Cost Estimating

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

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 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.

Many opinions exist about the causes of cost overruns, but some of the biggest influences 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 (>10 years) make accurate forecasting unrealistic
  • Political and economic difficulty in canceling or scaling back projects underway
  • Poor management and accountability of contract, with weak requirements to justify additional funding

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 cost parameters that were established. 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. The most critical government projects have actual costs far exceeding original estimates. 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 jetliners, which was first introduced in 1977. As radars, command centers, and international standards have changed over more than 35 years, it has become increasingly difficult to source parts for the pilot flight deck. To address this issue and maintain the operability of the AWAC fleet, SPA 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.

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