analogy technique

1. 11 - 1 Analogy Technique Chapter 11

2. 11 - 2 An analogy is just what it sounds like � an attempt to estimate costs by drawing a comparison between the item in question and a similar (or analogous) item. An analogy can be done at the system, subsystem, or component level. Multiple analogies can be used at the lower WBS levels to build up to a higher level estimate. Generally, some adjustments must be made to the costs of the old item to estimate the new item. These adjustments include those based on: programmatic information such as quantity or schedule; physical characteristics such as weight or materials; performance characteristics such as power or pointing accuracy; government or commercial practices; or contract type such as fixed price or cost plus. Economic adjustments for inflation such as converting from constant dollars to then year dollars are normally considered part of data normalization � see Module 5 Index Numbers/Inflation). When making an adjustment, try to make it as objective as possible. Identify key cost drivers and then determine how the old item is related to the new and how that cost driver affects the costs. Also remember that all estimates must pass the �reasonable person� test. That is, the source(s) of the analogy and any adjustments thereto must be logical, credible, and acceptable to a �reasonable person.�An analogy is just what it sounds like � an attempt to estimate costs by drawing a comparison between the item in question and a similar (or analogous) item. An analogy can be done at the system, subsystem, or component level. Multiple analogies can be used at the lower WBS levels to build up to a higher level estimate. Generally, some adjustments must be made to the costs of the old item to estimate the new item. These adjustments include those based on: programmatic information such as quantity or schedule; physical characteristics such as weight or materials; performance characteristics such as power or pointing accuracy; government or commercial practices; or contract type such as fixed price or cost plus. Economic adjustments for inflation such as converting from constant dollars to then year dollars are normally considered part of data normalization � see Module 5 Index Numbers/Inflation). When making an adjustment, try to make it as objective as possible. Identify key cost drivers and then determine how the old item is related to the new and how that cost driver affects the costs. Also remember that all estimates must pass the �reasonable person� test. That is, the source(s) of the analogy and any adjustments thereto must be logical, credible, and acceptable to a �reasonable person.�

3. 11 - 3 Description Analogy estimates are usually characterized by use of a single historical data point serving as the basis for a cost estimate. Use of this methodology is considered �risky� because the historical data is too limited to allow statistical estimating. The analogy is an estimate based on a relative scaling of a historical data point. New program cost = (scaling factor) x (old program cost) The scaling factor should not simply be a point estimate, but rather a �most likely� range. Provides uncertainty information. The analogy technique is most useful when the new system is primarily a new combination of existing subsystems for which recent historical cost data are available. Also useful in early milestone, ill-defined programs, and as a check on estimates used by other methods � relatively quick to do!

4. 11 - 4 Analogy - Application Used early in the program life cycle Data is not available to support using more detailed methods Not enough data exists for a number of similar systems, but can find cost data from a single similar system The best results are achieved when Similarities between old and new systems are high Adjustments can be quantified Subjective adjustments are minimized Can be used as a cross check for other methods Analogies are generally used early in the program life cycle, when there is neither much definition in the new program nor a pre-existing cost model. Most development programs have some sort of heritage in design. The heritage or legacy system would be used for comparison to the new system to be estimated. One of the first considerations when assessing the cost of a new development program is the percent of new design vice heritage or reuse. This assessment can be performed at system, subsystem, and component levels. An analogy can also be used when there is not enough data or program definition to develop a cost estimate using a more detailed technique. There should be a strong parallel between the historical system and the item to be estimated. Analogy is a one-for-one comparison. An analogy works best when there are many similarities between the old and new systems. If possible, the adjustments should be quantitative not qualitative. Subjective adjustments should be minimized or avoided all together. An analogy is often useful as a cross check for other methods. Even when you�re using more detailed costing techniques, an analogy can provide a sanity check for your estimate. In this case the estimates should be of the same order of magnitude.Analogies are generally used early in the program life cycle, when there is neither much definition in the new program nor a pre-existing cost model. Most development programs have some sort of heritage in design. The heritage or legacy system would be used for comparison to the new system to be estimated. One of the first considerations when assessing the cost of a new development program is the percent of new design vice heritage or reuse. This assessment can be performed at system, subsystem, and component levels. An analogy can also be used when there is not enough data or program definition to develop a cost estimate using a more detailed technique. There should be a strong parallel between the historical system and the item to be estimated. Analogy is a one-for-one comparison. An analogy works best when there are many similarities between the old and new systems. If possible, the adjustments should be quantitative not qualitative. Subjective adjustments should be minimized or avoided all together. An analogy is often useful as a cross check for other methods. Even when you�re using more detailed costing techniques, an analogy can provide a sanity check for your estimate. In this case the estimates should be of the same order of magnitude.

5. 11 - 5 How to Develop an Analogy Using a known item�s value, apply quantified adjustments to that item which measure the differences when compared to the new. This requires good actual data and someone to quantify the differences. Recent historical data should be similar not only in performance characteristics, but also similar from the standpoint of manufacturing technology. Questions to ask when assessing the relative differences between the old and the new item: How much different is the new compared to the old? What portion of the old is just like the new? How many components will be exactly the same? What is the ratio of complexity between the two systems?

