documentingcost models faster, easier, and less expensive than using conventional toolssuch as spreadsheets. The software provides an easy to use graphical userinterface that was created specifically for cost model development and

maintenance. Using its unique CER Solver, ModelBuilder can automaticallyderive parametric cost estimating relationships (CERs) from historical datacompiled from a companys prior projects. It also analyzes the quality of thecost estimating relationships it derives using standard statistical measures ofaccuracy and correlation to help the developer assess the cost model quality.

A ModelBuilder cost model is easy to maintain and update with new projectdata, even by someone other than the original developer. It providescomprehensive documentation of the cost model details and statistics tomake auditing easy, and produces a robust cost model that can be easilydeployed 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 ModelBuilder costmodels. It has intuitive graphical user interface that is designed specificallyfor parametric cost estimating, with a checklist format for selecting tasks,and convenient prompts for needed parameter values. CostMetrix Estimatorcan import labor bid rates, record groundrules and assumptions,


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automatically adjusts material and other direct costs for inflation based onescalation tables, and use manual cost entries for special cases such as whensuppliers or other organizations submit bids that must be added to the costestimate.

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 quickly

iterated and optimized to achieve cost targets, and that is the fundamentalbasis 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 using

parametric costmodels


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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.

ModelBuilder was designed with the following objectives in mind:

1. Minimize the effort and skill required to develop high-quality costmodels.

2. Provide the tools necessary to test and validate cost model accuracy.3. Provide a complete, auditable set of documentation for every cost model.4. Provide easy and practical cost risk analysis capabilities.

As you progress through this users guide, you will see how ModelBuilderaccomplishes each of these objectives using the power of the personalcomputer and an intuitive visual design approach. You will also learn howyou can incorporate existing cost estimating rules into your cost models, oruse ModelBuilder to derive powerful cost estimating relationships directlyfrom past project cost data.

ModelBuilder builds cost models in a way that is analogous to the way afinite element program builds structural models for stress analysis. A finiteelement program can model complex structures by breaking them down intosmall pieces, each of which can be accurately characterized using varioustypes of standard elements. In other words, complex structures are analyzedas the sum of many simple elements. Once built, a finite element model canbe subjected to various load cases to accurately predict stresses, strains, etc.

In a similar way, ModelBuilder models the cost of a complex project bybreaking it down into individual elements or tasks, each of which can beestimated using various types of standard relationships or algorithms. Thecost of a complex project can then be readily estimated as the sum of the costof the individual tasks.

Each task in a ModelBuilder cost model can have its own unique algorithmsfor calculating cost. ModelBuilder lets you incorporate cost estimatingrelationships you may have previously developed, plus it includes a powerfulSolverthat can automatically derive cost estimating relationships from pastproject cost data. This is a powerful capability that no other cost estimating

system offers.

A cost model needs a user interface to make it useful for estimating.CostMetrix Estimator is a companion software program that was designedspecifically for this purpose. CostMetrix Estimator allows you to create costestimates quickly and efficiently using any ModelBuilder cost model. Itmakes selecting tasks and entering parameters for cost estimates easy, and itoffers a complete set of reports to document each cost estimate. These

How ModelBuilderworks


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reports are comprehensive enough to support cost proposals in both thegovernment and commercial contracting domains.

These two tools, CostMetrix ModelBuilder and CostMetrix Estimator are an

integrated 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 ModelBuilder to develop costmodels for each project type that is commonly bid. Tools included inModelBuilder allow you to assess and validate the quality of the cost modelas it is being developed. Once the cost models are completed, tested, andapproved by management for bidding purposes, they are distributed to eachindividual in the organization that generates project cost estimates, alongwith the CostMetrix Estimator software. CostMetrix Estimator can read thecontents of ModelBuilder cost models but cannot edit them, so there is nochance that the basic estimating algorithms will be accidentally (orintentionally) altered by estimators.

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 thetypical approval steps.

