COST VARIANCE ANALYSIS IN MAKE-TO-ORDER COMPANIES

Authors: Antnio Artur de Souza and Brian G. Kingsman

Abstract
This article describes an analysis model of estimated and actual cost data applied to
(MTO) Make-to-Order Companies. It also describes an analysis performed with cost data
collected from a MTO company. The work described in this article illustrates the analysis
proposed to be performed by a decision support system called CEPSS, developed by the authors
(De Souza & Kingsman, 1995, 1996 and 1997). The main objective of this analysis is to
investigate the relation between cost variance and the confidence of the estimators when
preparing the estimates (time estimates). The analysis model uses estimated cost data recorded
according to a model developed by the authors, which consists in recording three factors in
association with the time estimate: confidence factor (how sure the cost estimator is about the
time estimate), experience factor (how much experience the cost estimator has with the specific
job), and similarity factor (how similar the piece of work being dealt with is with others already
dealt with by the cost estimator). It was also an objective of this analysis to investigate if the
experience and similarity factors would help the confidence factor in the understanding of
possible cost variances. The recording of these three factors at the time of preparing the
estimates was found to be a useful mean of analysing and controlling cost variances in MTO
companies.

1. Cost Estimation and Pricing in MTO Companies

MTO companies prepare cost estimates prior to bidding to determine the price to be
quoted, aiming at being the lowest bidder. The cost estimates must be low enough to obtain
work while still being at a price, within which the product may be manufactured. If the cost
estimates are too high then the price is set also too high and no work is obtained, and if cost
estimates are too low then there is risk of losses. After bidding, the cost estimates are generally
used to monitor costs (cost control) during the manufacturing of the product.
For many MTO companies bidding is everything. The more customer requests (or
enquiries) to which a company replies with bids, the more chances it has of getting orders.
Successful estimating and subsequent bidding requires speed, accuracy and consistency.
Customers (or contractors) when requesting bids often submit only rough design drawings,
from which the cost estimators have to develop estimates for the different expected costs.
The setting of a price is a very difficult task. Bad pricing decisions may lead a
company to bankruptcy, so they have to be made very carefully. The setting of a price is
strongly based on the cost estimates, but several factors have also to be taken into
consideration. The mechanistic approaches used to estimate the cost and set the price have to be
complemented by the cost estimators' judgement.
In MTO companies the main operational phases in the manufacture of a product are: 1)
estimating, 2) pricing/bidding, 3) planning, 4) scheduling, and 5) cost control (Figure 1). These
operational phases are cyclic. This cyclic flow of information and operations does not really
start with the preparation of the cost estimates. In fact, when preparing the cost estimates for a
new product the company is using information gathered from past estimates and their
respective cost analysis. However, it is very difficult for MTO companies to use past
information effectively. Usually there are several cost estimators in one MTO company,
making it difficult for the estimates to be prepared homogeneously.
The cost estimation process in MTO companies is in general very complex, due to the

1
nature of their operations. These companies make one-of-a-kind or special-order products. In
these companies the product unit costs are calculated by dividing total manufacturing costs for
each job order by the number of units produced for that order (Needles et al., 1994). The costing
system in these companies requires the manufacturing costs to be collected and assigned to
specific jobs, rather than to set time periods.

Customer
Enquiry

Enquiry
Evaluation
On-going Cost
Cost Analysis Estimation

Cost
Post
Control Pricing/
Manufacturing
Cost Analysis bidding

Planning/
Manufacturing
Scheduling

Figure 1 - An Integrated Cyclic Flow Model of MTO Companies Information System (based on
Birrell, 1987).

The cost of manufacturing a product includes not only the cost of tangible materials
entering into the manufacturing process, but also the costs incurred in changing the materials
into a finished product ready for sale. The cost of a manufactured product normally consists of
direct materials, direct labour cost, and factory overhead cost (all the remaining costs).
Companies may use predetermined overhead rates to assign or allocate factory overhead cost to
products. When several products are produced, to each one must be allocated the factory
overhead costs caused by its manufacture.
In many MTO companies cost estimates are frequently obtained through what might
be called off-the-cuff or rule-of-thumb-methods. Sometimes these methods use average
historical costs. MTO companies almost always have initial estimates adjusted according to the
company's characteristics and plans, as well as according to the market conditions and
economic and technological trends.
Sometimes, cost estimates are prepared from incomplete drawings and without
complete specifications (Rich, 1993). Incomplete drawings and/or specifications often lead to
distortions in the cost estimation. For instance, surface finishing can be very expensive and may
be forgotten during the estimation stage. Very frequently MTO companies have to prepare
estimates quickly, risking making big errors. Tolerance requirements, for instance, are a great
difficulty for manufacturing MTO companies, because the estimation of the precise times
required become very time consuming and open to errors.
Historically, manufacturing companies (including MTO companies) have had high
variable costs because the production process requires many materials and extensive labour.
But as more and more companies automate their production facilities, variable costs are
substituted by fixed costs. These companies are becoming more capital intensive (Ricketts &