6. 11 - 6 Analogy Estimating Technique Cost Estimating Method by which we assume our new system will behave �cost-wise� like a similar historical system Define the new system in terms of: -- Design or Physical Parameters -- Performance Characteristics -- Known Similar System(s) Develop a WBS for the New and Historical System Map Historical System WBS to New System WBS so they look similar Obtain Data on Historic System�s Design, Performance and Cost. -- CY$$? -- Learning Curve? -- Any burdens that need to be removed?

7. 11 - 7 Utility of Analogy Technique Many new programs consist of modified or improved versions of existing components, combined in a new way to meet a new need. In the analogy technique we break the new system down into components (usually via a WBS) that can be compared to similar existing components. The basis for comparison can be in terms of capabilities, size, weight, reliability, material composition, or a less well-defined, but often used, term, complexity. When production and development cost estimates are needed, the analogy technique offers several approaches. Separate development and production estimates, each based on data related specifically to development and production. Production estimates based on production data, then use historical ratio factors to estimate development costs.

8. 11 - 8 Analogy � It�s like one of these Attribute Old System New System Engine: F-100 F-200 Thrust: 12,000 lbs 16,000 lbs Cost: $5.2M ? Q: What is the unit cost of the F-200? A: $5.2M * (16,000/12,000) = $6.9M In this example the engine thrust, as a performance parameter, is used to adjust the existing engine (F-100) actual cost to generate an estimate of the new engine (F-200) cost. A linear relationship is used to draw the comparison. To calculate the estimated cost for the F-200, first calculate how much more thrust is required for the new engine as a ratio (16,000/12,000 = 1.33), and then multiply the actual cost of the F-100 by this thrust ratio to determine the estimated cost of the F-200. The calculation is 1.33 * $5.2M = $6.9M. It is important to realize that an adjusted analogy like this, using a ratio, is tantamount to a linear equation whose graph passes through the origin. This is wherein the mischief of applying the analogy techniques most often lies: the adjustment. There should be a mathematical, scientific, or at least logical reason for the ratio used in the adjustment. In the above example, is there a compelling scientific or engineering reason that cost should be directly proportional to thrust for an engine? Relationships based on physical properties (as opposed to performance measures) may be easier to discern and justify: for power cabling of the same cross-section and power rating, linear feet would be a good adjustment attribute; for a surface of identical thickness and composition (e.g., for an aircraft wing or ship hull), surface area; for a solid system or component, mass or volume. As a final example, with no other detail available, you might use the cube of the diameter for the adjustment ratio for munitions cost. That is, though a 6� gun is 20% wider than a 5� gun (6/5 = 1.2), comparable munitions for it are likely to cost about 73% more ((6/5)^3 = 1.728). To compare (or analogize!) the analogy technique with the parametric technique, which we�ll examine in detail next, an adjusted analogy is just like a linear regression, but instead of basing the slope on a number of data points, it is essentially a guess (one point does not determine a line, so we assume the line goes through the origin). Also, since our analogy is a single data point, it represents a point of departure, and any estimate using adjusted analogy constitutes by definition �estimating outside the range of the data.�In this example the engine thrust, as a performance parameter, is used to adjust the existing engine (F-100) actual cost to generate an estimate of the new engine (F-200) cost. A linear relationship is used to draw the comparison. To calculate the estimated cost for the F-200, first calculate how much more thrust is required for the new engine as a ratio (16,000/12,000 = 1.33), and then multiply the actual cost of the F-100 by this thrust ratio to determine the estimated cost of the F-200. The calculation is 1.33 * $5.2M = $6.9M. It is important to realize that an adjusted analogy like this, using a ratio, is tantamount to a linear equation whose graph passes through the origin. This is wherein the mischief of applying the analogy techniques most often lies: the adjustment. There should be a mathematical, scientific, or at least logical reason for the ratio used in the adjustment. In the above example, is there a compelling scientific or engineering reason that cost should be directly proportional to thrust for an engine? Relationships based on physical properties (as opposed to performance measures) may be easier to discern and justify: for power cabling of the same cross-section and power rating, linear feet would be a good adjustment attribute; for a surface of identical thickness and composition (e.g., for an aircraft wing or ship hull), surface area; for a solid system or component, mass or volume. As a final example, with no other detail available, you might use the cube of the diameter for the adjustment ratio for munitions cost. That is, though a 6� gun is 20% wider than a 5� gun (6/5 = 1.2), comparable munitions for it are likely to cost about 73% more ((6/5)^3 = 1.728). To compare (or analogize!) the analogy technique with the parametric technique, which we�ll examine in detail next, an adjusted analogy is just like a linear regression, but instead of basing the slope on a number of data points, it is essentially a guess (one point does not determine a line, so we assume the line goes through the origin). Also, since our analogy is a single data point, it represents a point of departure, and any estimate using adjusted analogy constitutes by definition �estimating outside the range of the data.