The cornerstone of a ModelBuilder cost model is the Task List; ahierarchical set of work or cost elements. Cost estimators will select tasksfrom this list to be included in each project cost estimate. Therefore, theTask Listshould be comprehensive enough to account for all the significantcost elements of atypical project.

Each task in the Task Listhas it own unique cost estimating relationships(except Summary tasks andManual Entry tasks which are special cases). Foreach task, you can enter the cost estimating relationships directly, or you canlet ModelBuilder derive them from past project cost data.

If you have known cost estimating relationships that you want to incorporateinto a cost model, you would use one or more of these three types of tasks:

Fixed Cost tasks The cost of a Fixed Costtask is a fixed amount as

defined in the cost model.Level of Effort tasks The cost of aLevel of Efforttask is proportional

to the duration of the task. The cost/week isdefined in the cost model and the estimatorspecifies the duration of the task.

Explicit Formula tasks The cost estimating relationship for anExplicitFormula task is a function explicitly defined by

Cost models andtasks


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the cost model designer. It can include constantsand parameter values entered by the estimator,and it can be a function of the cost of other tasksin the cost model.

If you want ModelBuilder to derive cost estimating relationships from pastproject data, you would use Parametric tasks described below:

Parametric tasks The cost estimating relationship for a Parametrictask is derived by the ModelBuilder Solverbasedon parameters and cost data collected from priorprojects.

If the cost estimate for a task must be provided by an outside organization,such as a subcontractor, at the time the estimate is prepared you would use aManual Entry task.

Manual Entry tasks AManual Entry task requires the estimator toenter the cost estimate directly.

The tasks in a cost model can be broken down into multiple levels ofSummary tasks and subtasks.

Summary tasks A Summary taskserves as a cost summary for agroup of subordinate subtasks.

This set of tasks provides power and flexibility in the design of cost models.

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. Aparametriccost 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 by

the Rand Corporation for the DoD for estimating the cost of new militaryacquisition 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 history ofparametricestimating


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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 such

as 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 the joint Government/IndustryParametric Estimating Initiative Steering Committee to study ways toenhance the use of parametric estimating techniques. This Committeesponsored the development of the Parametric Cost Estimating Handbook, ageneral guide for implementing and evaluating parameter-based estimatingsystems. This handbook is the industry guide for parametric cost estimatingand 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 usinghistorical cost and labor hours and standard statistical approaches. In otherwords, parametric cost estimating relationships should be derived from and

tested 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.

You can derive parametric cost estimating relationships manually fromhistorical project costs and enter them into ModelBuilder usingExplicitFormula tasks, or you can use Parametric tasks, which were specifically


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developed for that purpose. As you will learn in Chapter 3, there are manyadvantages of letting ModelBuilder do the cost estimating relationship(CER) derivation for you.

Creating a parametric cost model from scratch using traditional methods isusually a very time consuming, laborious process. ModelBuilder makes theprocess so much faster and easier you wont want to go back to manualmethods.

Maintaining a manually-created cost model can be almost as laborious asinitially creating it. Many companies that develop custom cost models fortheir products or services allow them to become stale, i.e. not containingthe most current cost estimating relationships, because of the effort requiredto update them frequently. As a result they dont receive all the benefits thata good cost model has to offer. ModelBuilder makes updating a cost modelsimple.

ModelBuilder also offers the following key features:

It provides a visual environment for the development of cost models withan easy to use graphical user interface.

It provides a database into which you can archive past project data, andit uses powerful statistical techniques to solve for cost estimatingrelationships based on the parameters you select. ModelBuilder does thestatistical analysis so you dont have to.

ModelBuilder analyzes parametric cost estimating relationships andprovides a quantitative assessment of the estimating accuracy of each

CER based on its correlation with the actual costs of past projects. It alsocompiles this information as the basis for the cost risk analysis featuresin CostMetrix Estimator.

ModelBuilder allows you to easily and quickly refine and update yourcost models.

ModelBuilder provides comprehensive documentation of your costmodel design and prediction accuracy statistics.

