Cost Estimation Best Practices for Better Program Decisions and Outcomes

Good stewards of taxpayer dollars understand the importance of accurate, detailed cost estimates for program success. Inflated estimates kill important programs before they get off the ground while major underestimates destroy the trust between government officials as they evaluate, fund, and execute multibillion dollar programs. Beyond accuracy, program managers and decision-makers must understand the major tradeoffs to right-size programs and budgets for the best outcome for the American taxpayer.
 

Agency program and portfolio manager reviews of cost estimates seek answers to three questions:

1. Is the estimate reasonable and fundamentally sound?
2. Is the estimate appropriate to the program’s stage of design?
3. How can I achieve the program’s goals and objectives as effectively and efficiently as possible?

Is the estimate reasonable and fundamentally sound?

Proven methods produce reasonable and fundamentally sound cost estimates. At a minimum, include the following:

• Review and document ground rules and assumptions.
• Design quality assurance controls into cost models.
• Factor in historic data, industry standards, and emerging trends.
• Comply with the Office of Management and Budget and agency-specific guidance.
• Review draft estimates with program managers and other subject matter experts.

Is the estimate appropriate to the program’s stage of design?

As a program matures, cost estimates become more detailed and precise. Ensuring an estimate is appropriate to the project’s stage of design:

• Design the cost model around the program’s work breakdown structure.
• Review engineering plans and specifications with subject matter experts.
• Account for additional factors, such as indirect costs and regional adjustments.
• Find and highlight ambiguity or incomplete data.

How can I achieve the program’s goals and objectives as effectively and efficiently as possible?

Executives and program managers must understand cost drivers and the consequences of risks and uncertainties. To equip managers with the knowledge and insights they require, include the following: 

• Analyze costs from different angles: labor and materials, direct and indirect, current year and future years, and marginal versus full.
• Incorporate cost ranges and probability distributions.
• Use sophisticated modeling tools for sensitivity and risks analysis.

LMI’s cost estimators work with federal agencies to develop timely, detailed, and accurate program lifecycle cost estimates. Our efforts facilitate major investments in technology, capital assets, and infrastructure projects. Our skilled practitioners create cost estimates and accompanying analyses to empower confident, insightful program management decisions.

Our skilled practitioners create cost estimates and accompanying analyses to empower confident, insightful program management decisions.

To learn more about how LMI’s cost estimation practice optimizes program decisions and outcomes, contact Ryan Ferguson.