Elements of Cost Estimate Documentation

Two important criteria should be kept in mind when generating high-quality cost estimate documentation. First, documentation should describe the cost estimating process, data sources, and methods, and should be detailed enough to allow analysts to easily reconstruct the estimate. Second, the results of the estimating process should be presented in a format that makes it easy to prepare reports and briefings to upper management and stakeholders.

Cost estimators should document all the steps used to develop the estimate. As a best practice, the cost estimate documentation should also address how the estimate satisfies the guidance used to govern the creation, maintenance, structure, and status of the cost estimate. Table 15 describes the various sections of proper cost estimate documentation and what they should include.

Table 15: Cost Estimate Documentation Elements

Scroll to the right to view full table.

Document section	Description
Cover page and table of contents	Names the cost estimators, the organization they belong to, and the like Gives the program’s name, date, and milestones Lists the document’s contents, including supporting appendixes
Executive summary	Summarizes clearly and concisely the cost estimate results, with enough information about cost drivers and high-risk areas for management to make informed decisions Presents a time-phased display of the life cycle cost estimate (LCCE) in constant and current year dollars, broken out by major work breakdown structure (WBS) cost elements; if an update, tracks the results and discusses lessons learned Identifies critical ground rules and assumptions Identifies data sources and methods used to develop major WBS cost elements and reasons for each approach Discusses independent cost estimate (ICE) results and differences and explains whether the point estimate can be considered reasonable Discusses the results of a sensitivity analysis, the level of uncertainty associated with the point estimate, and any contingency recommendations and compares them to the funding profile
Introduction	Gives the team composition’names, organizational affiliations, who was responsible for developing the estimate Gives a program overview, how cost was estimated, and the date associated with the estimate Addresses the estimate’s purpose, need, and whether it is an initial estimate or an update Names the requester, citing tasks assigned and related correspondence (in an appendix, if necessary) Gives the estimate’s scope, describing major program phases and their estimated time periods, and what the estimate includes and excludes, with reasons
System description	Describes the program background and system, with detailed technical and program data, major system components, performance parameters, and support requirements Describes contract type, acquisition strategy, and other information in the technical baseline description
Program inputs	Details the program schedule, including master schedule and deliverables Describes the acquisition strategy Describes ground rules and assumptions, such as inflation rates
Estimating method and data by WBS cost element	The bulk of the documentation, describing in a logical flow how each WBS cost element in the executive summary was estimated, details each cost element enough that someone independent of the program recreating the estimate could arrive at the same results. Supporting information too detailed for this section is placed in an appendix Defines the cost element and describes how it was derived Summarizes costs spread by fiscal year in constant year dollars, matching the current program schedule Details the method, sources, models, and calculations for developing the estimate; fully documents cost estimating relationships (CERs), including the rationale for the relationship between cost and the independent variables, the applicable range for independent variables, and the process for validating the CER, including descriptive statistics associated with the relationship If cost models were used, documents input and output data and any calibrations to the model; the cost model, data input, and results are in an appendix Documents the data in detail with a display of all database information used for parametric or analogy-based estimates; describes judgments about parametric variables, analogy scaling, or complexity factors and adjustments of the data; identifies data limitations and qualifies the data, based on sources (historical data, budget estimates), time periods they represent, and adjustments to normalize them or account for significant events like production breaks Documents the inflation indexes used to convert dollars between constant years and budget years
Sensitivity analysis	Describes the effect of changing key cost drivers and assumptions independently Identifies the major cost drivers that should be closely monitored
Risk and uncertainty analysis	Discusses sources of risk and uncertainty, including critical assumptions, associated with the estimate The effect of uncertainty associated with the point estimate is quantified with probability distributions, and the resulting S curve is fully documented; the method for quantifying uncertainty is discussed and backed up by supporting data Discusses risk distributions and correlation between WBS elements The basis for contingency and how it was calculated is fully documented
Management approval	Includes information, such as briefings, presenting the LCCE to management for approval, explaining the technical and program baseline, estimating approach, sensitivity analysis, risk and uncertainty analysis, ICE results and reasons for differences, and a comparison to the current budget to identify any funding shortfalls Presents the estimate’s limitations and strengths Includes management approval memoranda, recommendations for change, and feedback
Updates reflecting actual costs and changes	Reflects changes in technical or program assumptions or new program phases or milestones Replaces estimates with actual costs and reports progress on meeting cost and schedule estimates Includes results of post mortems and lessons learned, with precise reasons for why actual costs or schedules differ from the estimate

Source: GAO | GAO-20-195G

Note: “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.

While documentation of the cost estimate is typically in the form of a written document, the documentation can be completed in other ways. For example, some organizations rely on cost models that automatically develop documentation, while others use detailed spreadsheets with notes and hyperlinks to other documents. It is important to consider whether the documentation allows someone to trace the data, calculations, modeling assumptions, and rationale back to a source document for verification and validation. In addition, cost estimate documentation should address the reconciliation with the independent cost estimate so that others can understand areas of risk.