ModelBuilder gives you the flexibility to combine history-basedparametric cost estimating techniques with other traditional estimatingmethods when a historical project basis is not available for all elementsof a project.

ModelBuilder does not require special cost modeling skills or statistical

analysis experience.

With ModelBuilder, cost models can be built around your specific businessprocesses and practices. You can efficiently develop sophisticated costmodels for virtually any type of business process from production ofproducts to delivery of services. Some typical example applications areengineering projects, research and development, product design, software

Key features ofModelBuilder


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development, product manufacturing, construction and contracting,architecture, consulting, marketing campaigns, business services, etc.

ModelBuilder can even be used to estimate the cost of products or processes

you dont directly control. For example, if you have key suppliers orsubcontractors, you can model the costs of their products or services usingthe costs and key characteristics of the past products and services youprocured from them. This can be an excellent tool to support budgetaryestimates, financial trade studies, and long range budgetary planning.

CostMetrix Estimator is a cost estimating program for use withModelBuilder cost models. Using the CostMetrix Estimator program withModelBuilder cost models, you can quickly create fully documentedestimates (cost proposals) with rationale. The amount of time and effortrequired to produce cost estimates is dramatically reduced using CostMetrix

Estimator compared to traditional bottoms-up estimating techniques.

CostMetrix Estimator was designed to allow a group of cost estimators touse a cost model for generating cost proposals. Since these estimators mayhave had little or no involvement in the creation of the cost model, the userinterface for CostMetrix Estimator is designed to make the estimators inputsand options as simple and intuitive as possible. Tasks are selected with themouse 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 whichModelBuilder cost model to use as the basis. CostMetrix Estimator extractsthe tasks and cost estimating relationships from the cost model andencapsulates them into a cost estimate file. You then use a menu to select thetasks that apply to the project you are estimating and enter proposal-specificdata such as parameter values, bid rates, etc. You are then ready to reviewthe cost estimate and expenditure profiles and print summary and detailedcost proposal reports. The entire process can take just a few minutes tocomplete.

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

be reopened with CostMetrix Estimator at any time for review or revision.Any future changes made to a ModelBuilder cost model will not affect priorestimates 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 not

Cost estimatingwith CostMetrixEstimator

Better estimatingaccuracy


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only reduce the time required to create estimates, but also to improveaccuracy.

It may not be obvious that a parametric estimate could be as accurate 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 designed to account for subtle variationsin project conditions or groundrules, which are hard to accuratelyaccount for 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, an

engineering 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.

An important factor in determining how accurate your cost estimating

system 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 ableto 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.


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ModelBuilder was developed to help you create high-quality cost models.What does high-quality mean in the context of cost models? A high-quality

cost model has the following four characteristics:

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

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

3. It produces supportable estimates. A supportable estimate is one that hasa reasonable and logical rationale or basis.

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 ModelBuilderare:

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

A Pentium 166 or higher processor. A minimum of 32 MB of RAM.

Approximately 15 MB of available hard disk space.

An SVGA color monitor with 800 x 600 resolution or higher and 256colors or higher (1024 x 768 and 16,000 colors are recommended).

To install ModelBuilder on your computer:

1. Start Windows and insert the ModelBuilder CD-ROM into your CD-ROM drive.

2. Using theMy Computericon or Windows Explorer, open a directory ofthe CD-ROM, and open the folder calledModelBuilder 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 ModelBuilder to update to a newer version or for anyother 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 theInstall/Uninstall tab, select ModelBuilder from the list of

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

hard drive.

High-quality costmodels

Systemrequirements

InstallingModelBuilder

UninstallingModelBuilder


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NOTE: It is safe to remove all shared files in the ModelBuilder installation directoryduring an uninstall, and you should always do so before installing a later version ofModelBuilder.