2
Gray, 1988). This makes the cost estimation process more complex, because it is very difficult
to estimate the indirect, semi-direct and indirect costs. Activity-Based costing systems are
being used by many MTO companies in order to overcome this difficulty. All MTO companies
studied during the research used the cost-plus method for pricing, using activity based costing
to determine the cost used as the basis for setting the selling price. In the MTO companies
studied the cost-based pricing is in fact used as an approximation of the selling price.
Management uses this information together with their knowledge of the product, of the
production system and of the market, in order to set competitive prices.
The cost-based price in these companies is adjusted upwards or downwards when
management takes into consideration the sales demand and other factors which are very
important for pricing decisions. Although some authors (e.g., Qualls, 1977; Drury, 1992) have
argued that companies use the cost-plus method for pricing and make adjustments according to
demand and several other factors, there has not been any study about the way managers (or cost
estimators) in MTO companies deal with the different factors affecting the cost estimation and
pricing process.

2. The Research Objectives and Design

The research being described in this paper is in fact a segment of a research line
conducted by the authors, having been started in 1991. The main objective of the research line
is to "produce" knowledge about cost estimation and pricing. The part of the research that is
been reported in this article had the following objectives:
To understand how MTO companies perform analysis of cost variances between estimated
and actual costs.
To collect cost data from MTO companies and to analyse it.
To investigate if there could be a way to enhance the analysis model used by the MTO
companies.
The research consisted of 12 case studies that were carried out in different types of
MTO companies from different sectors, that have to deal with cost estimation and pricing of
new products or jobs. The study in each company involved, whenever possible, different data
collection methods: 1) the review of company's internal documents (account's report, manuals,
etc,...) concerning the production and cost systems; 2) interview with the professionals working
with cost estimation and pricing (hereafter called "cost estimators"); and 3) cost data, collected
from the company's data base and recorded specifically for the research. The review of
documents and the interviews were applied to the 12 companies, but cost data was collected
only from one (discussed later).
The aim of the interviews consisted in identifying how the cost estimation decision
process is done, and in identifying the kind of information the managers report that they require
in order to make their cost estimates. The interviews were aimed at making possible the
identification of how the decision making process works, which heuristics are used, what
data/information is required to support the estimates, and what kind of information is expected
to be provided in this decision process. An interview schedule was used to guide the interviews,
which were semi-structured.

3. The Collection of Cost Data

3
 The data that was collected for the analysis represents the estimated and the actual
costs of products. The part of the cost data that was used for the analysis described here is
related to the times required to perform the different activities of the manufacturing process.
The company from which the cost data was collected is a medium size British
metal-manufacturing company. This company produces machines and equipments to several
industries, but most of its products are contracted by the nuclear industry. The costing system
used by the company that provided the data is activity-based.
The cost estimates are prepared when the customer submits an enquiry and asks for a
price proposal. If the customer accepts the price and contracts the company to manufacture the
product, then the product is manufactured and the actual cost is known. The estimated cost may
be revised after the customer accepts the price, when the production planning is prepared and/or
when changes are made to the specifications during the manufacturing process. In the former
case it happens because the production procedures/manufacturing methods considered by the
estimators are revised with more time and details, resulting in some cases in modifications in
the estimated cost. Changes occur during the manufacturing process mainly when the customer
decides that the initial specifications were not correct. Figure 2 contains a diagram representing
the life of a contract, showing the phases in the chain of estimated and actual costs.

