What Do a Space Shuttle and an Anti-Cancer Drug Have in Common? Their Development Costs Can Be Estimated Using Parametric Cost Analysis: A Literature Review

Abstract

The existing literature on Parametric cost analysis (PCA) has been reviewed focusing on methodology, application, shortcomings, suggested remedies and alternatives. Parametric cost analysis (PCA) is a method of estimating the cost of a product using mathematical relationships to other parameters of the product, such as parts and labor cost. These models or cost estimating relationships (CERs) are often obtained by regressing the total cost of a product on a set of variables that represent the product's performance. Throughout this review, emphasis has been placed on why these techniques are used, their practical applications, and explanation of statistical methodology in layman's terms. PCA is found to be useful in large scale projects and in situations where little is known about the new product.

Keywords: parametric, cost, analysis, literature, review

JEL Classification: O32