Last month, Wiley was proud to publish Cost Estimation: Methods and Tools, which presents an accessible approach to the cost estimation tools, concepts, and techniques needed to support analytical and cost decisions.
Written with an easy-to-understand approach, Cost Estimation: Methods and Tools provides comprehensive coverage of the quantitative techniques needed by professional cost estimators and for those wanting to learn about this vibrant career field. Featuring the underlying mathematical and analytical principles of cost estimation, the book focuses on the tools and methods used to predict the research and development, production, and operating and support costs for successful cost estimation in industrial, business, and manufacturing processes.
With a step-by-step introduction to the practicality of cost estimation and the available resources for obtaining relevant data, Cost Estimation: Methods and Tools also features:
- Various cost estimating tools, concepts, and techniques needed to support business decisions
- Multiple questions at the end of each chapter to help readers obtain a deeper understanding of the discussed methods and techniques
- An overview of the software used in cost estimation, as well as an introduction to the application of risk and uncertainty analysis
Cost Estimation: Methods and Tools is an excellent reference for academics and practitioners in decision science, operations research, operations management, business, and systems and industrial engineering, as well as a useful guide in support of professional cost estimation training and certification courses for practitioners.
Statistics Views talks to authors Gregory K. Mislick and Daniel A. Nussbaum about their book.
1. Congratulations on the publication of your book, Cost Estimation: Methods and Tools, which presents an accessible approach to the cost estimation tools, concepts, and techniques needed to support analytical and cost decisions. How did the writing process begin?
GM: We have been here at the same institution for some time: I arrived in 2000 and Dan in 2004. Dan had done a lot of work in the cost estimation field and he was Director of the Naval Center for Cost Analysis. I was teaching a cost course here which when I took over was being presented with 17 chapters of slides. Many other faculty had taught the course, and the astute students mentioned that it would be ideal to have a textbook with material that was more in depth than the slides. So Dan and I talked about it for some time, thinking that we could write a book about it someday, and before long we decided it was the right time to do so.
2. What were your main objectives during the writing process?
DN: We wanted to ensure this was a really accessible discipline. There is a mathematical underpinning but we did not want to write a purely mathematics book. Rather, we wanted to write a book that was understandable to potential users.
GM: We wanted to make it easy to understand and not too “mathy” (e.g. not using numerous math terms, but using really good every-day examples such as margin of error). By using real-world examples, people can understand the concepts and then apply it to the bigger world. When we were writing, we also focused on the tone so that it sounded like we were having a conversation with the reader, rather than the usual tone of a textbook – just as if we were in the same room as the readers, talking, and “Hey, here’s how it’s done.”
3. The book begins with a detailed historical perspective and key terms of the cost estimating field in order to develop the necessary background prior to implementing the presented quantitative methods. How important was this as an introduction to the whole framework of the book?
DN: I think that if a person said my whole objective is to learn how to do cost-estimating, they might be able to get away without that first chapter, but if they want to understand the context of where we came from and how this fits into the business that cost-estimating supports, it is a necessary introduction to begin with.
GM: Dan has modestly not mentioned that he has been in the cost field for over 30 years, so he has seen significant changes, such as software that we now take for granted, like Excel spreadsheets.
DN: Cost-estimating is about predicting the future, so if you don’t examine the past and where we are, it is particularly hard to predict where you are going to be, so we wanted to provide that platform to stand on.
GM: If someone had chosen to write a textbook like this, they would not be able to have the perspective that we have been able to provide in that first chapter because of Dan’s 30+ years of experience. So we wanted to capture that to say that this is what most people do not know and the book is an opportunity to get this message out there.
4. The book proceeds to fundamental cost estimation methods utilized in the field of cost estimation, including working with inflation indices, regression analysis, learning curves, analogies, cost factors, and wrap rates. There is also a step-by-step introduction to the practicality of cost estimation and the available resources for obtaining relevant data. If there is one message you wish to get across to your reader, the one idea he/she will take away, what would that be?
