PRICE Systems International

Preparing for Retirementpresented to

2011 Defence Cost Estimation Conference

Who am I?

Andy Nicholls Senior Consultant PRICE Systems

Not here to try to sell you parametric tools (although I’d be delighted to talk to you about that outside with our Australian

agent Rubikon)

Background Electronics/ Avionics SCEA certified CCE/A 37 years in UK Defence

environment 27 years in cost estimating and

forecasting complex projects/ programmes

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The views expressed in this paper are mine and do not represent those of my employer.

This presentation follows normal English Spelling rules

Pictures were obtained from the internet and copyright remains with the originators.

All sources of data used in later slides and graphs are taken from public domain materials. The author gratefully

acknowledges their contribution in the construction of this paper and for their ‘non-profit’ use.

DISCLAIMER & ACKNOWLEDGEMENTS

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The media love ‘bad news’ and are never shy of reporting it! The history of many projects over hundred's of years show

a continuing trend of late completion, over budget and not delivering all that was promised.

The only difference across the years is the fact that today ‘bad news’ spreads almost at the speed of light!

Estimators are blamed routinely for “poor” (low) initial estimates, that provide false credibility that a project is achievable and may succeed.

Lets face it - Cost GROWTH is nothing NEW!

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It is claimed by that many projects are not delivered to their Time, Performance or Cost targets due to poor estimates provided by the Estimators NAO, GAO, Politicians, Press/ Media Public

Are the Estimators to blame ? Are the promises of the Suppliers/Builders too optimistic ? Are some projects “Before their time” and too ambitious ?

Commentary

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Reports – Example of Symptoms not underlying causes

2 Main root causes of Project failure Immature estimation processes and techniques

Cost Estimation should be embedded in the end to end cost management process

Poor Project control leverage estimate to provide project controls baseline

G.A.O. (Government Accountability Office) stated that: The generation of reliable cost estimates is critical function

(begs the question of what happens to them and their usage)

“Without this ability, agencies are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls”

In short…

All of us (Me included) contribute to the general Growth malaise and therefore

ESTIMATORS are VILLAINS of the PIECE

Shades of DILBERT

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I have deliberately avoided recent and specific ‘Defence’ examples in the following slides about project failure because: My objective is to illustrate:

the pervasiveness of ‘Growth’ consistency across time in-effectiveness of human ‘learning’ between

generations I have no solutions to the above!

Some Examples

The VASA (Swedish Navy)

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A ship built for the Swedish King in 1623. Contorted history with many changes ...

Original ship: 30 24-pound guns Change 1: 32 24-pound guns Change 2: 36 24-pound guns, 24 12-pound guns, 8

48-pound mortars, and 10 smaller guns. Change 3: 30 24-pound guns on lower deck and 30 12-

pound guns on upper deck Change 4: 64 24-pound guns and several smaller

guns (upper deck space built for 12-pound guns) End state: 48 24-pound guns (gun manufacture could not

deliver additional 16 guns)

Requirement changed from 30 to 78 guns over the build period. Sank on its maiden voyage in 1628.

The VASA Armament -Changes -

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Thames Tunnel 1826 - 1843 ~4 Times cost overrun

Initial estimate £140,000 Final cost £480,000 9 years late

Started by Marc Brunel and completed by IK Brunel (his son) Introduced new tunnelling technology, Lack of information on riverbed profile & geology led to 5

floods, Over estimate on productivity and hence optimistic

schedule

First Thames Tunnel

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The Suez Canal 20 times over budget Cost 433M Fr. 10 years construction 1859 to 1869 Political problems with lease Problems with the use of local workers

The Suez Canal

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On time & under Budget 5% under budget - A success!! Designed to last 20 years, Built 2 years & 2 months, completed in 1889, Overcame Geology & Political problems, Good incentive - the builder to receive income for 20 years !

The Eiffel Tower

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15 times over budget, $7M rose to $102M (Aus) Initial construction estimate 4 years Actual time 16 years (1957 – 1973) 12 years late

Over optimism in Engineering / Architectural design Architectural team resigned and was replaced

Sydney Opera House

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12 times over development budgetFinal Development Cost £1,129M 3 years late into service. Early STAC Development estimate £120 - £150M, Problems

Over optimism in the time to solve engineering problems. Certification for 1st Supersonic Air transport. International Collaborative tensions

Concorde

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Desire to innovate means taking risks Technology evolution means taking risks. Taking risks places budget and schedule in an awkward place Humans do not carry learning easily between generations Growth is not a new phenomenon, it is continuous &

inevitable

(as some economists state ‘zero growth = stagnation’)

My Conclusions?

Defence is about being able to project or withstand force to achieve a goal.

