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Analogy Cost Estimation Method

DAU GLOSSARY DEFINITION

General Information

The analogy method compares a new or proposed system with one analogous (i.e., similar) system, that was typically acquired in the recent past, for which there is accurate cost and technical data. There must be a reasonable correlation between the proposed and “historical” system. The estimator makes a subjective evaluation of the differences between the new system of interest and the historical system. The analogy method is typically performed early in the cost estimating process, such as the pre-Milestone A and Milestone A stages of a program. This is early in the life of a potential acquisition program when there may be a limited number of historical data points and the cost estimator may be dealing with technology experiencing rapid technical change. The analogy method is also a very common technique used for cross checking more detailed estimates (i.e. sanity check).

In preparing a cost estimate based on the analogy method, start by obtaining a technical evaluation of the differences between the systems (for example increase speed and stealth characteristics for the new aircraft) from engineers or other experts. Next, assess the cost impact of these technical differences as well as any other factors that may have changed since the existing model was designed and produced (for example increase use of computer aided design and manufacturing). While the previous example shows an analogy estimated performed at the system level, the analogy method may also be applied at a subsystem or component level, such as propulsion or fuselage. The analogy method may also be applied to processes, such as training, that are part of the cost element structure for the program. Each individual application of the analogy method at these lower levels need not use the same system as its basis; rather, choose the most similar item in each case. For example, while the fuselage of the newer fighter aircraft might most resemble that of Aircraft A, its engine might be more analogous to that of Aircraft B.

 

A key disadvantage of the analogy method is the subjectivity inherent in quantifying the cost of the technical and other differences between the historical item and the new item. For example, one technical expert may believe that the fuselage differences will lead to a 30% increase in costs for the new item compared to the old, while another may thing that costs will only increase by 10%. However, the analogy method tends to be relatively fast and inexpensive way of estimating program costs and can be done at a high level of the Work Breakdown Structure with relatively little technical detail about the new system.

 

With so many new and emerging technologies and ideas, an analogy is often the only method available. Estimating by analogy may be the best technique for estimating the cost of state-of-the-art systems such as a space vehicle, next-generation submarine, a future computer, or a proposed microprocessor.