Chapter 1: Why Government Programs Need Cost Estimates and the Challenges in Developing Them

Cost estimates are necessary for government acquisition programs for many reasons: to support decisions about funding one program over another, to develop annual budget requests, to evaluate resource requirements at key decision points, and to develop performance measurement baselines. Moreover, having a realistic estimate of projected costs makes for effective resource allocation, and it increases the probability of a program’s success. Government programs, as identified here, include both in-house and contract efforts.

Developing reliable cost estimates has been difficult for agencies across the federal government for many years. OMB’s Capital Programming Guide helps agencies use funds wisely in achieving their missions and serving the public. The Capital Programming Guide stresses the need for agencies to develop processes for making investment decisions that deliver the right amount of funds to the right projects. It also highlights the need for agencies to identify risks associated with acquiring capital assets that can lead to cost overruns, schedule delays, and capability shortfalls.

OMB’s Capital Programming Guide requires agencies to have a disciplined capital programming process that sets priorities between new and existing assets.4 It also requires agencies to perform risk management and develop cost estimates to improve the accuracy of cost, schedule, and performance management. These activities should help mitigate difficult challenges associated with asset management and acquisition. In addition, the Capital Programming Guide requires an agency to develop a baseline assessment for each major program it plans to acquire. As part of this baseline, a full accounting of life cycle cost estimates, including all direct and indirect costs for planning, procurement, operations and maintenance, and disposal, is expected.

The capital programming process, as promulgated in OMB’s Capital Programming Guide, outlines how agencies should use long-range planning and a disciplined budget process to effectively manage a portfolio of capital assets that achieves cost, schedule, and performance goals. It outlines three phases: (1) planning and budgeting; (2) acquisition; and (3) management in use, often referred to as operations and maintenance. For each phase, reliable cost estimates are essential and necessary to establish realistic baselines from which to measure future progress.

  1. OMB first issued the Capital Programming Guide as a Supplement to the 1997 version of Circular A-11, Part 3. We refer to the 2019 version.↩︎