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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 is copyrighted (c) 2004 by D. J. Power. Please send your questions to
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