Each peer response should be a minimum of 110 words, add to the discussion and include at least 1 direct question.

Student 1 (Ricar):

Class,

Parametric cost reminds me of statistics where the historical data is affected by variables that had an alpha value of at least 0.5. The value of alpha would determine if it was a good indicator that would affect the data. According to CPA Darrell J. Oyer (2012) parametric cost have been used since the 1950s and explain the relationship between cost. The parameters and variables are used to develop an estimation of cost. CPA Darrel J. Oyer (2012) mentions how the DCAA classifies parametric estimations into categories as logical, significant, verifiable, reasonably accurate predictions, and proper system monitoring. Each parametric estimation has a unique distinction that is meant to be used during estimation approaches. Logical defines the relationship between cost and non-cost in order to look into alternatives for the best choice. Significant statistical is where multiple linear regression and many other analysis methods are used to back up the estimations. Verifiable is eth methods or system used to validate the cost estimations. Reasonably accurate is the estimation derived from the parametric system accuracy. Proper system monitoring is the constant attention to detail in order to validate the parametric estimation relationships. The important factor I when to use parametric system and to validate such methods for accuracy, validating the data while understanding the relationship between variables to help make the best choice for cost estimations. A prime example is the oil and gas industry using parametric estimation for the procurement in construction projects and safety management factors using the Delphi method. Feng et al. (2014) explained that safety management variable is dependent on location and the type of industry.

Oyer, D. J. (2012). Pricing Concepts. In D. J. Oyer, Cost-Based Pricing: A Guide for Government Contractors (pp. 16-22). Tysons Corner: Management Concepts Press, Inc.

Sanaz Touchouchian, M. A. (2016). Design of a safety cost estimation parametric model in oil and gas engineering, procurement and construction contracts. Safety Office, 35-46.

Student 2 (Jane)

Good Morning Class,

The parametric estimating techniques according to (Oyer, 2012, pg. 19), are based off statistical relationships between historical data and other variables. Parametric estimating is a tool that is commonly used to estimated cost-to-cost relationships. The structure is broken down by beginning with the ending objecting and dividing it into manageable parts. The breakdown provides a framework for the overall planning and control of the contract, this is called the statement of objectives. A work breakdown is planned around the projects primary products instead of the actual work needed to produce the product. Since the ending objective is the product, the breakdown of categories is easily done. Thus, enabling easier collection of costs for the planned action needed to achieve the final product.

Parametric estimating can range from being very simple or very complex depending upon the use of cost-to-cost variable or cost-to-noncost variables.The very first step is to develop the cost data for the project. According to (Harbuck, 2002, pg.1), “the cost data forms can include item level unit costs, composite unit cost, cost allowances etc. Costs data can be developed using any of a number of resources and compared to costs seen in a project region for similar types of construction.” The parametric estimating is an excellent tool to utilize in the starting phases of a project. It allows new projects with little to no data a base to begin conceptual estimates. (Dysert, 2008, pg. 1) defines parametric estimating as, “a mathematical representation of cost relationships that provide a logical and predictable correlation between the physical or functional characteristics of a project and its resultant cost.” The parametric offers many benefits to include quick preparation times and consistent estimate format and documentation.

References

Dysert, L. (2008). An Introduction to Parametric Estimating. AACE International Transactions, ES31–ES37. Retrieved from http://search.proquest.com/docview/208174212/

KKwak, Y., & Watson, R. (2005). Conceptual estimating tool for technology-driven projects: exploring parametric estimating technique. Technovation, 25(12), 1430–1437. https://doi.org/10.1016/j.technovation.2004.10.007

Oyer, D. (2012). Cost-based pricing : a guide for government subcontractors . Vienna, Virginia: Management Concepts.

Student 3 (Amy):

Since the Federal Acquisition Regulation (FAR) is so familiar to those of us in the contract and acquisition degree program, and the cost-based pricing method is the preferred pricing method of the FAR, I figured I’d start with that one for this week’s forum discussion. In reading Chapter 1 of the textbook, I found that cost-based pricing takes in to consideration 2 elements: the actual or estimated cost plus an added profit/fee (Oyer, 2012). Cost-based pricing does not take in to consideration the value received for the product like market-based pricing does. Additionally, cost-based pricing does not rely on reviews or comparison to competitors’ pricing (Oyer, 2012). Cost-based pricing looks to find a reasonable price for the customer and the company by reviewing the cost of the product (beneficial to the customer) and then padding the cost so that the company can make a profit (Klaric, Vujicic, & Vujicic-Tomic, 2019).

Cost-based pricing is not a new concept and began being utilized during World War I. When the military realized they needed specialized gear and not just what was available on the public market, cost-based pricing was created as a way to save money, considering the uncertainties that new development brings (Oyer, 2012). Firm-fixed price contracts can quickly become costly when there are so many unknowns in development cycles. A way around this is to utilize a cost-based pricing model so that you only pay for the cost of the product plus a predetermined profit fee (Oyer, 2012). When focusing on supply chain management, cost-based pricing can contribute to getting a better handle on where the costs of products may affect the supply chain the most. When analyzing the entire supply chain and looking for areas of contention, cost-based pricing methods supports cost control if that is determined to be an area of weakness (Huang & Zhang, 2014).

References

Huang, J. H., & Zhang, Y. (2014). Cost-based pricing model with value-added tax and corporate income tax for a supply chain network. Applied Mathmatical Modelling, 38(1), 168-180. Retrieved from https://www.sciencedirect.com/science/article/pii/…

Klaric, M., Vujicic, M., & Vujicic-Tomic, B. (2019). Meeting Halfway- Comparison Between Cost-Based and Demand-Based Pricing Methods. UTMS Journal of Economics, 10(2), 215-225. Retrieved from https://doaj.org/article/71efc1e214a547dbbf8f87ea0…

Oyer, D. (2012). Cost-Based Pricing: A Guide for Government Contractors. Vienna, Virginia: Management Concepts. Retrieved from http://web.a.ebscohost.com.ezproxy1.apus.edu/ehost…