Chapter 13: Step 10: Document the Estimate
Well-documented cost estimates are considered a best practice for high-quality cost estimates for several reasons.
First, thorough documentation is essential for validating and defending a cost estimate. That is, a well-documented estimate can present a convincing argument of an estimate’s validity and can help answer decision-makers’ and oversight groups’ probing questions.
Second, documenting the estimate in detail, step by step, provides enough information so that someone unfamiliar with the program could easily recreate or update it.
Third, good documentation helps with analyzing changes in program costs and contributes to the collection of cost and technical data that can be used to support future cost estimates.
Finally, a well-documented cost estimate is essential if an effective independent review is to ensure that it is valid and reliable. It also supports reconciling differences with an independent cost estimate by improving understanding of the cost elements and their differences so that decision-makers can be better informed.
Documentation provides total recall of the estimate’s detail so that it can be replicated by someone other than those who prepared it. It also serves as a reference to support future estimates. Documenting the cost estimate makes available a written justification showing how it was developed and aiding in updating it as key assumptions change and more information becomes available.
Estimates should be documented to show all parameters, assumptions, descriptions, methods, and calculations used to develop a cost estimate. A best practice is to use both a narrative and cost tables to describe the basis for the estimate, with a focus on the methods and calculations used to derive the estimate. With this standard approach, the documentation provides a clear understanding of how the cost estimate was constructed. Moreover, cost estimate documentation should explain why particular methods and data sets were chosen and why these choices are reasonable. It should also reveal the pros and cons of each method selected. Finally, there should be enough detail so that the documentation serves as an audit trail of backup data, methods, and results, allowing for clear tracking of a program’s costs as it moves through its various life cycle phases.
Estimates that lack documentation are not useful for updates or information sharing and can hinder understanding and proper use. Experience shows that lack of thorough documentation can raise questions about an estimate’s reliability because the documentation does not demonstrate the development of the underlying cost elements. Case study 19 shows the effect of incomplete documentation on Veterans Affairs cost estimates.
The Department of Veterans Affairs (VA) relied on the Veterans Health Administration’s (VHA) Minor Construction and non-recurring maintenance (NRM) programs to maintain and improve its 1,240 medical facilities at a cost of over $1 billion in fiscal year 2018. However, in recent years, GAO and the VA’s Inspector General had identified weaknesses in these programs. GAO was asked to assess VHA’s management of its Minor Construction and NRM programs.
A reliable cost estimate is critical to the success of any construction program. Such an estimate provides the basis for informed decision making, realistic budget formulation and program resourcing, and accountability for results. For example, VA relies on these estimates to make annual funding decisions for various facilities. Additionally, because these estimates inform VA’s overall annual budget requests, Congress relies on them to make annual appropriations decisions.
The GAO Cost Estimating and Assessment Guide identifies 12 steps that, when incorporated into an agency’s cost-estimating guidance, should result in reliable and valid cost estimates that management can use to make informed decisions. GAO found that VHA’s guidance for medical center engineering staff and contractors on how to prepare cost estimates for minor construction program projects—specifically VHA’s Minor Construction Handbook, VA’s Manual for Preparation of Cost Estimates and Related Documents, and the Veterans Affairs Medical Center Unit Cost Guide By Project Type—did not fully incorporate these 12 steps, raising the possibility of unreliable cost estimates affecting decisions on how many such projects the agency can fund at one time.
For example, according to the Cost Guide, documentation provides total recall of the estimate’s details so that the estimate can be replicated by someone other than those who prepared it. Documentation also serves as a reference to support future estimates. Documenting the cost estimate makes available a written justification showing how it was developed and aiding in updating it as key assumptions change and more information becomes available. VHA’s guidance required that supporting documents be submitted once a project is approved. However, it did not require all detail to be shown, including parameters, assumptions, descriptions, methods, and the calculations used to develop the estimate. By revising the cost-estimating guidance to address the 12 steps in GAO’s Cost Estimating and Assessment Guide, such as considering each project’s scope and complexity, VHA would have greater assurance that its cost estimates for minor construction and NRM projects are reliable.Additionally, good documentation is necessary to:
satisfy policy requirements for properly recording the basis of the estimate,
convince management and oversight staff that the estimate is credible,
provide supporting data that can be used to create a historical database,
help answer questions about the approach or data used to create the estimate,
record lessons learned and provide a history for tracking why costs changed,
define the scope of the analysis,
allow for replication so that an analyst unfamiliar with the program can understand the logic behind the estimate, and
help conduct future cost estimates and train junior analysts.