Case Study 22: From Project and Program Management, GAO-15-29, November 25, 2014

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. The order required the development of an ICE at CD-3 if warranted by risk and performance indicators or as designated by DOE or NNSA management. In addition, NNSA’s 2014 requirement for an ICE or independent cost review could subject additional projects with an estimate of a cost of less than $100 million to an ICE, but this would have depended on whether NNSA chose to conduct an ICE rather than the less rigorous independent cost review. None of the other cost estimating requirements in the order, such as the need for a cost estimate at each CD point, ensured that project cost estimates would be prepared in accordance with cost estimating best practices. For example, 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.

DOE’s 2011 cost estimating guide described most of the best practices, but it was not mandatory and it was not referenced in the order. We found that the guide fully or substantially described 10 of the 12 steps. However, the guide only partially or minimally contained information about the other 2 steps—determining the estimating structure and conducting a sensitivity analysis. As a result, DOE and NNSA had not provided its contractors with all the detailed guidance needed to 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.

GAO reported these findings on November 25, 2014 in Project and Program Management: DOE Needs to Revise Requirements and Guidance for Cost Estimating and Related Reviews, GAO-15-29.