from DSSResources.com

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                         DSS News 
                    D. J. Power, Editor 
              April 11, 2004 -- Vol. 5, No. 8
         A Bi-Weekly Publication of DSSResources.COM 

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      Check the interview with Randy Fields "Automating 
       'Administrivia' Decisions" at DSSResources.COM

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Featured: 
* Ask Dan! - What is a cost estimation DSS?
* What's New? at DSSResources.COM
* DSS News Releases 

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DAMA International Symposium & Wilshire Meta-Data Conference 
- Keynote Speaker Chris Date - May 2-6, 2004, Century Plaza 
Hotel, Los Angeles. Details at
http://www.wilshireconferences.com/MD2004/index.htm

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            Check the article by Andrew Lewis
        "RIMSAT DSS Project" at DSSResources.COM

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Ask Dan!
by Dan Power

What is a cost estimation DSS?

Many people want examples of DSS and students are often interested in 
"building" DSS.  Finding small-scale yet interesting DSS projects can 
however be difficult. Building and discussing cost estimation DSS is one 
possibility. A cost estimation DSS is a software application that helps 
a person estimate cost elements and finalize a bid for a prospective 
customer. "Cost estimation" refers to the purpose of the Decision 
Support System and does not constrain how the system is implemented.  
The generic task is subtle and semi-structured and it can be approached 
in many ways.  A cost estimation DSS may be a model-driven or a 
data-driven DSS. Data-driven DSS help "add up" cost elements from a 
database and usually provide limited analytics. Cost estimation DSS are 
frequently model-driven and spreadsheet-based, but other types of DSS 
are developed and marketed for assisting in this task (see TechComm 
Associates, 2003). Successfully estimating costs is important to the 
survival and profitability of many firms in many different industries.

According to the U.S. Department of Labor (BLS, 2002), "cost estimators 
develop the cost information that business owners or managers need to 
make a bid for a contract or to determine if a proposed new product will 
be profitable".  In some businesses, cost estimates are prepared on the 
back of an envelope or on a simple "bid" sheet. As the complexity of the 
estimating task increases computerized decision support becomes 
increasingly important. There were more than 200,000 cost estimators in 
the United States in 2000, about 50 percent worked in the construction 
industry and 20 percent in manufacturing industries. Currently, most 
estimators DO NOT use computerized decision support.

So what is involved in preparing a cost estimate? What is the decision 
process? A general description suggests the importance of the task. The 
BLS handbook notes "The methods of and motivations for estimating costs 
can vary greatly, depending on the industry. On a construction project, 
for example, the estimating process begins with the decision to submit a 
bid. After reviewing various preliminary drawings and specifications, 
the estimator visits the site of the proposed project. The estimator 
needs to gather information on access to the site and availability of 
electricity, water, and other services, as well as on surface topography 
and drainage ... After the site visit is completed, the estimator 
determines the quantity of materials and labor the firm will need to 
furnish. This process, called the quantity survey or "takeoff," involves 
completing standard estimating forms, filling in dimensions, number of 
units, and other information. A cost estimator working for a general 
contractor, for example, will estimate the costs of all items the 
contractor must provide. Although subcontractors will estimate their 
costs as part of their own bidding process, the general contractor's 
cost estimator often analyzes bids made by subcontractors as well. Also 
during the takeoff process, the estimator must make decisions concerning 
equipment needs, sequence of operations, and crew size. Allowances for 
the waste of materials, inclement weather, shipping delays, and other 
factors that may increase costs also must be incorporated in the 
estimate. On completion of the quantity surveys, the estimator prepares 
a total project-cost summary, including the costs of labor, equipment, 
materials, subcontracts, overhead, taxes, insurance, markup, and any 
other costs that may affect the project. The chief estimator then 
prepares the bid proposal for submission to the owner."

The BLS report notes "In manufacturing and other firms, cost estimators 
usually are assigned to the engineering, cost, or pricing departments. 
The estimators' goal in manufacturing is to accurately estimate the 
costs associated with making products." 

For the past 2 years, I have required students in my DSS/MIS course to 
work in teams to analyze, design and then build a spreadsheet-based DSS 
for cost estimation. I started requiring this project because there were 
so many possibilities and yet students could use a readily available 
spreadsheet package, like Excel, to build a DSS. The project provides 
many opportunities for student creativity and initiative; teams work on 
an important, non-trivial task; students can apply Excel skills they 
have learned on a small-scale "real" project. Also, students go through 
the steps in analysis and development and they create and submit 
deliverables. I encourage teams to follow a decision-oriented design 
approach and begin by studying a specific cost estimating process in a 
specific business.

Teams pick an estimating situation and then research, plan, and develop 
a specific DSS for that situation. The team develops a model-driven DSS 
for estimating the cost of an event/project and preparing a competitive 
bid to submit to the person requesting a proposal. The specific DSS 
supports a person working as a cost estimator or bid specialist or a 
similar job title. The specific model-driven DSS that is developed 
should help an estimator input data, apply a detailed quantitative 
estimating model, conduct sensitivity and "what if" analyses, and 
prepare a formal bid proposal. Project teams submit 4 deliverables 
during the semester.  Deliverable 1 is a project analysis, specification 
and research summary report; Deliverable 2 is a model specification and 
project plan; Deliverable 3 is the completed Spreadsheet-based DSS; and 
Deliverable 4 is the documentation.

