Whitepaper

Cost Estimating

Translating system and functional requirements associated with programs, projects, or proposals into program baselines and required investments is the core purpose of Cost Estimating — a process of predicting future costs based on past experience using today’s knowledge and expertise.

The Challenge

Cost Estimating is required for every government organization that is allocating resources and funds to a specific project or task. However, the federal government has a persistent pattern of cost overruns on large projects, ranging from FAA Air Traffic Control Modernization to the DoD V-22 Osprey aircraft. In an environment of shrinking budgets and improved spending transparency, the discipline of cost estimating is increasingly important for a successful project.

Although many opinions exist about why cost overruns are so pervasive, some of the biggest influencers are the following:

Pressure to create a low original estimate to fit budget demands.
Requirements and technologies change faster than budgets can be updated.
Contractors overpromise capabilities and performance parameters within the budget defined.
Long procurement schedules on large projects (more than 10 years) make accurate forecasting unrealistic.
Political and economic difficulty cause projects to be scaled back once underway.
Poor management and accountability of contract, with weak requirements to justify additional funding.

The most critical government projects have actual costs far exceeding original estimates.

This cost estimate sets the stage for critical subsequent steps, ranging from budget requests to procurement evaluations. If this original estimate is flawed, those flaws are magnified with each step in the process, eventually contributing to a project that cannot be managed to the established cost parameters. To address this challenge SPA deploys a scalable, 12-step cost analysis process, establishing the most credible and defensible estimate possible.

The government needs realistic and credible estimates to support the acquisition and budget process.

SPA identified $240M in Air Force cost avoidance during budget and estimate reconciliations.

Our Response

When agencies are faced with mission-critical cost estimating challenges, they turn to SPA for the expertise to successfully budget, defend, manage and track programs from concept to completion. For example, SPA has worked with the Air Force Program Executive Office Battle Management Directorate as lead cost analyst for over $6B in modernization programs for the E-3 Sentry airborne early warning and control system (AWACS) that provides all-weather surveillance, command, control, and communications for the U.S. and coalition partners including NATO, France, Japan, and Saudi Arabia.

The E-3 AWACS is based on Boeing’s 707-320B jetliner, which was first introduced in 1977. As radars, command centers, and international standards have changed over more than 35 years, sourcing parts for the flight deck has become increasingly difficult. To address this issue and maintain the AWAC fleet’s operability, MCR also supported the $2B DRAGON (Diminishing Manufacturing Sources Replacement of Avionics for Global Operations and Navigation) program, which as the name suggests, identified changes to replace old avionics technology. SPA reconciled contractor’s budget estimates against the original Program Office Estimate, supporting negotiations to keep the program within budget.

Our Methods

Successful cost estimating depends on the effective intersection of people, process, tools, and policy. Our approach leverages the best personnel, skilled in best-in-class tools applied to standardized processes, while adhering to the latest policy and guidelines to meet requirements.

PROCESSES: SPA was instrumental in developing the government’s (GAO) cost estimating and assessment process, presently used across DoD/Federal Agencies. Our process fits with government requirements and best practices and can be adapted to support unique needs. We use standardized processes to reduce error. We leverage errors-in-variables (EIV) regression techniques; quantity as an independent variable (QAIV), risk-based Earned Value Management (LENS), and Joint Cost-Schedule Confidence Level Analyses.

The SPA Difference

Cost Estimating Within Integrated Program Management

SPA approaches every step of Integrated Program Management (IPM) with a focus on customer success. Our disciplined process begins with strategy and analysis, followed by rigorous systematic execution, and ends with measurable, real-world results. Cost estimating is integral to our IPM approach and is used in all four lifecycle phases.

SPA provides the highest quality cost estimating, strategic planning, schedule analysis, acquisition management, and program assessment solutions to the government. Contact SPA to learn more about our cost estimating and IPM services and how we can apply 50 years of service to the success of your project.