A E Ydouglas Carmicheal

AN APPROACH FOR DEVELOPING A PRELIMINARY COST ESTIMATING METHODOLOGY FOR USCG VESSELS by MARK JAMES GRAY BaSC Mech. Eng., University of Water 1oo (1978) MaSC Mech. Eng., University of Water1oo (1980) SUBMITTED TO THE DEPARTMENT OF OCEAN ENGINEERING IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN NAVAL ARCHITECTURE AND MARINE ENGINEERING at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY June 1987 0 Mark J. Gray, 1987 The author hereby grants to M.I.T. and to the U.S. Government permission tc reproduce and to distribute publicly copies of this thesis document in whole or in part. Signature of Author: Departmen f Ocean Engineering May 8, 1987 Certified by:- Ceifi-- e d. Henry. S. Marcus Associate Professor, Marine Systems Thesis Supervisor Accepted byl-----___+__ Ae yDouglasCarmicheal Chairman, Ocean Engino ring Departmental Committee I r I AN APPROACH FOR DEVELOPING A PRELIMINARY COST ESTIMATING METHODOLOGY FOR USCG VESSELS by MARK JAMES GRAY Submitted to the Department of Ocean Engineering on May 8, 1987 in partial fulfillment of the requirements for the Degree of Master of Science in Naval Architecture and Marine Engineering ABSTRACT A study was done on methods used to estimate new ship construction costs during the feasibility/preliminary design phase. Costs were functionally related to SWBS weight groups and design and fabrication complexities. Other factors affecting shipyard construction costs include inflation, production learning and scheduling. Cost estimating relationships (CERs) are derived from historical data and are normalized to reflect technical cost trends in ship construction. The accuracy of the CERs is dependent upon the quality and range of the data. Cost risk or uncertainty can be quantified provided the probability distributions of the input data and CER regression coefficients are known. Five cost models are examined and found to be quite similar in their approach. Differences can be attributed to the different needs of the organizations that support their use. The models are applicable to a wide range of ship types and displacements, depending upon the data available during their development. Cost estimates during the feasibility design phase are thought to be accurate to within 10-20% of actual costs. In order for cost analysis to have a measurable impact during ship design, costing must be an integral part of the decision- making process. Before this can occur, management must have confidence in the costing team's ability to produce high quality esti mates. Thesis Supervisors Dr. Henry S. Marcus Title: Associate Professor of Marine Systems 2 ACKNOWLEDGEMENTS I would like to express my appreciation to the many people who assisted me in this research endeavor. Thanks to my thesis advisor, Professor Henry Marcus, not only for his guidance and direction, but also for allowing me the freedom to explore and learn on my own. Special thanks to Dennis Clark, Mike Jeffers and Bob Jones of the Costing and Design Systems Office, Code 1204 at David Taylor Naval Ship Research and Development Center (DTNSRDC), for their support and invaluable assistance in the research and for sharing with me their philisophical understanding of cost engineering in particular, and life in general. The assistance of Jim Herd, Tzee-Nan Lo and especially Ron Schnepper in the Ships Cost Analysis Division, NCA-2 at the Naval Center for Cost Analysis was greatly appreciated. Thanks also to Mike Hammes and Bob Simpson in the Cost Estimating & Analysis Division, SEA 017 at the Naval Sea Systems Command. These people gave freely of their time and effort during this study and supplied invaluable information. Several individuals in the United States Coast Guard deserve special mention. Thanks to Lt John Tuttle, Office of Acquisition and Lt Shawn Smith, Office of Research & Development for their continuing interest in this work, and to Richard Rounsevell of the Planning and Estimating Section in the Office of Engineering for his helpful suggestions. To all the people who spent the time talking and explaining the seemingly infinite aspects o cost estimating to me, thank you all. I hope that I have managed to include all of the useful insights that were given to me. I have saved my final note of appreciation and thanks for my wife Louise, who provided endless encouragement and love throughout this study. This thesis work was funded by the Office of Research & Development of the United States Coast Guard. TABLE OF CONTENTS Page A MT I _A rl w I I . 2 ACKNI WLEDGEMENTS . ........... .....a . 3 TABLIE OF CONTENTS .................... .............. 4 LIST OF FIGURES ................. .... ...................... 8 LIST OF TABLES ................... ................. 1I CHAP'TER 1 - INTRODUCTION . ................................ 