Step 7 “Develop Point Estimate and Compare it to an Independent Cost Estimate” pulls all the information together to develop the point estimate; the best guess at the cost estimate, given the underlying data. High-quality cost estimates usually fall within a range of possible costs, the point estimate being between the best and worst case extremes.

**For more information see:** **GAO Cost Estimating and Assessment Guide – Chapter 11**

The cost estimator must perform several activities to develop a point estimate: [1]

- Develop the cost model by estimating each Work Breakdown Structure (WBS) element, using the best methodology, from the data collected;
- Include all estimating assumptions in the cost model;
- Express costs in constant-year dollars;
- Time-phase the results by spreading costs in the years they are expected to occur, based on the program schedule; and
- Add the WBS elements to develop the overall point estimate

Having developed the overall point estimate, the cost estimator must then: [1]

- Validate the estimate by looking for errors like double counting and omitted costs;
- Compare estimate against the Independent Cost Estimate (ICE) and examine where and why there are differences;
- Perform cross-checks on cost drivers to see if results are similar;
- Update the model as more data become available or as changes occur and compare results against previous estimates

**Cost Estimating Methods**

The three (3) commonly used methods for estimating costs are: [1]

- Analogy: uses the cost of a similar program to estimate the new program and adjusts for differences.
- Engineering: develops the cost estimate at the lowest level of the WBS, one piece at a time, and the sum of the pieces becomes the estimate.
- Parametric: relates cost to one or more technical, performance, cost, or program parameters, using a statistical relationship.

**AcqLinks and References:**

- Defense Acquisition Guidebook (DAG) – Chapter 3
- GAO Cost Estimating and Assessment Guide – Chapter 8
- 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)

Updated: 7/29/2017