An algebraic model provides the decision support functionality, but the 
model-driven DSS application needs to facilitate elicitation of values 
and estimates and then help the estimator complete "what if?" and 
sensitivity analysis. Some teams break the estimating task into phases 
or separable divisions.  Some teams try to identify standard cost data 
to compare to estimates. Occasionally a team will propose calculating a 
bid from an established "price" sheet.  This approach neglects all of 
the cost issues and provides no information to the decision maker about 
the profitability of a job or project. IMHO this application is NOT a 
decision support system even though a spreadsheet is used to help with 
calculations. Teams receive negative feedback about this proposed 
application. Understanding costs in an estimating situation is usually a 
major challenge and teams need to face this challenge to build a 
successful DSS. 

Occasionally development teams try to help an estimator answer the 
question "Should we bid?" in addition to "How much should we bid?" 
Rarely do teams grapple with the complexity of bidding in the context of 
a portfolio of bids. In general, the model-driven DSS focuses on a 
"fixed" price or a "not to exceed" bid situation. Teams need to 
determine how much detail should be in the cost estimate and how 
overhead should be allocated. A major issue facing estimators is 
assessing profitability and keeping the bid amount competitive. Also 
developers need to determine if it is more appropriate to provide for a 
profit markup or a markdown. Should profit be an across-the-board 
percentage or should the DSS provide for selective adjustments to cost 
elements? Markup pricing usually covers overhead and profit contribution 
so the issue becomes how much markup? In some situations, labor time 
estimates are especially difficult to forecast.  Perhaps both labor 
productivity and labor costs need to be considered in an estimate. Also, 
some teams neglect "what if?" analysis and sensitivity analysis.  In a 
model-driven DSS this capability is important. Also, developers need to 
determine if common size percentages of cost categories will help the 
estimator. Is it helpful to show the estimator a bar chart of amounts 
for major cost elements? Each cost estimating process has its own 
demands, nuances and idiosyncrasies. The development team needs to make 
design decisions that accommodate the specific estimator and estimating 
situation.

Teams are encouraged to look for projects in three industry situations: 
construction cost estimating, convention and meeting cost estimating, 
and software development cost estimating. Please note! It is important 
that the project involve sufficient complexity to justify building and 
using a spreadsheet-based DSS in the estimating situation. Some 
representative cost estimation DSS project titles from the past 2 years 
include:

"Cost estimation for a major event on a college campus"
"Light industrial construction cost estimating"
"Meetings and banquets cost estimating"
"New home construction estimating"
"Prepare attestation bids for a medium-sized accounting firm"
"Prepare bids for a hotel resort convention center"
"Provide cost estimates for weddings"
"Software project cost estimating"
"Vector mapping cost estimating" 

The Occupational Outlook Handbook (BLS, 2002) reports that "Computers 
play an integral role in cost estimation because estimating often 
involves complex mathematical calculations and requires advanced 
mathematical techniques. For example, to undertake a parametric analysis 
(a process used to estimate project costs on a per unit basis, subject 
to the specific requirements of a project), cost estimators use a 
computer database containing information on costs and conditions of many 
other similar projects. Although computers cannot be used for the entire 
estimating process, they can relieve estimators of much of the drudgery 
associated with routine, repetitive, and time-consuming calculations. 
Computers also are used to produce all of the necessary documentation 
with the help of word-processing and spreadsheet software, leaving 
estimators more time to study and analyze projects."

Cost estimation DSS can help cost estimators prepare bids faster and 
more accurately.  A sophisticated DSS can help insure that when a 
company wins a bid that it will be able to profitably complete the 
event/project.

References

Bureau of Labor Statistics, U.S. Department of Labor, Occupational 
Outlook Handbook, 2002-03 Edition, Cost Estimators, on the Internet at 
http://www.bls.gov/oco/ocos006.htm.

Department of Energy, "Practical Cost Estimating and Validation: Lessons 
Learned Workshop", www.em.doe.gov/aceteam/workpdfs.html. 

Roetzheim, W., "Estimating Software Costs", Software Development 
Magazine, October 2000, www.sdmagazine.com/documents/s=821/sdm0010d/ 

TechComm Associates Staff, "Estimating software yields higher profits at 
Liberty Brass", Micro Estimating Systems, 2001, posted at 
DSSResources.COM April 4, 2003

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What's New? at DSSResources.COM

04/09/2004 Posted interview with Randy Fields "Automating 
'Administrivia' Decisions". Check the interviews page.

04/05/2004 Posted article by Andrew Lewis, "RIMSAT DSS Project: 
Integrating Model-Based and Case-Based Reasoning". Check the articles 
page.

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DSS News - March 29 to April 9, 2004
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