Cost Estimating

Analogy Cost Estimating

Analogy Cost Estimating is a technique used to estimate a cost based on historical data for an analogous system or subsystem. In this technique, a currently fielded system, similar in design and operation to the proposed system, is used as a basis for the analogy. The cost of the proposed system is then estimated by adjusting the historical cost of the current system to account for differences (between the proposed and current systems). Such adjustments can be made through the use of factors (sometimes called scaling parameters) that represent differences in size, performance, technology, and/or complexity. Adjustment factors based on quantitative data are usually preferable to adjustment factors based on judgments from subject-matter experts. [1]

An analogy takes into consideration that no new program, no matter how state of the art it may be technologically, represents a totally new system. Most new programs evolve from programs already fielded that have had new features added on or that simply represent a new combination of existing components. The analogy method uses this concept for estimating new components, subsystems, or total programs. That is, an analogy uses actual costs from a similar program with adjustments to account for differences between the requirements of the existing and new systems. A cost estimator typically uses this method early in a program’s life cycle, when insufficient actual cost data are available but the technical and program definition is good enough to make the necessary adjustments. [2]

The cost estimator should identify the important cost drivers, determine how the old item relates to the new item, and decide how each cost driver affects the overall cost. All estimates based on the analogy method, however, must pass the “reasonable person” test—that is, the sources of the analogy and any adjustments must be logical, credible, and acceptable to a reasonable person. In addition, since analogies are one-to-one comparisons, the historical and new systems should have a strong parallel. [2]

Analogy relies a great deal on expert opinion to modify the existing system data to approximate the new system. If possible, the adjustments should be quantitative rather than qualitative, avoiding subjective judgments as much as possible. An analogy is often used as a cross-check for other methods. Even when an analyst is using a more detailed cost estimating technique, an analogy can provide a useful sanity check. [2]

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Updated: 7/16/2021

Rank: G1

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