4. The Difficulties Related to Analysing the Variances Between Estimated and Actual
Costs

Due to the strategic importance of cost data to the companies it is very difficult to
convince a company to allow its cost data to be accessed by an outsider. Fortunately, partial
access to cost data, enough to perform the analysis, has been gained in one company.
The process of collecting the data was very difficult because the company does not
record them in an "appropriate" way. It was found that in the rush to complete one order the
chance to keep proper records of the costs (incurred to complete an order) is almost always lost.
Another reason for this lack of data, pointed out by the cost estimators, is the effort by the shop
floor managers to minimise overall costs spending as little time as possible in recording the
changes to the order and the actual times. Due to the lack of integration between the different
departments, they are not aware of the importance of having the data properly recorded for
future cost analysis.
One great difficulty in gathering adequate cost data was that the time the orders take to
be completed is quite long. The great majority of the orders take at least 6 months to be
completed from the time the enquiry is received. During this period the information about the
order passes through different departments, and by the time the order is completed it is almost
impossible to find the information required.
To overcome this problem it was necessary to contact and talk to people in the
different departments. In spite of having the support from the "bosses", it was very difficult to
find people in the different departments willing to help in collecting the data. After many
interviews and broken promises by many people it was possible to arrange with four cost
estimators to obtain the estimates and the actual costs.
Even with the co-operation of these four cost estimators and of three clerks, it was
possible to collect adequate cost data (estimated and actuals) for only four orders. It proved to
be a very difficult task. The estimates are recorded with one identification number for each
enquiry, and the actuals are recorded with another identification number (for the contract). This
makes "relating the estimates with the actuals" a very complex process.

4
 Customer Enquiry

Cost Estimation Process

Estimated Cost

Production Planning

Revision in the Estimated Changes in the Specification

Cost of the Product

Manufacturing

Actual Cost

Figure 2 - From the Cost Estimation and Pricing Process to the Actual Cost

The company does not record the actual costs in a detailed format indicating the cost
for each of the product components, like the estimates. Because of that it was not possible to
make statistical analysis to find out possible patterns of cost estimator's biases. None of the
companies studied does record the actual cost data in a proper way to make this type of
analysis.

5. Preparation of the Sample

The sample consisted of estimated and actual costs for two of the activities:
Assembling and fabrication. Table 1 contains the list of manufacturing activities of the
company. These two activities were selected because they were considered by the cost
estimators interviewed as two of the most important ones in terms of difficulty in preparing the
estimates. It was not possible to collect data for more activities because that would have
required too much time from the estimators. In fact, the whole process of collecting the data,
although for only four orders, took more than two years (1993-1995).

5
 NATURE OF ACTIVITIES ACTIVITIES NAMES
Facility sustaining activitiesManagement, Plant Maintenance, Building Maintenance,
Heat and Power, Communications, Sales, Accounts,
Training, Consumable Items
Product-sustaining activities Mechanical Design, Electrical Design, Process Engineering,
Product Specifications, Engineering Change Notices,
Product Enhancements
Batch- activities Planning, Transport, Purchasing, Inspection & QA,
Supervision, Production Control, Stores
Unit-level activities Projects, Fabrication, Polishing, Turning, Milling, Boreing,
Fitting, Electrical Work, Testing, Sub-contracting
Table 1 - ABC Hierarchical Model of the Manufacturing Activities of the Studied Company

During this period of more than two years much data was collected but was not
adequate for the analysis because it was incomplete or incompatible. Much data was incomplete
because it was either possible to collect only the estimates or only the actuals. Much data was
incompatible because:

1) After the preparation of the estimates, during the production planning stage (see Figure 2),
changes were made to the specifications and/or design of the product. In many cases there
were actual costs recorded for activities not even considered during the cost estimation
stage.

2) During the manufacturing stage there were changes made to the product specification and/or
design. It was found that in many cases the changes were not recorded in any way. It was
only possible to see in the records that there were changes, but it was not possible to trace the
changes to the activities.

3) Parts of the manufacturing work were subcontracted.

4) The delivery time was changed after the manufacturing work started.

The preparation of the sample started with the design of a spreadsheet form to be used
by the estimators to record the estimates and the three factors: confidence factor, similarity
factor and experience factor (see De Souza & Kingsman, 1997 for details about these factors).
Figure 3 presents the form used to collect the estimates. In the top of this form it is possible to
see details about how the information about the three factors are recorded in a spreadsheet form.
The design of the form was supervised by the chief cost estimator, and by the director of the
Mechanical Department, the latter being the departmental of the data collection head
responsible for the estimates for the activities Assembly and Fabrication. The next step was to
explain the objectives of the analysis and of the data collection to some of the estimators, and
then explain the spreadsheet form to the two cost estimators who eventually agreed to
co-operating with the research. The estimates for the two activities started then to be recorded
by the two estimators directly into the spreadsheet form.

