Global and Element-Specific Ground Rules and Assumptions

GR&As can be either global or element specific. Global GR&As apply to the entire estimate, while element-specific GR&As are driven by each WBS element’s detailed requirements. GR&As are more pronounced for estimates in the development phase, when there are more unknowns; they become less prominent as the program moves through development into production.

While each program has a unique set of GR&As, some are general enough to apply to many. For example, each estimate should at a minimum define the following global GR&As: program schedule, cost limitations (for example, unstable funding stream or staff constraints), high-level time phasing, base year, labor rates, inflation indexes, participating agency support, and government-furnished equipment.¹⁸

One of the most important GR&As is to define a realistic schedule. It may be difficult to perform an in-depth schedule assessment early to uncover the frequent optimism in initial program schedules. Ideally, members from the manufacturing and the technical community should be involved in developing the program schedule, but often information is insufficient and assumptions must be made.

One major challenge in setting realistic schedules is that the completion date is often set by external factors outside the control of the program office before any analysis has been performed to determine whether it is feasible. Another predominant problem is that schedule risk is often ignored or not analyzed—or when it is analyzed, the analysis is biased. This can occur on the government (customer) or contractor side, or both. Risk analysis conducted by a group independent of the program manager has a better chance of being unbiased than one conducted by the program manager. However, it should also be noted that many organizations are not mature enough to acknowledge or to apply program schedule or cost risk realism because of the possible repercussions. For example, a contractor may be less likely to identify schedule or cost risk if it fears a negative reaction from the customer. Likewise, the customer may be unwilling to report cost or schedule risk due to fear that the program could be canceled. See the GAO Schedule Assessment Guide for more information on creating and maintaining reliable integrated master schedules.¹⁹

Management may impose cost limitations because of budget constraints. The GR&As should then clearly explain the cost limitation and how it affects the estimate. Usually, cost limitations are handled by delaying program content, or by a funding shortfall if program content cannot be delayed. In many cases, such actions will both delay the program and increase its final delivered cost.

Estimates should be time phased if program costs span many years. Time phasing spreads a program’s expected costs over the years in which they are anticipated to aid in developing a proper budget. Depending on the activities in the schedule for each year, some years may have more costs than others. However, great peaks or valleys in annual funding should be investigated and explained because staffing is difficult to manage with such variations from one year to another. Anomalies are easily discovered when the estimate is time phased. Cost limitations can also affect an estimate’s time phasing if there are budget constraints for a given fiscal year. Additionally, changes in program priority will affect funding and timing—often a program starts as a high priority but that priority erodes as it proceeds, causing original plans to be modified and resulting in later delivery and higher cost to the government. These conditions should be addressed by the estimate and their effects adequately explained.

The base year is used as a constant dollar reference point to track program cost growth. Expressing an estimate in base year dollars removes the effects of economic inflation and enables comparing separate estimates. Thus, a global ground rule is to define the base year dollars that the estimate will be presented in and the inflation index that will be used to convert the base year costs into budget year dollars that include inflation. At a minimum, the analyst should clearly explain the inflation index, source, and approval authority in the estimate documentation. Inflation rates should be standardized across similar programs, because they are all conducted in the same economic environment, and priority choices between them should not hinge on different assumptions about what is essentially an economic scenario common to all programs.

Some programs originate from two or more agencies working together to achieve common program goals. When this happens, agreements should lay out each agency’s area of responsibility. In the GR&A section, these conditions should be highlighted to ensure that management is firmly aware that the success of the estimate depends on the participation of other agencies.

In addition to global GR&As, estimate-specific GR&As should be tailored for each program, including:

• life cycle phases and operations concepts;
  
• maintenance concepts;
  
• acquisition strategy, including competition, single or dual sourcing, and contract or incentive type;
  
• industrial base viability;
  
• quantities for development, production, and spare and repair parts;
  
• use of existing facilities, including any modifications or new construction;
  
• savings for new ways of doing business;
  
• commonality or design inheritance assumptions;
  
• technology assumptions and new technology to be developed;
  
• technology refresh cycles;
  
• security considerations that may affect cost; and
  
• items specifically excluded from the estimate.

The cost estimator should work with members from the technical community to tailor these specific GR&As to the program. Information from the technical baseline and WBS dictionary help determine some of these GR&As, such as quantities and technology assumptions. The element-specific GR&As carry the most uncertainty and therefore should be checked for realism and be well documented in order for the estimate to be considered credible. Without analyzing the effects of an invalid assumption on the cost and schedule of a program, cost estimators and management will not have a full understanding of the effects of changing ground rules and assumptions.

---

18. Government furnished equipment can also be an assumption and is not always a ground rule.↩︎

19. GAO, Schedule Assessment Guide: Best Practices for Project Schedules, GAO-16-89G (Washington, D.C.: December 2015)↩︎