Cost Estimating is the process of developing a cost estimate. Cost estimating involves collecting and analyzing historical data and applying quantitative models, techniques, tools, and databases to predict a program’s future cost. Parametric cost estimating is a parametric technique that uses regression or other statistical methods to develop Cost Estimating Relationships (CERs). A CER is […]
The Office of the Secretary of Defense (OSD) Office of Cost Assessment (CAPE) provides independent analysis and advice to DoD officials on matters of cost estimation and cost analysis for weapons acquisition programs, including matters of program life-cycle cost. The Director of Cost Assessment and Program Evaluation (DCAPE) provides policies and procedures for the conduct
Note: Manpower estimates are no longer required by DoD Instruction 5000.02 as a milestone deliverable. From DoD Instruction 5000.02: In advance of contracting for operational support services, the Program Manager will, in conjunction with the designated DoD Component manpower authority, determine the most efficient and cost-effective mix of DoD manpower and contract support. The mix of military, DoD civilian, and
The Engineering Cost Estimating method (Also called Bottoms-Up) builds the overall cost estimate by summing detailed estimates done at lower levels of the Work Breakdown Structure (WBS). It’s a technique where the system being costed is broken down into lower-level components (such as parts or assemblies), each of which is costed separately for direct labor,
Data Normalization is the act of taking various forms of data and putting them into a standard format for ease of use. Since data can be gathered from a variety of sources, they are often in many different forms and need to be adjusted before being used for comparison analysis or as a basis for
The DoD Cost Assessment and Program Evaluation (CAPE) is the DoD office responsible for cost estimating. A Cost Estimate (also known as a Life-Cycle Cost Estimate) is a detailed estimate of acquisition and Total Ownership Costs (TOC) for an acquisition program. It’s normally required for high-level decisions. A DoD Component Cost Estimate is provided to
A cost estimate for a proposed materiel solution(s) is submitted at Milestone A. Also, the Director of Cost Assessment and Program Evaluation (DCAPE) conducts an Independent Cost Estimate (ICE) in advance of Milestone A certification. In order to facilitate these estimates, the cost estimating procedures at Milestone A will track those at the other milestone
Cost estimating is a valuable tool that is used in each of the acquisition phases. There are a number of cost-estimating techniques that can be used in estimating the costs of a future and current weapon system. The use of a specific approach will depend on how much information is available and where the weapon
The generic term “DoD Component Cost Estimate” is used to provide considerable latitude to each military service or defense agency as to the actual responsibility for this cost estimate. In some cases, a military service assigns the responsibility to the Program Management Office (PMO), which then provides a Program Office Life-Cycle Cost Estimate (PLCCE). In
Cost Analysis Reviews are conducted by the OSD Office of Cost Assessment to provide oversight of programs to ensure that they are able to deliver on cost, schedule, and performance parameters. All cost estimates and cost analyses and associated studies conducted by the DoD Components for Major Defense Acquisition Program (MDAP) and Major Automated Information
Analogy Cost Estimating is a technique used to estimate a cost based on historical data for an analogous system or subsystem. In this technique, a currently fielded system, similar in design and operation to the proposed system, is used as a basis for the analogy. The cost of the proposed system is then estimated by
Average Procurement Unit Cost (APUC) is calculated by dividing total procurement cost by the number of articles to be procured. Total procurement cost includes flyaway, rollaway, sail away from the cost (that is, recurring and nonrecurring costs associated with the production of the item such as hardware/software, Systems Engineering (SE), engineering changes, and warranties) plus
Programs should be monitored continuously for their cost effectiveness by comparing planned and actual performance against the approved program baseline. In addition, the cost estimate should be updated with actual costs so that it is always relevant and current. The continual updating of the cost estimate as the program matures not only results in a
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
Affordability is the results obtained from the analysis of the Life-Cycle Cost (LCC) of a proposed acquisition, in which the purchase is in accord with the resources and long-term requirements of the acquirer. The Defense Acquisition Guidebook (DAG) defines affordability as the degree to which the LCC of an acquisition program is in consonance with
Step 9 “Conduct Risk and Uncertainty Analysis” on the point estimate developed in Step 7 “Develop Point Estimate and Compare it to an Independent Cost Estimate”. This analysis will expand on the sensitivity analysis that was conducted in Step 8 “Conduct Sensitivity Analysis”. Risk and uncertainty refer to the fact that because a cost estimate
A cost estimate is not considered valid until management has approved it. Since many cost estimates are developed to support a budget request or make a decision between competing alternatives, it is vital that management is briefed on how the estimate was developed, including risks associated with the underlying data and methods. Therefore, the cost
Step 6 “Obtain Data” is the foundation of every cost estimate. How good the data are affects the estimate’s overall credibility. Depending on the data quality, an estimate can range anywhere from a mere guess to a highly defensible cost position. Credible cost estimates are rooted in historical data. Rather than starting from scratch, estimators
Step 8 “Conduct Sensitivity Analysis” should be included in all cost estimates because it examines the effects of changing assumptions and ground rules. Since uncertainty cannot be avoided, it is necessary to identify the cost elements that represent the most risk and, if possible, cost estimators should quantify the risk. This can be done through
Documentation provides total recall of the estimate’s detail so that it can be replicated by someone other than those who prepared it. It also serves as a reference to support future estimates. Documenting the cost estimate makes available a written justification showing how it was developed and aiding in updating it as key assumptions change
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,
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
A cost estimate should document the purpose of the estimate, the program background and system description, its schedule, the scope of the estimate (in terms of time and what is and is not included), the ground rules and assumptions, all data sources, estimating methodology and rationale, the results of the risk analysis, and a conclusion
Key to developing a credible estimate is having an adequate understanding of the acquisition program, the Acquisition Strategy, technical definition, characteristics, system design features, and technologies to be included in its design. The cost estimator can use this information to identify the technical and program parameters that will bind the cost estimate. [1] The objective
A Life-Cycle Cost (LCC) is the total cost of a program from cradle to grave. (also referred to as Total Ownership Cost (TOC)) LCC consists of Research and Development (R&D) Costs, Investment Costs, Operating and Support Costs, and Disposal Costs over the entire life cycle. These costs include not only the direct costs of the