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

Getting help


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Overview

There are a few terms and concepts you need to be familiar with to useModelBuilder effectively. This chapter provides explanations of those termsand concepts, and provides an overview of ModelBuilder that will prepare

you to begin the tutorial starting in Chapter 3. The specific topics coveredhere are:

Tasks Parameters Cost categories Escalation Cost vs. price Overhead and G&A

ModelBuilder uses an activity-based cost model approach, meaning that aproject is broken down into discrete activities or cost elements which arecalled tasks. Each task is an independent entity and has its own costestimating relationships for labor, material, or other direct costs (ODC). Thisactivity-based approach has several advantages. First, it allows the costestimator the flexibility to select the particular tasks that apply to each costproposal and omit those that are not appropriate. It also allows you to distillcomplex activities into subtasks to facilitate the development of costestimating relationships and/or improve estimating accuracy.

Take for example a task calledAnalysis, which has several subtasksrepresenting the various types of analysis that might be performed on 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

2

Tasks


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Chapter 2 Overview 17


independent activities and each one of these could also be broken downfurther into subtasks if appropriate to facilitate defining estimatingalgorithms, or to provide the estimator with flexibility in selecting taskelements that may be needed for proposals. Not every project wouldnecessarily require every type of analysis, so the estimator can choose the

analysis tasks that should be included for each estimate. Therefore, the tasklist serves as a checklist to help the estimator include all the tasks and coststhat apply to a project, and exclude those that do not. The example costmodels described in Chapters 4 and 5 illustrate simple Task Lists withmultiple hierarchical levels.

NOTE: ModelBuilder allows you to construct Task Listswith up to six indenturedlevels so you can create extremely complex project cost model structures if you needthem.

Each task in the Task Listhas it own unique cost estimating relationships(except Summary tasks andManual Entry tasks described below). For eachtask, you can let ModelBuilder derive cost estimating relationships from pastproject cost data, or you can enter the cost estimating relationships directly.

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

Careful consideration should be given in the development of a task list for a

cost model. It usually starts with a comprehensive outline of the workelements and cost items in a typical project. Then each item in the outlineshould be assessed against the following criteria:

Clarity Is the scope of the task clear such that estimators will understandwhat is and is not included in it? If it is not, it should be broken down intosubtasks until each one can be clearly defined.

Resolution Does the task provide enough resolution for estimators toproperly isolate the cost elements that do and do not apply? For example, atask like Structural Analysis might actually include multiple types ofanalysis such as stress analysis and modal analysis. For some projects stress

analysis may be needed, for some modal, and for others both. In such cases,the Structural Analysis task should be broken down into subtasks so theestimator can select only the ones that apply.

In Chapter 1 you were briefly introduced to the six different types of tasksthat can be used in a ModelBuilder cost model. They are:

Task types


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18 Chapter 2 Overview


Summary tasks

Parametric tasks

Fixed Cost tasks Level of Effort tasks

Explicit Formula tasks Manual Entry tasks

The primary difference between the various types of tasks is the way the costestimating relationships are derived or computed. The example cost modeldescribed in Chapters 3 through 5 illustrates how each one can be used.

A Summary taskserves as a cost summary for a set of subordinate subtasks.A Summary task does not actually have a cost estimating relationship of itsown; 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 can

build multi-level task structures to represent complex task hierarchyrelationships.

A Parametric task is used when you have historical records of the cost of atask from prior projects. From this data, ModelBuilder can derive costestimating relationships for you using its built-in CER Solver.

This greatly simplifies the process of developing high-quality parametriccost estimating relationships. The ModelBuilder Solvercan derivemathematical cost estimating relationships in seconds, a job that wouldtypically take hours of laborious work to perform manually. This frees you

from the tedium of CER analysis, so you can focus on creating the bestquality models possible. And it also allows you to easily update cost modelsas business conditions change, so you can maintain the best quality costmodels at all times.

The figure below shows the basic process of using Parametric tasks inModelBuilder. The user specifies tasks and cost-related parameters, andenters cost data from past projects into the ModelBuilder database. TheSolverin ModelBuilder then computes cost estimating relationships fromthis information and provides reports of the estimating accuracy.

