Assessing the Thoroughness of an Organization’s Estimating Guidance
As GAO has previously reported, a lack of formal cost estimating guidance at agencies has led, in certain circumstances, to cost estimates of poor quality. This guidance serves as a mechanism for providing a standard cost-estimating process to agency officials and contractors. Cost estimating guidance also establishes roles and responsibilities for those preparing, reviewing, and updating all types of cost estimates. The 12-step cost estimating process and the process task lists that follow each chapter in this Guide can be used by agencies and other organizations to ensure that their cost estimating guidance, policies, and directives fully reflect industry and government standards for high-quality cost estimating. Table 17 summarizes the 12 steps and their associated tasks.
Table 17: The Twelve Steps and their Associated Tasks
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In a technical baseline document or group of documents, identify:
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Conduct a risk and uncertainty analysis that includes the following steps:
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Case study 22 provides an example of the extent to which an agency’s cost estimating guidance incorporates best practices.
Case Study 22: Incomplete Cost Estimating Guidance, from Project and Program Management, GAO-15-29
The National Nuclear Security Administration (NNSA)—a semiautonomous agency within the Department of Energy (DOE)—is responsible for managing the nation’s nuclear security missions. These missions include maintaining the safety, security, and effectiveness of the U.S. nuclear weapons stockpile and reducing the threat posed by nuclear proliferation. To examine the extent to which DOE and NNSA cost estimating requirements and guidance for its projects and programs reflect best practices for developing and reviewing cost estimates, GAO reviewed DOE and NNSA requirements and guidance related to cost estimating for projects and programs and compared them with the best practices identified in our 2009 Cost Estimating and Assessment Guide.
DOE and NNSA cost estimating requirements and guidance for projects generally did not reflect best practices for developing cost estimates. DOE’s 2010 project management order required the use of only one of the 12 cost estimating best practice steps. Specifically, the order required an ICE be prepared at critical decision point 2 (approve project performance baseline) and critical decision point 3 (approve start of construction) for projects with an estimated cost of $100 million or greater. However, the order did not require any of the other 11 best practice steps, such as conducting a risk and uncertainty analysis, identifying ground rules and assumptions, documenting the estimate, developing a point estimate, or determining the estimating structure. According to the DOE officials responsible for developing DOE’s project management order, DOE had chosen to not require all cost estimating best practices in the order and instead included suggested approaches for developing cost estimates in the DOE cost estimating guide that accompanied the order. However, because neither DOE nor NNSA required the use of most cost estimating best practices for its projects, it was unlikely that NNSA and its contractors would consistently develop reliable cost estimates.
GAO recommended that, to enhance NNSA’s ability to develop reliable cost estimates for its projects and for its programs that have project-like characteristics, the Secretary of Energy DOE, among other things: (1) revise DOE’s project management order to require that DOE, NNSA, and its contractors develop cost estimates in accordance with the 12 cost estimating best practices, and (2) revise DOE’s cost estimating guide so that it fully reflects the 12 cost estimating best practices. In June 2015, based in part upon GAO’s work, the Secretary of Energy issued a memo to enhance and clarify departmental policy related to project management. The memo outlined changes that recent GAO reports had noted as areas for improvement. Specifically, the memo required that the DOE project management order, the cost estimating guide, and the Department of Energy Acquisition Regulations be revised consistent with the cost estimating best practices. The memo further specified that these and other provisions of the memo were to be made effective immediately and implemented as required project management procedures. This action satisfied this recommendation.