Abstract
Abstract A frequently used methodology in cost estimating is the use of linear cost estimating relationships between prime mission product (PMP) and non-PMP costs such as test and program management. When assessing the uncertainty associated with such an estimate, it is often improperly assumed that the cost elements are either totally independent or perfectly correlated. These simplifying assumptions could lead to a large error in the construction of the total cost distribution, thus significantly impacting the ensuing risk assessment. This paper presents a systematic approach for constructing a total cost equation using the stagewise regression procedure. This equation will consist of only independent components and is thus convenient for generating the total cost distribution. While using only standard regression outputs in the calculation, the approach implicitly captures all the correlations among cost elements. An application of the approach to an illustrative program cost estimate is also included.
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