Summary tasks

Parametric tasks


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Task and ParameterDefinitions

Past (Historical)Project Cost Data

Solver

Cost EstimatingRelationships (CERs)

Cost Model Diagnostics

ModelBuilder uses a 2nd order polynomial curve fitting algorithm and amulti-variable solver. That means that it can derive accurate cost estimating

relationships that model nonlinear cost relationships in multiple parameters.For example, it can model exponential learning curves and diminishingincremental costs.

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 = AL + BL (X) + CL (X2)

Material Cost = AM + BM (X) + CM (X2)

ODC Cost = AO + BO (X) + CO (X2)

Where A, B, and C are the coefficients of a 2nd order polynomial equation and

X is a composite parameter of the form:

X = P1e1 x P2

e2 x P3

e3

where P1, P2, P3 ... are user-defined parameters and e1, e2, e3 are exponential

parameter weighting factors which are derived by ModelBuilder based on

the historical cost data you enter.

Parametric tasks are a key feature of ModelBuilder because they allow youto quickly and easily extract accurate cost estimating algorithms from rawhistorical cost data. ModelBuilder goes further by providing a quantitativemeasure of the quality of the estimating algorithm. In other words,ModelBuilder tells you how well the user-defined parameters predict costbased on the historical cost data provided. This makes it possible to developa highly refined estimating system with well-understood accuracy.


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ModelBuilder also assists you in identifying the key cost drivers in a task orwork element. Knowing the cost drivers is a key step to controlling orreducing cost in any project. This information is an invaluable aid to anyorganization trying to be more competitive and those instituting a design-to-cost process2.

Although history-based parametric cost models are the best practice forcost estimating (according to the DoD), it is frequently not possible toconstruct a complete project cost model using only Parametric tasks. Themost common reason is because historical cost data is not available for everyelement of a typical project. Therefore, ModelBuilder allows you to combine

Parametric tasks with other cost estimating relationships (not directlyderived from historical data) where necessary to form complete cost modelsfor virtually any type of project. And ModelBuilder makes it easy to convertnon-history-based cost estimating relationships to history-based parametric

CERs over time, as you accumulate historical cost data for a more robustcost model.

With a Fixed Costtask, the cost estimating relationship is a fixed amount(which can include labor, material and ODC) that does not change fromproject to project. For example, a fixed setup charge can be easily modeledusing a Fixed Costtask. The general form of a Fixed Costtask equation isshown below for labor, 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,andCOare labor, material, and ODC cost constants defined bythe cost model designer.

With aLevel of Effort task, the cost estimating relationship is a constantweekly amount for the duration of the task. For example, security servicesfor a job site could be bid using aLevel of Efforttask where the weekly costis known, and the estimator enters the start and end dates of the task. Thecost model designer specifies the cost per week.

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

2Design-to-cost is a term for the process of tailoring a product design, including its

characteristics, features, and performance to meet a specific cost target.

Fixed Cost tasks

Level of Efforttasks


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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,andLO are labor, material, and ODC cost burn rates (hours/weekor $/week) defined by the cost model designer and tis the duration ofperformance in weeks which CostMetrix Estimator calculates from the taskstart and end dates.

With anExplicit Formula task, the cost estimating relationship is an explicitformula defined by the cost model designer. The cost estimating formula caninclude parameter values that must be entered by the estimator and it can

include the cost of other tasks in the cost model. Although this is technicallya parametric estimating technique, the cost estimating relationship is definedexplicitly by the cost model designer, rather than being derived byModelBuilder from past (historical) project data. Therefore, the cost modeldesigner is responsible to ensure the validity of the cost estimatingrelationship by whatever means available.

An example usage would be to estimate the cost to assemble a circuit boardbased on the number of components to be installed. An explicit formulacould be defined to estimate this cost based on a parameter calledNumber ofComponents, the value of which the cost estimator enters for each specificproject. As another example, anExplicit Formula task could be used to

estimate the cost of supervision for a group of tasks based on a percentage ofthe labor hours estimated for those tasks. The direct labor for the relatedtasks would be calculated first, then the supervision cost would be computedbased on the explicit formula.

