Scope

To determine an estimate’s scope, cost analysts must identify the customer’s needs. That is, the cost estimator must determine if the estimate is requested or required by law or policy. For example, 10 U.S.C. § 2434 requires an independent cost estimate before a major defense acquisition program can advance into system development and demonstration or production and deployment. The statute specifies that the full life cycle cost—all costs of development, procurement, military construction, and operations and support, among other things, without regard to funding source or management control—must be provided to the decision-maker for consideration. As another example, if an estimate is to support the comparative analysis of alternatives, all cost elements of each alternative should be estimated to make each alternative’s cost transparent in relation to the others. The program manager and the cost estimating team should work together to determine the scope of the cost estimate. The scope will be determined by such issues as the time involved, what elements of work need to be estimated, who will develop the cost estimates, and how much cost estimating detail will be included.

Once the cost analysts know the context of the estimate and the customer’s needs, they can determine the estimate’s scope by its intended use and the availability of data. The maturity of the program will influence the quantity of detail for the cost estimate. For example, early in the life cycle the program may have a concept with no solid definition of the work involved. A cost estimate at this point in the life cycle will probably not require extensive detail. As the program becomes better defined, more detailed estimates should be prepared. For example, if an independent cost analyst is typically given the time and other resources needed to conduct a thorough analysis, the analysis is expected to be more detailed than a what-if exercise. For either, however, more data are likely to be available for a system in production than for one that is in the early stages of development.

More detail, though, does not necessarily provide greater accuracy. Pursuing too much detail too early may be detrimental to an estimate’s quality. If a detailed technical description of the system being analyzed is lacking information, analysts will find it difficult to identify and estimate all of the cost elements. It may be better to develop the estimate at a relatively higher work breakdown structure (WBS) level, for example, at the system level, to ensure capturing all the lower-level elements. (Work breakdown structures are discussed in chapter 7.) This is the value of parametric cost estimating tools, which operate at a higher level of detail and are used when a system lacks detailed technical definition and cost data. These techniques also allow the analyst to link cost and schedule to measures of system size, functionality, performance, or complexity in advance of detailed design definition.