GM: Cost-estimation is a vibrant career field that is relevant and practical. When taking a math course, you can sometimes think to yourself “How am I ever going to be able to use this knowledge?” But this field is completely different. Everything you do is very practical and all the quantitative methods you have learnt along the way that seemed disparate subjects are tied together by cost-estimation. There are thousands of people who do cost-estimation and there are many high-paying jobs out there in this field, as there are not many people with the necessary math skills out there. We are trying to fill that gap and if you like math, it is a fun career field. Whatever the product is, it is the same application whether you are working in military defence or with a major car manufacturer.
DN: Firstly, with these tools you can model almost anything for which you have to predict the cost and secondly, as Greg says, there are so many jobs out there which no one realizes until they wander into the discipline.
GM: There were no textbooks out there, only a couple of books on cost-estimation about what you need to consider and this is what the career-field is, but our book is a practitioner’s book. When you are sitting there in your cubicle and you have to come up with what the training costs are, or you need to develop some cost estimating relationship, you pull this book out and it shows you how to do it step-by-step: what to do with the data once you have it and then how you massage the data using regression, inflation indices, etc.
Everything you do is very practical and all the quantitative methods you have learnt along the way that seemed disparate subjects are tied together by cost-estimation. There are thousands of people who do cost-estimation and there are many high-paying jobs out there in this field, as there are not many people with the necessary math skills out there. We are trying to fill that gap and if you like math, it is a fun career field.
5. There is also a foreword by Dr Douglas A. Brook, a professor in the Graduate School of Business and Public Policy at the Naval Postgraduate School, who spent many years working in the Department of Defence acquisition environment. Please could you tell us why Dr Brook was chosen to write the foreword?
DN: Doug, to me, is a model of people who have combined service in the public sector and service in the academic world. He has held very important administration positions in the US. He is very accomplished, has put time into teaching at universities, and he has written books – he’s an absolute model of those who can split their time between the public and private sectors, and that is why I reached out to him for a foreword.
6. Who should read the book and why?
GM: There are a number of practitioners in the cost-estimation field that this book is aimed at. From the perspective in the US, every service in the military has a cost agency responsible for detailing the costs for all projects in the acquisition phases and in operation. This book is for that practitioner – those cost estimators working in the field. The book is also for undergraduates studying system engineering. This is a good way of learning cost engineering and figuring out what the system is and what it is going to cost along the way.
DN: Not just the US, but cost-estimation applies across industries throughout the world. Many countries, such as Japan, Canada and the UK have picked up this issue and are getting very heavily involved.
GM: While Chapter 2 discusses how the US Department of Defence handles cost-estimation, if you do not work in defence, Chapter 3 then focuses on teaching the steps you need to do and considerations you have to bear in mind in order to accomplish an accurate cost assessment. This book is not oriented just for the military but is applicable to all who work in cost-estimation.
7. Why is this book of particular interest now?
DN: Both inside and outside the US, there is now a higher focus on government spending, most likely due to overruns that have attracted the attention of the public and legislators. In the US, this has resulted in legislation and the Weapons Systems Acquisition Reform Act (WSARA) 2009 came into place which requires that cost-estimation should be carried out regularly. Not just governments but major corporations care about this as well and I have contacts outside the US where the legislation has not passed but they are carrying out frequent cost-estimation.
GM: Within WSARA, which was signed by the President of the United States, there is a large section where it is mentioned that more cost-estimators are needed who are well-educated and better trained, so in response to this, we were tasked by a command organisation in Washington DC to begin an MA programme in cost-estimating analysis. We have now been running it now for about five years and it is an entire two-year MA programme that is dedicated to educating and training in cost analysis issues. There are many aspects that we have covered in the program that one needs to understand – business and financial management aspects, acquisition, systems engineering facts and then there is a total of six classes on cost-estimating techniques – some are quantitative such as regression and then others that are more informational in nature (e.g. this is what the guidelines say but this is what we personally recommend). Therefore, this book is going to be used as a textbook for one of the classes.
