Controlling Costs

GAO has a few ideas for how agencies can best manage their funding estimates.

More than 35 years ago, the Government Accountability Office wrote a scathing report on the Pentagon's cost-estimating procedures, finding that its calculations for developing and buying weapons systems were frequently understated and uniform guidance within each service was severely lacking, leading to cost increases of $15.6 billion.

Defense has since made progress, but many other agencies failed to heed GAO's early warnings to formalize a plan for measuring program costs. Faced with this growing knowledge divide, GAO has developed a first-of-its-kind document illustrating the best practices and sound management procedures needed to establish reliable cost estimates at all federal agencies.

"Cost Assessment Guide: Best Practices for Estimating and Managing Program Costs" (GAO-07-1134SP) was released as a draft for public comment in July 2007. A final version will be out later this year. Originally intended as a manual for federal auditors, the document now is virtually required reading for managers at any agency that lacks a policy for conducting cost estimates-and even for some that have one.

"There was a definite gap and a need for this," says Karen Richey, a senior cost analyst at GAO who led the guide development. "It's always the same issues again and again. So, we felt it was important to put it out there for people, to say, 'Here's what we expect.' "

While daunting at 349 pages, the guide deftly identifies all the basic characteristics needed to organize and execute trustworthy cost estimates for projects big and small, managed by the government or by private contractors. Entire chapters are devoted to developing a point estimate, implementing a work breakdown structure, conducting a sensitivity analysis, and to gathering and managing data, considered by many experts to be the most glaring problem with most cost estimates.

The guide also offers a 12-step, cradle-to-grave process, from defining the estimate's purpose and ground rules to conducting risk and uncertainty analyses and finally to documenting and presenting the estimate. Some agencies already use one or more of these steps, but they have never been integrated before, says Bill Mathis, an adviser on the guide and the senior director of federal technology programs for Price Systems' government solutions division in Mount Pleasant, N.J. "Agency managers would be wise to embrace the GAO's best practices here because if you don't and you go into complicated programs unprepared for risk . . . it has the tendency to spiral," Mathis said in an October webinar on the guide's release.

Also stressed is the integration of data from a reliable earned value management system to analyze the differences between estimated and actual costs. EVM is a project management tool, required by the Office of Management and Budget, which compares the value of work accomplished in a given period with the value of the work expected to be completed in that same period. The guide emphasizes that cost estimating and EVM must work hand in hand, rather than as isolated tools.

"The guide bridges virtually ancient history with relatively recently recognized techniques," says Wayne Abba, an independent cost analyst specializing in EVM who consulted with GAO on the project. "It's a de facto resource for smaller agencies that don't have the infrastructure of the DoD or NASA."

Richey first envisioned a best practices handbook nearly a decade ago after discovering the dearth of governmentwide guidance on cost estimating. But her workload left little time to create the colossal document, forcing her to work nights, weekends and holidays on the project. Eventually, Richey and her team were able to secure funding to contract out some of the compilation, allowing her to concentrate on other aspects, including convening experts to offer input on the final document. The group started with about 12 contributors but ballooned to nearly 300 from four countries.

The guide comes at a crucial time.

Cost overruns have dotted newspaper front pages and sparked congressional inquiries-the Coast Guard's Deepwater and the FBI's Virtual Case File to name just two-for the past few years, elevating the need for greater project management. Abba says if the guide had been around years earlier, some of the high-profile nightmares could have been avoided. "And if they could not have been avoided," he says, "they could have been foreseen."

With the guide now released for public consumption, however, agencies no longer will be able to plead ignorance and should be prepared to back up their data if GAO comes calling. "There are going to be no surprises if we come in to audit you and our objective is to look at your cost estimate or how you are managing your program using earned value," Richey says. "It's going to be very transparent. . . . You are going to see what we are holding you up against and what we expect you to be doing. And you are fairly warned. Either you go ahead and do this or you don't."

The assessment guide is available for public comment and feedback through July 14 by clicking here.

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