The mathematical operators and functions that can be used in the formula areshown below.

+ Addition- Subtraction* Multiplication

/ Division^ Exponential (only positive numbers for the base)

( Open parenthesis) Close parenthesisABS Absolute valueATAN Arc tangentCOS CosineEXP ExponentialLN Natural logROUND Round offSIN SineSQRT Square rootSQR Square

Explicit Formulatasks


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TRUNC Truncate

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 ..., Li, Mi, Oi) in units of labor hours

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

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

where fL(P1, P2, P3 ..., Li, Mi, Oi), fM(P1, P2, P3 ..., Li, Mi, Oi), and fO(P1, P2, P3 ..., Li, Mi,Oi) are explicit functions entered by the cost model designer, P1, P2, P3... areparameter values, andLi, Mi, and Oiare the labor, material, and ODC costs ofother tasks in the cost model.

AManual Entry taskis used when the cost estimate for a task is to beprovided by an outside organization, supplier, or subcontractor and inserteddirectly into each cost estimate as labor, material and ODC values.ManualEntry tasks can also be used if the cost estimating relationship of a taskcannot be defined in advance. In such cases, manual estimating methods canbe used until adequate historical cost data is accumulated with which youcan convert theManual Entry task into a Parametric task.

When you use aManual Entry task in a cost model, the cost estimator must

obtain and enter the cost estimate for this item at the time the project costestimate is prepared. This technique can be used to enter labor, material,and/or other direct costs (ODC).

No cost estimating relationship is entered in the cost model forManualEntry tasks. AllManual Entry costs are entered by the estimator usingCostMetrix Estimator.

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 for

estimating the cost of designing it. The inference is that cost increases as thenumber of components increases. Likewise, if you are a civil engineer, thelength of a bridge might be a parameter in your cost model to estimate thecost to design or construct it. ModelBuilder 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. For

Manual Entrytasks

Parameters


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example, if you are a carpet installer, you may have padding in severalquality grades at different costs. Your cost model could have a parameter forthe quality grade with several different grade values (Grade A, Grade B,...etc.). You could even use the season of installation (winter, spring,summer, or fall) as a parameter if that had a significant affect on the cost of

your projects.

It is not necessary for parameters to have an obvious relationship to theactual steps required to perform a task to be valid. For example, the RandCorporation found that a valid parametric cost estimating relationshipexisted between the top speed of a jet fighter and the cost. Its not obvioushow the top speed relates to the labor and material costs of building thefighter, but intuition would confirm that an indirect relationship is certainlypossible. Of course, there are other parameters like weight and range that areimportant as well.

While the possible variety of parameters is almost limitless, there are two

important requirements that every parameter must meet when applied toParametric tasks:

1. You must be able to estimate the value of the parameter before theproject starts (at the time the estimate is being made).

2. You must be able to establish the actual value of a parameter on eachproject after it is completed.

Obviously, if you cant estimate the value of a parameter before a projectstarts it wont be useful in cost estimating. If a plumber doesnt know howmany bathrooms he needs to plumb in a new home, he cant use the numberof bathrooms as a cost estimating parameter. If you cant establish the actualvalue of a parameter at the completion of a project (e.g. number of showersinstalled or number of components on the circuit board) ModelBuilder willhave no way of correlating the actual parameter values with actual costvalues, which is the essence of history-based parametric estimating.

ModelBuilder implements four different types of parameters, which aredescribed below.

The simplest parameter type is aquantity parameter, which is a simplenumerical value such inches, acres, number of showers, components on the

circuit board, etc. When you use a quantity parameter in your cost model, thecost estimator will be required to provide a numerical value for thatparameter when a cost estimate is created.

ModelBuilder lets you specify the units for a quantity parameter, and youcan set limits on the maximum and minimum value the estimator can enterfor the parameter if you desire.