6
LEGENDS: Confidence: From 0 (very high) to 10 (very low/bad) Similarity: a - in size Experience: a - lot of experience
b - operational (function) b - some experience
c - manufacturing process c - little experience
d - raw materials d - no experience
e - completely new

Estimate Title:
Company A Client:
sht of shts Prepared by:
Machini
ITE Assembling Fabrication Totals
DRG No. QUAN DESCRIPTION COST OF COMMENT CODE ng
M
Confi- Simila-r Expe-r Confi-d Simila-r Expe-ri
MATERIALS Time Time Time
dence ity ience ence ity ence

TOTALS

Figure 3 - Form used to collect estimated cost data for the analysis.
6. Discussion of the Results

As mentioned before, it was only possible to collect data for four orders. The estimates
for these four orders were recorded directly in a spreadsheet form prepared specifically for the
research. Estimates were prepared for dozens of enquiries, but unfortunately it was only
possible to get proper (adequate) data for four actual orders (orders that were completed). On
average, in the company studied only one in ten of the enquiries becomes an order. The long
time it takes for an order to be completed and the actual costs recorded also contributed to the
difficulty of collecting data for more orders. Yet another difficulty in collecting this sort of data
is the fact that for many orders the customers ask for significant changes after contracting the
jobs, and the difference in price is agreed after negotiations without a formal cost estimation
procedure. All of these factors made it impossible to obtain any more data in the time available
and the effort the estimators were willing to provide to the exercise.
The initial estimates for the other two orders are not fully presented in this article due
to its length (readers interested in this data should contact the authors). The complete initial
estimates for order are presented in table 3. Part of the initial estimates for Order Two is
presented in table 5. The summarised estimated and actual cost data and the modifications to
the estimations made by the production planning department are presented in Tables 2, 4, 6 and
7. The additional information about each of these four orders, such as how much time was spent
in preparing the estimates, was collected from the interviews with cost estimators.

6.1. Order One

The first of the orders, was a small one. It was prepared very quickly because it was
considered by the enquiry evaluator that the company had very good chances of winning the
order. Indeed they got the order, and it was a good one in the sense that the overall actual costs
ended up being significantly smaller than the estimates, as can be seen in Table 2.

Assembly (hours) Fabrication(hours)

1) Estimates - Initial 79.5 2
2) Estimates - Changes by the Planning Dept. -33.5 +3
3) Final estimate 46 5
4) Actual Cost 33.5 8.25
Difference (4-3) -12.5 3.25
Variance on estimate (4-3) 27.17% 65.00%
Table 2 - Cost Summary for Order One

The initial estimates for the activity Assembly were significantly reduced by the
Planning Department after getting the order, when they had time to evaluate in more details
how the job should be done. The actual cost for assembling ended up being 27.17% less than the
amended estimates (table 2). It is possible to see from the initial estimates (table 3) that the time
estimator had low confidence when estimating the time required for component that accounted
for 75.47% of the total time initially estimated for assembly (components "Headblock" and
"Foot Plate").

ASSEMBLY FABRICATION
Qty Description Time Confidence Similarity Experience Time Confidence Similarity Experience
 2 Headblock 60 4 acd a
2 Hoist Body Block 3 1 abcd a
4 Chain Guide 1 1 abcd a
2 Latch Pin Lever 1 1 abcd a
2 Latch Pin 1 1 abcd a
Cable Clamp
2 1 3 abcd a
Bracket
2 Cable Clamp Cap 1 1 abcd a
2 Locking Pin 0,5 1 abcd a
2 Fixing Pin 1 1 abcd a
2 Load Pin 1 1 acd b
2 Chain Pulley 6 1 abcd b
2 Lock Screw
2 Jupiter Plug
2 Grub Screw Pin 0,5 1 acd a
2 Cover Plate 0,5 1 abcd a
2 Spring Plunger
2 Plug Locator 2 1 acd a
2 Foot Plate 1 4 abc b
4 Misc Fasteners
2 Camblock 1 1 abcd a
Table 3 - Complete Initial Estimates for Order One

It is also possible to see that the estimator was not very experienced with two (of a total
of 20) of the components, and that 4 of the components were not similar to previous products in
terms of "function" (see the legend for the similarity factors presented in Figure 2). This is also
likely to have contributed to the big cost variance of 27.17 % (from the estimated 46 hours to
the actual 33.5 hours) for the activity Assembly. Based on that variance one can say that the
estimators overestimated in order to compensate for their lack of confidence in estimating the
cost of some components, and also for not having much experience with other components.
The variance in the cost for the activity fabrication was very big, but was not
financially relevant because the number of hours was very small. The confidence of the
estimators was not high, and this is likely to be the reason for the variance. For one of the two
components that required fabrication the estimator did not have much experience, and the
component was not similar to previous ones in terms of function.
It was learned from the interviews that in cases when the time required for an activity
is very small and the estimator is not confident, that the estimator's general practice is not to
bother to overestimate because he/she knows that the variance is not going to be relevant. This
was the case with the activity Fabrication presented in Table 2.

