What is Parametric Cost Estimation?

Parametric cost estimating is a statistical method that requires quantitative input. It's a disciplined, objective approach that's relatively quick to use and whose results are sensitive to changes in the value of the selected parameters. This approach is useful when available information is not very detailed, as this method considers past data and trends and associates one or more independent parameters that bear a strong relationship to cost. Key to this method is identifying the parameters that can form a supportable basis for the cost estimates.

Parametric cost estimating uses historical data and statistical relationships between variables to estimate the cost of a same or similar effort. This method has been widely used in developmental acquisition and construction; however, parametric cost estimating’s utility has grown favor with GovCons and government agencies. As with any cost estimating approach, evaluating the result is important to ensure it makes sense.

Parametric cost estimating’s strengths lie in its auditability and use of objective data. It's also quicker than the engineering (buildup or bottom-up) approach.A sensitivity analysis is a useful tool in parametric cost estimating since any change in the value of a key parameter can impact the cost estimate. For example, if you're estimating the cost to drive your car (with fuel consumption as an independent variable), changes in fuel prices would impact the estimate.

How the Parametric Cost Estimating Method Works

‍Parametric cost estimating develops a cost estimate based on the identification, examination, and validation of one or more relationships that exist between technical or programmatic and cost characteristics. It's a relatively quick approach that doesn't require detailed cost information but relies on quantitative values of expended resources (e.g., hours) used on the same or similar projects. It can be tweaked by changing the value of the independent variable, and because it relies on quantifiable data, it's verifiable and auditable.

‍Key concepts of parametric estimating include:

• Independent non-cost variable
• Dependent cost variable
• Cost driver
• Cost estimating relationship (CER)
• Sensitivity analysis
• Regression analysis

‍Parametric cost estimating models can be simple or complex. The simple model uses one cost driver, such as hours. Complex models use more than one cost driver with multiple CERs.Parametric cost estimating software, like Unison TruePlanning, does the calculations for you, streamlining the process and making it repeatable. Our parametric cost estimating expertise brings the most experienced and qualified SMEs to your projects, ensuring the credibility of your estimates. Coupled with predictive cost models and thorough cost research, TruePlanning enhances the accuracy and reliability of your estimates.