THE USE OF TCHEBYCHEFF-TYPE INEQUALITIES TO BOUND THE UPPER LIMIT OF A COST ESTIMATE.
INSTITUTE FOR DEFENSE ANALYSES ARLINGTON VA COST ANALYSIS GROUP
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A method is presented that can be used to calculate an upper tolerance limit on the probability that the actual cost of a future system will exceed the estimated cost by an amount delta, as a function of delta. The method may also be used to test whether estimated cost differences between alternatives are significant. The method which uses Tchebycheff-type inequalities to bound the system cost only requires the assumption that the maximum cost of any element be finite and the estimated cost be an unbiased estimator. A set of inequalities is presented so that, if the analyst is willing to make additional assumptions about the form of the underlying cost probability distribution e.g., unimodal, tighter tolerances may be drawn. The method is illustrated by a hypothetical example. Author
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