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5 factors that can prevent faulty cost estimates

Cost overruns have become institutionalized in the federal government, according to a senior engineering cost officer for National Aeronautics and Space Administration.

Bad models, inadequate data, poor cost estimators, bad managers, including a “broken corporate governance process” and “the fact that everyone involved in developing and using cost estimates are human” are some of the typical causes of cost overruns, according to Andy Prince, manager at the engineering cost office, of NASA Marshall Space Flight Centre.

“A valuable cost analysis is not one that gives the customer the answer they want but gives the customer answer they need,” said Prince.

Prince is one of this year’s featured speakers in the upcoming 3rd Annual Training and Development Workshop of the Canadian Chapter of the International Cost Estimating and Analysis Association (ICEAA Canada).

The two-day event will take place at the Ottawa Westin Hotel on May 1st to 2nd.

Andy Prince

Other speakers include Murray Brewster, author, and senior defence writer for CBC News, and Roger Ermuth, Assistant Comptroller General of the Treasury Board of Canada Secretariat (TBS).

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Accurate cost estimation critical to government, military procurement

A cost estimate is a prediction, and in his presentation The Psychology of Cost Estimating, Prince connected how people think and their biases to how humans make predictions and decisions.

Facts, data, knowledge and experience play an integral part in decisions and prediction but these factors are also filtered through an individual’s emotion’s, expectations, stereotypes, social awareness and other biases, he said.

“Our biases cause us to make decisions that lead to unsupported deviations from the trends identified by the historical record,” according to Prince.

When estimating cost, the NASA manager said, people need to be wary of the following:

  • Discarding or ignoring applicable data
  • Placing significant emphasis on a single bit of data or expert opinion
  • Tenuous analogies or extrapolations
  • An estimate that deviates significantly from the historical trend and/or reasonable analogs
  • Any estimate that depends on changes in historical business practices
  • Falling in love with a subjective assessment

Prince also presented what he called five “antidotes” for biased estimates:

Have a good process – A good process provides traceability, repeatability, best practices, an analytical mindset, and well as the steps to mitigate the effect of biases. “It also forms the basis of your story,” said Prince

Inject a healthy dose of reality –Talk to cost experts, as well as technical and programmatic experts. Be aware of national and international events that may have an impact in the program you are working on

Base cost estimates on historical data. Historical data and perspectives provide general context on how projects are managed and systems are developed, what are the typical problems and issues, and how challenges are addressed

Validate results – Validate your cost estimate with historical experience and with data

Embrace uncertainty – Quantifying risk and uncertainty explores the impact of changes in the subjective assessment. “Point estimates create a false sense of certainty and deprive decision makers of useful information,” said Prince.

Become the expert – Hone your skills in cost estimation. Engage with and learn from professionals from other fields, take courses, read widely. Expand your knowledge. “Attend professional society conferences, workshops, luncheons, etc. be open to new data, thoughts, and ideas,” Prince advised.

If you’re interested in getting a better appreciation and understanding of how experts in the field of cost estimation deal with the complex and high-pressure demands, attend the 3rd Annual Training and Development Workshop of ICEAA Canada at the Ottawa Westin Hotel on May 1st to 2nd.

The event also features different workshop sessions designed for various levels of cost estimation expertise starting from the very fundamental basic data collecting techniques, to basic estimating practices, to the more complex risk assessment and quantifying methods.

For a complete lineup of speakers and session topics, and to register for the event, click on this link

For more information on sponsorship opportunities, please contact: Terri Pavelic via email terri@promotivemedia.ca

 

 

Author: Nestor Arellano

Nestor Arellano is editor of Vanguard Magazine. Nestor is a seasoned journalist who has written extensively on defence and military industry issues as well as technology and business developments. He is also associate editor of Vanguard's sister publication, IT in Canada.

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