Step 5 “Identify Ground Rules and Assumptions”. Cost estimates are typically based on limited information and therefore need to be bound by the constraints that make estimating possible. These constraints usually take the form of assumptions that bind the estimate’s scope, establishing baseline conditions the estimate will be built from. Because of the many unknowns, cost analysts must create a series of statements that define the conditions the estimate is to be based on. These statements are usually made in the form of ground rules and assumptions (GR&A). By reviewing the technical baseline and discussing the GR&As with customers early in the cost estimating process, analysts can flush out any potential misunderstandings.

For more information see: GAO Cost Estimating and Assessment Guide – Chapter 9

Tasks that are conducted during this step include: [1]

  • Clearly define what the estimate includes and excludes;
  • Identify global and program-specific assumptions, such as the estimate’s base year, including time-phasing and life cycle;
  • Identify program schedule information by phase and program acquisition strategy;
  • Identify any schedule or budget constraints, inflation assumptions, and travel costs;
  • Specify equipment the government is to furnish as well as the use of existing facilities or new modification or development;
  • Identify prime contractor and major subcontractors;
  • Determine technology refresh cycles, technology assumptions, and new technology to be developed;
  • Define commonality with legacy systems and assumed heritage savings;
  • Describe effects of new ways of doing business

Ground Rules
Ground rules represent a common set of agreed on estimating standards that provide guidance and minimize conflicts in definitions. When conditions are directed, they become the ground rules by which the team will conduct the estimate. The technical baseline requirements represent cost estimate ground rules. Therefore, a comprehensive technical baseline provides the analyst with all the necessary ground rules for conducting the estimate. [1]

Assumptions
Without firm ground rules, the analyst is responsible for making assumptions that allow the estimate to proceed. In other words, assumptions are required only where no ground rules have been provided. Assumptions represent a set of judgments about past, present, or future conditions postulated as true in the absence of positive proof. The analyst must ensure that assumptions are not arbitrary, that they are founded on expert judgments rendered by experienced program and technical personnel. Many assumptions profoundly influence cost; the subsequent rejection of even a single assumption by management could invalidate many aspects of the estimate. Therefore, it is imperative that cost estimators brief management and document all assumptions well, so that management fully understands the conditions the estimate was structured on. [1]

Schedule GR&A
One of the most important GR&As is to define a realistic schedule. It may be difficult to perform an in-depth schedule assessment early to uncover the frequent optimism in initial program schedules. Ideally, members from manufacturing and the technical community should be involved in developing the program schedule, but often information is insufficient and assumptions must be made. In this case, it is important that this GR&A outline the confidence the team has in the ability to achieve the schedule so that it can be documented and presented to management. [1]

AcqLinks and References:

Updated: 7/29/2017

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