Quantityparameters


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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.

A scale parameter allows you to define a scale of valid values (for examplefrom 1 to 10) and assign descriptive labels to specific values within thisrange which the estimator can use as reference points to assign a value for aproject when an estimate is made. For example, you could define a scale ofdesign complexity from 1 to 5 by listing a past project as an examplecorresponding to each integer value from 1 to 5. However, ModelBuilder

will not limit the estimator to one of the fixed integer values. The scale iscontinuous rather than discrete. The estimator could enter 3.7 for thecomplexity value if that seemed appropriate on a relative scale, andModelBuilder would interpolate the value accordingly.

Scale parameters are defined in ModelBuilder as a list of scale values with areference description for each. You can use any scale descriptions you wantbut the list must be in order of increasing cost. ModelBuilder uses thenumerical value assigned to each scale level for estimating purposes, but thatvalue gets factored internally to best fit the project data when the cost modelis solved.

A grade parameteris a non-numerical parameter that can be used to define avariable that must be one of several specific values. For example, if youdevelop software for commercial and military customers, the cost of militarysoftware development might be higher than commercial softwaredevelopment. Therefore, you could define a grade parameter with twopossible values; commercial and military. ModelBuilder can analyzehistorical cost data to extract the mathematical relationship between thisparameter and software development cost.

Grade parameters are defined in ModelBuilder as a list of valid grade values(or levels). There can be as many levels in the list as you need to describe the

possible values. Unlike the scale parameter, the value of a grade parametermust be one of the specific values in the list. You cannot interpolate betweenvalues. You can use any descriptive names for grade levels you want but thelist must be in the order of increasing cost. ModelBuilder uses a numericalreference value assigned to each grade level for estimating purposes, but thatvalue gets scaled or factored internally to fit the historical data when the costmodel is solved.

Scale parameters

Grade parameters


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Sometimes it is useful to calculate the value of a parameter based on thevalue of one or more other parameters. ModelBuilder can do this for youusing a computed parameter.

Suppose for example, that an engineer is creating a cost model formechanical drafting based on the number of drawings in the assembly. Butsuppose there are several different types of drawings that each requiresignificantly different amounts of effort to produce, such as part drawings,assembly drawings, and interface drawings. He could create a parameter foreach one of these and assign them all to a parametric mechanical draftingtask, but you will learn later in this manual that this is an inefficientapproach which requires a large amount of historical data to implementsuccessfully.

Instead of using every type of drawing as an independent parameter, hecould use a weighted sum as a computed drawing parameter. In other words,

he could define a quantity parameter for each type of drawing, P1, P2 and P3respectively, plus a composite drawing parameter P4, which is computed as aweighted sum of the three quantities such as P4 = P1 + 3*P2 + 2*P3. Thedrafting cost relationship would be based on P4. Combining these individualparameters into a single computed parameter reduces the number ofunknown variables from three to one.

In this example, an estimator using this cost model with CostMetrixEstimator would be prompted to enter P1, P2, and P3. CostMetrix Estimatorwould automatically calculate P4 and the resulting cost estimate.

ModelBuilder allows you to enter a mathematical equation (or expression)for a computed parameter. The following mathematical operators andfunctions can be used in the expression:

+ Addition- Subtraction* Multiplication

/ Division^ Exponential (only positive numbers for the base)( Open parenthesis) Close parenthesisABS Absolute valueATAN Arc tangentCOS CosineEXP Exponential

LN Natural logROUND Round offSIN SineSQRT Square rootSQR SquareTRUNC Truncate

The expression can also include parameter variables named P1, P2, P3... etc.,which are the values of each parameter in the parameter catalog. (You can

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access a list of the parameter names and variable names from the main menufor reference.) You can add parameters, multiply them by other parametersor numerical constants, or perform the mathematical operations shownabove.

Parameter references in the expression must obey two other important rules:

1. A computed parameter expression cannot include a ref

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