14 1. 1 SHIP DESIGN PROCESS ............................ 20 1.2 SWBS WEIGHT GROUPS .............................. 24 1.3 ESTI MATE QUALITY ................. ........... 27 1.4 EARLY SHIP DEFINITION .......................... 30 . 1.4.1 Effect of Design & Construction Standards 34 1.4.2 Incorporating New Technology ............ 35 1.5 SHIP PROGRAM COSTS .. ........................... 36 1.5.1 Reporting Ship Costs . ...................40 CHAPITER 2 - OVERVIEW OF SHIP COST ESTIMATING ............. 43 2.1 ESTIMATING BASIC CONSTRUCTION COSTS ............ 47 2.1.1 General ................................ 47 2.1.2 Should Cost versus Actual Cost .......... I. 51 2.1.3 Learning Rate ..................... .. 53 2.1.4 Scheduling ...... ........................ 58 2.1.5 Inflation and Escalation ................. 62 2.1.5.1 Calculating ROM Escalation ........ 68 2.2 CER DEVELOPMENT .............................. .. 70 2.2. 1 Reliability of CERs ........................ 74 4 TABLE OF CONTENTS Page 2.3 RISK ANALYSIS ..................................... 82 2.3.1 General .................................... 2.3.2 Analytical Methods ......................... 90 2.3.2.1 Cost Element Probability Distribution Functions .............. 90 2.3.2.1.1 Beta FDFs .................... 93 2.3.2.1.2 Gaussian PDFs ................ 96 2.3.2.1. Triangular PDFs .............. 96 2.3.2.1.4 Uniform PDFs ................ 99 2.3.2.2 Method of Moments ................... 99 2.3.3 Monte Carlo Methods ........................ 103 CHAPTER 3 - DESCRIPTION OF SPECIFIC SHIP COST MODELS ........ 105 3.1 ACQUISITION & LIFE--CYCLECOST ESTIMATING .......... 1C07 3.1.1 NAVSEA Code (:017Cost Model ................. 107 3.1. 1.1 General ............................. 1 07 3.1.1.2 Cost Estimating Relationships ....... 11 C) 3.1.1.3 Input Information ................... 130 3.1.1.4 Output Information .................. 132 3.1.2 NCA Cost Model ............................137 3.1.2.1 General ............................. 137 3.1.2.2 Cost Estimating Relationships ....... 139 3.1.2.2.1 One-Digit Model .............. 141 3.1.2.2.2 Two-Digit Model .............. 146 3.1.2.3 Input Information ................... 153 3.1.2.4 Output Information .................. 155 3.1.3 ASSET Cost Model ................ 156 General 156 3. 1.3.1 ................... melm......* . 3.1.3.2 Cost Estimating Relationships ....... 161 3.1.3.3 Input Information ......... ....... m.. 183 * . 189 3. 1.3.4 Output Information ........ .. 3.1.4 USCG Cost Model ............................ 194 3.1.4.1 General............................. 194 3.1.4.2 Cost Estimating Relationships ....... 196 3.1.4.3 Input Information ................... 21 0 3.1.4.4 Output Information .................. 213 5 TABLE OF CONTENTS Page 3.1.5 RCA PRICE Hardware Model ................... 216 3.1.5.1 General ............................ 216 3.1.5.2 Cost Estimating Relationships ....... 219 3.1.5.3 Input Information ................... 233 3.1.5.4 Output Information ................ 234 3.1.6 Other Cost Models .......................... 238 3.1.6.1 FAST-E ........................ .. 238 3.1.6.2 Merchant Ship Cost Models . 239 3.1.6.3 Private Contractor Models ........... 240 3.2 COST MODEL COMPARISONS ............................ 241 3.2.1 General Model Characteristics .......... 241 3.2.2 Range of pplicability ..................... 243 3.2.2.1 Vessel Type and Displacement ........ 243 3.2.2.2 Ship Design Phase ................... 245 3.2.3 Model Input/Output Comparisons ............. 246 3.2.3.1 Minimum Input Requirements .......... 247 3.2.3.2 Cost Output Sensitivities ........... 252 3.2.3.2.1 Marginal Cost Factors ....... 252 3.2.3. 2.2 Program Cost Factors ......... 254 3.2.3.3 Cost Output Accuracy ................ 254 CHAPTER 4 - DEVELOPING A SHIP COST ESTIMATING CAPABILITY .... 259 4. 1 COST MODEL DEVELOPMENT ........................... 262 4.1.1 Data Gathering .... .........................264 4. 1.1.1 Establishing User Needs ............. 267 4.1.2 Resource Requirements ...................... 270 4.1.3 Organizational Considerations .............. 271 4.2 COST MODEL SELECTION .............................. 274 CHAPTER 5 - CONCLUSIONS AND RECOMMENDATIONS ................. 276 5.1 CONCLUSIONS ................. ............... 276 6 TABLE OF CONTENTS Page 5.2 RECOMMENDATIONS .................................. 281 5.2.1 General Recommendations .................... 282 5.2.2 USCG Recommendations ....................... 284 REFER ENCES................................................. 287 AFFEN IDIX A - SWBS WEIGHT GROUP KEYS FOR COSTED MILITARY PAYLOAD .............. 292 APPENIDIX B - ASSET KN FACTORS ............................... 294 AF'PENIDIX C - COST ESTIMATING SURVEY ....................... 304

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