Actual Cost Estimating is a technique where actual cost experience or trends (from prototypes, engineering development models, and/or early production items) are used to project estimates of future costs for the same system. These projections may be made at various levels of detail, depending on the availability of data. Cost estimates that support Full-Rate Production Decision (FRPD) should be based on actual cost data to the greatest extent possible.
A common mistake is to use contract prices as a substitute for actual cost experience. Contract prices should not be used to project future costs (even when Firm-Fixed Price) unless it is known that the contract prices are associated with profitable ventures, and that it is reasonable to assume that similar price experience will be obtained for subsequent contracts.
AcqLinks and References:
- Defense Acquisition Guidebook (DAG) – Chapter 3
- GAO Cost Estimating and Assessment Guide
- NASA Cost Estimating Handbook – 2008
- DoD 5000.04-M, “DoD Cost Analysis Guidance and Procedures” – Dec 1992
- DoD Directive 5000.04 “DoD Cost Analysis Improvement Group (CAIG)” – 16 Aug 06
- 10 USC Sec. 2434 “Independent cost estimates; operational manpower requirements”
- Website: CAIG Operating and Support Cost-Estimating Guide
- Website: OSD Director of Cost Assessment and Program Evaluation (DCAPE)