Chapter 14: Step 11: Present the Estimate to Management

A cost estimate is not considered complete until management has approved it. Because many cost estimates are developed to support a budget request or make a decision between competing alternatives, it is vital that management is presented with information on how the estimate was developed, including risks associated with the underlying assumptions, data, and methods. Therefore, the cost estimator should present management with enough detail to easily defend the estimate by showing how it is complete and high in quality. Cost estimators should present the documented life cycle cost estimate (LCCE) to management along with an explanation of the program’s technical and program baseline.

The information in a cost estimate presentation should succinctly illustrate the main cost drivers and the final cost estimate, and should match the information in the cost estimate documentation. Presented information should include program and technical data specific to the program, along with displays of budget implications, contractor staffing levels, and industrial base considerations, to name a few. Management should be presented with cost estimate information on each program phase—development, production, operations and maintenance, and disposal. Management should also be presented with any concerns or challenges with the estimate, including whether adequate time and resources were available to develop the estimate.

Communicating results simply and clearly engenders management confidence in the ground rules, methods, and results, and in the process that was followed to develop the estimate. The information presented to management should be clear and complete, making it easy for those unfamiliar with the estimate to gauge its level of competence. A best practice is to present the cost estimate in a consistent format that facilitates management’s understanding of the completeness and the quality of the cost estimate.

Management should be presented with sufficient information to enable it to understand how the estimate was developed. These items should be included in the information presented to management:

  • Date and intended audience
  • A top-level outline
  • The estimate’s purpose, including why it was developed and what approval is needed
  • A brief program overview, including scope, physical and performance characteristics, and acquisition strategy to enable management to understand the program’s technical foundation and objectives
  • Estimating ground rules and assumptions
  • Life cycle cost estimate, including time-phased costs and constant year dollars
  • Changes from any previous estimates
  • A discussion of WBS elements, including: (1) a breakout of element costs and their percentage of the total cost estimate to help identify key cost drivers; (2) the estimating method for each WBS element; and (3) data sources and historical data
  • Sensitivity analysis, including an interpretation of cost drivers and results
  • Discussion of risk and uncertainty analysis, including: (1) cost drivers and top risk areas; (2) the corresponding S curve, the level of confidence in the point estimate, and contingency associated with select confidence levels; and (3) how risk and uncertainty distributions were defined
  • Comparison to an independent cost estimate with a discussion of differences and the results of reconciliation
  • A comparison of the life cycle cost estimate to the program budget, expressed in budget year dollars, including contingency based on the risk and uncertainty analysis and any budget shortfall and its effect
  • Concerns or challenges with the estimate
  • Conclusions and recommendations

This approach allows management to gain confidence in the estimating process and, thus, the estimate itself. Without this information, management will not have confidence that the estimate is complete and high in quality. Cost estimators should ask management whether it accepts the cost estimate and management’s desired level of confidence. Acceptance, along with any feedback from management, should be acted on and documented in the cost estimate documentation package.40

  1. “Management” will vary depending on organizational structures and program complexity, but typically refers to the requester of funds. For example, the program manager, program executive officer, or acquisition authority is responsible for approving the cost estimate.↩︎