6.2. Order Two

This order had its cost estimated normally, but the confidence of the estimators was
considerably low. The product ordered was very different, as a whole, from any other
manufactured before. This was learned from the interviews, but can also be noted from the
experience factors (see table 5).
The cost variance (Table 4) was very big for activity Assembly (63.77%), and very
small (3%) for activity Fabrication. The confidence factors were not very good for either
activity (the confidence factor used varies from 0 -very high- to 10 -very low/bad). As a matter
of fact, it was worse for Fabrication. The overestimation for Assembly can easily be related to
the low confidence of the estimator. Considering that it was the same estimator who prepared
both the estimates for Assembly and for Fabrication, one can infer that the estimator is more
accurate in estimating the times for fabrication.

Assembly (hours) Fabrication (hours)

1) Estimates 221.5 446.25
2) Actual Cost 80.25 457.75
Difference (2-1) -141.25 11.5
Variance 63.77% 3%
Table 4 - Cost Summary for Order Two

6.3. Order Three

The estimates for Order Three were prepared very quickly, and because of that the
estimates were not very accurate. It's possible to see from the summary presented in Table 6
that the estimators overestimated in order to compensate for their lack of confidence in the
estimates. The estimates for the components that required significant amounts of time had
lower confidence factors because the estimators did not have the time to evaluate in detail the
required time.
For the activity Assembly, 69.70% of the initial estimates were prepared with a
confidence factor 3 or 4 (the confidence factor used varies from 0 -very high- to 10 -very
low/bad). 45.15% of the initial estimates for Fabrication were also prepared with a confidence
factor 3 or 4. It is possible to notice that once again the restriction of time made the estimators
overestimate to compensate for their lack of confidence.

ASSEMBLY FABRICATION
Qty Description Time Confidence Similarity Experience Time Confidence Similarity Experience
Vacuum Stripping Vessel 61 4 abcd b
1 Condenser Assy 25 4 abcd b 0,5 3 abcd b
1 Condenser Body 5 4 abcd b 7 3 abcd b
1 Flange 0,5 4 abcd b
2 Tube 1 4 abcd b
1 Mid Section 1 4 abcd b 2 3 abcd b
1 Nose 1 4 abcd b 1 3 abcd b
2 Lug 0,5 4 abcd b 0,5 3 abcd b
1 Union 0,5 4 abcd b
2 Paddle 3 4 abc c 12 7 e c
3 Shaft 1,5 4 abcd b 4 e c
25 Thermocouple 1,75 4 abc c 10 8 e c
Table 5 - Partial Initial Estimates for Order Two (continues next page)
 1 Adapter 0,5 2 abcd c
1 Bearing Tube 0,5 2 abcd c
Test Equipment 1 2 abcd c 2 2 abcd c
1 Oxidation Cover 1 4 abcd b 6,25 2 abcd c
1 Cage 3 4 abcd b 20 8 e c
1 Tube 2 8 e c
1 Boss 0,25 2 abcd c
1 Lug 0,5 2 abcd c
1 Lug 0,25 2 abcd c
1 Dowel 0,25 2 abcd c
1 Tube 0,25 2 abcd c
1 Stirrer Drive + Raise Assy 26 2 abcd c
1 Mounting Plate 4 2 abcd c 20 8 e c
1 Slide 1 2 abcd c 2 2 abcd c
1 Motor Bracket 1 2 abcd c 12 8 e c
1 Crank 1 2 abcd c
1 Link 0,5 2 abcd c
1 Link Plate 0,25 2 abcd c 0,5
2 Bush 0,25 2 abcd c
1 Pivot Screw 0,5 2 abcd c 0,25 2 abcd c
2 Pivot Screw 0,5 2 abcd c 0,25 2 abcd c
1 Wingscrew 0,25 2 abcd c 1 2 abcd c
1 Slide Stop 0,25 2 abcd c
1 Spacer 0,25 2 abcd c 1 2 abcd c
1 Vessel Cooling 17 2 abcd c 15 8 e c
1 Vessel 1 2 abcd c 16 8 e c
1 Tube 0,25 2 abcd c 1 2 abcd c
1 Label 1 2 abcd c
3 Vessel Liner 2 2 abcd c 40 8 e c
1 Condense Baffle 1 2 abcd c 32 8 e c
3 Crucible 2 2 abcd c 12 8 e c
2 Paddle 2 2 abcd c 16 8 e c
2 Funnel Crucible Support 2 2 abcd c 15 8 e c
1 Drip Casting Funnel 2 2 abcd c 19 8 e c
50 Funnel Crucible 10 2 abcd c 25 8 e c
1 Shaft Plug 0,5 2 abcd c
1 Sealing Ring 0,75 2 abcd c 1 2 abcd c
50 Crucible 16 2 abcd c 50 8 e c
1 Crucible Splash Lid 2 2 abcd c 12 8 e c
3 Funnel Crucible 4 2 abcd c 24 8 e c
Table 5 - Partial Initial Estimates for Order Two (continued from last page)
 Assembly Fabrication
1) Estimates-Initial 1420 1198
2) Estimates-Planning +84 -524
3) Estimates-Total 1504 674
4) Actuals 1045.75 477
Difference (3-1) -458.25 -197
Variance 30.47% 29.23%
Table 6 - Cost Summary for Order Three