DN: A good indication out of that whole programme is that it is not just US Department of Defence oriented but that it also applies to organizations that are non-DOD and commercial. As we have discussed already, the cost-estimating field reaches out to a very large audience indeed. With this book, the same principles apply as we have included milestone reviews where you constantly check your analysis – whether it is on schedule, whether it is performing well, that there are no significant problems, etc. This framework can be applied to non-DOD companies such as the GAO twelve step guide in Chapter 3.
8. Were there areas of the book that you found more challenging to write, and if so, why?
GM: Chapter 2, which deals with the Department of Defence’s acquisition process, is long and just when we had finished writing the entire book, the new Secretary of Defence released an update to the acquisition process! Neither one of us wanted to have this text submitted with the old information in it, so we had to change all that. I also found it hard to stick to our goal and not make it too “mathy,” so we had to think of good examples to explain regression, inflation indices and learning curves in real world terms.
DN: As Greg said earlier, you can take a course and after think “What is that good for?” I recently visited a friend and had dinner with his family. His 15 year old daughter had to study for a math exam which she did not want to do. It was about quadratics and she turned to me and asked, “Am I ever going to use quadratics in my life?” Her parents wanted me to reply “Of course.” But I said, “Probably not” and she rolled her eyes, turned to her parents and said, “See?!”
GM: But it’s the same with Latin. You may not necessarily go out there and speak Latin with someone else but studying the language helps you understand the roots of the word and the very foundations language is built on. This girl may never use quadratics in her life again but it will improve her critical thinking skills and help her to look at the numbers, figure it out and make a decision for herself. One of our pre-requisites for taking the MA course is that you have taken calculus. There is not a lot of calculus in our courses, but if you have taken it and passed, you then understand the critical thinking and how to solve these problems. Given that level of mathematical prowess, you should be able to make it through the issues we want you to be able to do.
9. What is it about this particular area that fascinates you
DN: I love the uncertainty. Peering into the future, everyone wants know a certain point, a single answer, but the truth is that it’s uncertain. So doing the uncertainty analysis and explaining to people what one has to do is very fascinating to me.
GM: I would agree with Dan on the uncertainty part that you are trying to make a prediction based on historical data and you are trying to come up with a legitimate answer. The thing about cost estimation is that you are never going to prove that your answer is correct. If I am projecting for this programme 20 years down the road, “It is going to cost this many dollars,” it is very doubtful that I would be highly accurate due to so much uncertainty. People are not going to look back 20 years from now to see if Greg and Dan were correct on a particular estimate they made 20 years ago!
So you are not going to prove that your estimate is “correct,” but what you want to prove is that your estimate is reasonable and credible. You show this by using sound mathematical techniques and people then understand how you came to these conclusions. That to me is interesting. I like the practical side and what drew me to the field is that I could use math which I have loved all my life.
10. What will be your next book-length undertaking?
GM: We may well update this in later years with new editions but otherwise no other plans at the moment.
11. Please could you tell us more about your educational backgrounds and what was it that brought you to recognise statistics as a discipline in the first place?
DN: My degrees are in mathematics and econometrics. I started life as a theoretical mathematician and over time, I wandered into applied mathematics and in particular, econometrics. I ended up doing cost estimation at some point and found it really interesting. No one goes to university to become a cost estimator because there are no courses. Everyone wanders into it.
GM: I went to the US Naval Academy as I wanted to be a pilot. I was always a math kid, though, and when I was growing up I would complete crossword puzzles and other math problem books, which I loved working on. If I did the problem and came up with the answer of say 24, I would be happy and satisfied when I looked at the back of the book and found that I had gotten it right — but when I didn’t have the right answer, I had to then go back and analyse where I had gone wrong. That honed my critical thinking skills at a younger age. I flew helicopters for over 20 years and obtained a degree in Operations Research along the way, which in turn introduced me back into the world of math and statistics.