Defence requires capability (human, mechanical or cyber), this means creating policy, requirements and programmes / projects to deliver capability.

At a lower level we categorise and rank these programmes or projects according to cost.

Larger programmes receive more attention on delivery and performance.

Being human, Bad over-rides Good News especially where tax payers money is involved – so source data is biased.

Most reports therefore concentrate on the poorly performing programmes/ projects

Turning to Defence Programmes

Accounting Offices Reports on Expenditures Some Expenditures are Mandatory, others Discretionary Reports on most Defence communities identify poor

performance, cost and time (PCT) achievements Some Reports recommend changes to improve (and have

done for many years) Some Nations are now actively trying to implement some

changes to improve PCT

COMMON THEMES

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New Technology Changing Requirements Requirements Creep Insufficient Engineering experience Excessive Schedule Pressure Limited Technical Specifications Limited Project Plan DocumentationBudgetary influences Political interference Ignoring the Obvious Ignoring Test Results

Are any of the above the responsibility of Estimators?

Do any of these sound familiar ?

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MAJOR UK Reports (Project costs/delays) 1955 - 2010

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UK Costing Organisations, partial response 1955 - 2010

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Impact of Change initiatives on Cost Growth?(Major Programmes/ Projects only)

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Impact of Change initiatives on Schedule Growth?(Major Programmes/ Projects only)

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Project & Programme costs are inter-related with their schedule, so it is useless trying to assess change initiative success against just one parameter

Actions on cost alone may not improve schedule Actions on schedule alone will impact costs, some types of

programme do not respond well to schedule change. The following graph shows how cost & schedule over-runs

match up across the years Of course the 3rd leg is ‘Performance’, do users care if the

project is a little late and over cost if it outperforms everything else? This analysis is not considered here.

Unrelated cost / schedule illustrations are of little use

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Combined Cost & Schedule Growth

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On estimating duration (Westheimer's Rule)"... multiply that figure by two and change the unit of measure

to the next higher unit. So, in this way, you allocate two days to a one hour task.“

On Software estimating (Nicholls rule) Take initial estimate add ‘zero’ and then multiply by 3 to obtain the

lowest value outcome.

On calculating project costs (Susan Kramer, NASA)"... multiply the result by pi (3.1416). I have seen this technique

used more than once with decent results"

Some empirical guides (not recommended!)

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Do programmes/ project still over-run? YES Are estimates any more “accurate”? YES Are Estimating Methods improved? YES,

but their consistent application remains a concern Are risks/ uncertainties accounted for? YES Is short term expediency still necessary? YES Is Political interference still a concern? YES Do processes make Estimators responsible for the

initial and subsequent numbers? NO So, in short, has there been any real progress in cost

management at all? A Definite Maybe!!

So what impacts have 65 years of change brought?

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My views on Progress Interested parties now actively discuss the problems of

‘GROWTH’ Estimators have developed robust and reliable tools to

assist estimation of new projects and programmes Uncertainty & Risk are now routine inclusions in Estimates Databases are being created, validated and used to record

historic, current and emerging projects/ programmes Cost research is undertaken in many organisations and

Government Departments Information is more freely available

Estimators may now be accredited through recognised programmes to add consistency and credibility to their profession

Organisation responsibilities still fail to make Estimators responsible for budget numbers

Cost Estimators therefore need to have….

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Basic PhysicsEngineering ManagementLogisticsProduction ProcessesPerformance parametersReliability & MaintainabilitySchedulingSystems Engineering

AccountingApportionment C/R/IRDELBudgetingCost Breakdown StructuresCost data analysisFinancial Analysis

CER developmentEarly EstimatingLearning curve applicationNormalisationRegression analysisSensitivity AnalysisStatistics

Cost benefit analysisCost risk analysisEconomicsEconomic AppraisalExchange ratesInflationPresent value analysis

Modern costing initiatives are now in their 7th Decade Workers retire (normally) at 65 Success of prior initiatives patchy, sometimes provoking unintended

responses Successes are short lived (until the next staff/ structure change)

Cost Estimators are VICTIMS of CHANGE not the VILLAINS 65 years is long enough, GROWTH like ‘Learning’, is continuous

and inevitable therefore it is time to ‘Retire’ so called costing initiatives!

Root cause is no longer Estimating (methods or skills): Look to your Processes of

Budget formulation, Project Approvals, Project Management & Control

Summary

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Any Questions?

Andy Nicholls+44 (0)7500 866822

Andy.Nicholls@Pricesystems.com

PRICE Systems Ltd.PRICE House, Meridian Office Park

Osborn WayHook, Hampshire

RG27 9JY

Customer-support.UK@pricesystems.com www.PRICESystems.com

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