6.4. Order Four

The last of the orders was an exceptionally large order for the company. The estimates
were prepared very tightly, because there was strong competition for the order and the company
needed the work. The product was as a whole quite similar to any produced earlier, as could be
noted from the similarity factors attributed to the estimates.
The estimates in the case of this order proved to be quite accurate, particularly
considering the size of the order. It was possible to see from the estimates that, for the vast
majority of the components, the estimators had a lot of experience. 63.4% of the total Assembly
estimates had confidence factor 1 attributed to them, signifying that the estimators were very
confident in most of the estimates. Moreover, the remaining estimates for the activity Assembly
also had high confidence factors attributed to them. The cost variance for activity Assembly of
11.85% (Table 7) was considered very small by the cost estimators.
The activity Fabrication had a very small variance of 3.99% (Table 7), and reflects the
high confidence factors attributed to the estimates. Only one component (of a total of more than
one hundred) had a confidence factor 3 attributed to its estimate.

Assembly Fabrication
1) Estimates-Initial 1256.5 3075.25
2) Estimates-Additions 2243.5 0
3) Estimates-Total 3500 3075.25
4) Actuals 3914.75 3198
Difference (4-3) 414.75 122.75
Variance 11.85% 3.99%
Table 7 - Cost Summary for Order Four

7. Problems and Limitations

The main problem for the execution of this research was in the field work. The major
problem in this regard was to gain access to companies in order to conduct the interviews and to
collect cost data. Many companies refused to cooperate. However, after contacts made through
colleagues and University staff, goodwill with a few companies was developed and then it was
possible to collect the data.
Following the experience of the authors it was known that the cost estimators are
initially reluctant to describe their cost estimation skills, and to cooperate with interviews.
Because of this, it was necessary to spend more time conducting the interviews than had been
anticipated. In some of the companies studied it was not possible to conduct all the interviews
initially planned because some of the cost estimators refused to co-operate.
 There was great difficulty in collecting cost data. The main reason for that was the
inadequate cost data recording procedures used by the companies. A great amount of data was
collected but only very few were usable. It was learned from this experience that in order to
collect cost data in the format required for performing the analysis it is necessary to convince a
company to record the data specially for the purpose of the research.

8. Conclusion

The analysis presented in this article made it possible to see the usefulness of the
factors recorded with the estimates, that is, confidence, experience and similarity. There is
support for the hypothesis that the variance between the estimated and actual costs is related to
the lack of confidence by the estimators, as well as to their experience and the similarity of the
job to past ones.
The results discussed in this article were presented to some cost estimators and they
found them very interesting. They said that this type of information would help them to identify
the activities for which estimates varied most, and then they could dedicate more time to
prepare the estimates for these activities. They also said that with this information the
estimators could identify their weakness (in terms of the activities that presented more
variances) and revise their estimation procedures. In other words, they said that with this sort of
information the estimators who presented significant variance could revise their estimation
procedures and then follow their progress with the information generated with new analyses.
The analysis presented in this article, in spite of the difficulties with the collection of
cost data, was useful to show that a decision support system could be used to provide the cost
estimators with information that would allow them to perform the cost estimation task more
accurately.

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