Risk analysis of parametric cost estimates within a concurrent engineering environment

In industries where project time scales are long and the investment capital required is high, it is essential to minimise the risk involved with the development of a new product. Aerospace manufacturers are an excellent example of this kind of industry. Parametric estimating is a method used for predicting cost based on historical relationships between cost and one or more predictor variables. This method is commonly used during the conceptual stages of design where potential risk is at its highest. There is an increasing trend within parametric cost estimating to combine parametric analysis with statistical risk analysis methods. All cost estimates have a degree of uncertainty associated with them. The objective of a cost risk analysis is to predict the amount of uncertainties involved during the estimate of future projects. This paper presents the results of a risk analysis study conducted on a recently developed set of cost estimating relationships (CERs). The first case study considers the risks involved within a parametric cost estimate. This particular cost risk methodology can be used when only conceptual information is available. The main risk involved is related to the independent variable and its probability of change during the design process. The second case study provides the estimator with a possible range of costs for designing a part. This method can be used when there is little information available concerning a part.