Glossary

A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   X   Y   Z


A

Actual cost of work performed (ACWP): The costs actually incurred and recorded in the earned value management system for accomplishing the work performed within a given time period.80 ACWP is also known as Actual Cost (AC).

Affordability analysis: A process that demonstrates whether a program’s acquisition strategy has an adequate budget. It also shows if the agency’s overall portfolio is affordable or if programs within the portfolio should be cancelled or restructured.

Analogy: A cost estimating method that bases the estimate for the new item on the actual cost of a similar item with adjustments to account for differences between the two items.

Analysis of alternatives (AOA): A process that assesses potential solutions to mitigate documented capability gaps. Typically performed early in the acquisition cycle, the AOA process examines costs, benefits, schedules, risks, sensitivity, viability, and operational effectiveness for each alternative and the status quo in order to select a preferred alternative that satisfies mission need.

Assumptions: Often grouped together with ground rules, assumptions represent a set of judgments about past, present, or future conditions postulated as true in the absence of positive proof.

B

Base year dollars: Dollars which are expressed in the value of a specific year and do not include escalation or inflation.81 Base year dollars are also known as constant dollars.

Benefit-cost analysis: A systematic quantitative method of assessing the desirability of government projects or policies when it is important to take a long view of future effects and a broad view of possible side effects.

Budget year dollars: Dollars that include the effects of inflation and time-phasing.

Budgeted cost of work performed (BCWP): The sum of the budgets for completed work and completed portions of ongoing work within a given time period. BCWP is also known as Earned Value (EV).82

Budgeted cost of work scheduled (BCWS): The sum of the budgets for all work packages and planning packages scheduled to be accomplished within a given time period.83 BCWS is also known as Planned Value (PV).

C

Common work breakdown structure elements: In addition to including product-oriented elements, every WBS includes program management as a level 2 element as well as other common elements like integration and assembly, government furnished equipment, and government testing.

Confidence level: In cost estimating, the confidence level represents the probability that the program cost will be equal to or less than the associated cost estimate. Also referred to as percentiles, they are determined from a cumulative probability distribution or S curve derived from a risk and uncertainty analysis.84

Constant year dollars: See base year dollars.

Contingency: In this Cost Guide, contingency represents funds held at or above the government program office for “unknown unknowns” that are outside a contractor’s control. In this context, contingency funding is added to an estimate to allow for items, conditions, or events for which the state, occurrence, or effect is uncertain and that experience shows are likely to result in additional costs.

Correlation: Positive correlation occurs when two WBS elements are both influenced by the same factor and can be expected to vary in the same direction within their own probability distributions in any consistent scenario.

Cost accounting: The organized recording and assessment of material, labor, and overhead costs.85

Cost analysis: The effort to develop, analyze, and document cost estimates with analytical approaches and techniques; the process of analyzing and estimating the incremental and total resources required to support past, present, and future systems—an integral step in selecting alternatives; and a tool for evaluating resource requirements at key milestones and decision points in the acquisition process.

Cost driver: A system, program characteristic, or cost model input which affects the system or program cost estimate.

Cost estimate: The summation of individual cost elements, using established methods and valid data, to estimate the future costs of a program, based on what is known today. The management of a cost estimate involves updating the estimate with actual data as they become available, revising the estimate to reflect program changes, and analyzing differences between estimated and actual costs.

Cost estimating: Collecting and analyzing historical data and applying quantitative models, techniques, tools, and databases to predict a program’s future cost. Cost estimating combines science and art to predict the future cost of something based on known historical data that are adjusted to reflect new materials, technology, software, and development teams.

Cost estimating relationship (CER): A technique used to estimate a cost by using its relationship to an independent variable or combination of variables.

Cost performance index (CPI): The CPI metric is a measure of cost expended for the work completed. A CPI value greater than 1.0 indicates the work accomplished cost less than planned, while a value less than 1.0 indicates the work accomplished cost more than planned.86

Cross-check: An alternate cost estimating methodology used to validate cost estimating results.

D

Data normalization: Make a given data set consistent with and comparable to other data used in the estimate. Data are normalized in several ways including for cost units, sizing units, key groupings, and technology maturity.

E

Earned value management (EVM): A project management tool that integrates the technical scope of work with schedule and cost elements for investment planning and control; it compares the value of work accomplished in a given period with the actual cost of the work accomplished and the value of the work planned in that period. Differences in expectations are measured in both cost and schedule variances.

Engineering build-up: This cost estimating method develops the cost estimate at the lowest level of the WBS, one element at a time, and the sum of the elements comprises the estimate. An engineering build-up estimate consists of labor and materials that have overhead and fee applied to them. This method is normally used during the production phase.

Estimate-at-complete (EAC): The latest revised estimate of cost at completion including estimated overruns and underruns for all authorized work. It is calculated by adding the forecasted cost of work remaining (budgeted cost for work remaining) to actual costs using an appropriate forecasting method. Contractors are typically required to provide three EACs - a best case, a worst case, and a most likely case.

Expert opinion: A cost estimating method that relies on subject matter experts to give their opinion on what products or efforts within a program should cost. Also known as engineering judgment, it is commonly applied to fill in gaps in a relatively detailed WBS when one or more experts are the only qualified source of information, particularly in matters of specific technology.

Extrapolation from actuals:: A cost estimating method which uses the actual past or current costs of an item to estimate its future costs.

G

Ground rules: Often grouped together with assumptions, ground rules represent a common set of agreed-to estimating standards that provide guidance and minimize conflicts in definitions.

I

Independent cost assessment: A non-advocate’s evaluation of a cost estimate’s quality and accuracy, looking specifically at a program’s technical approach, risk, and acquisition strategy to ensure that the program’s cost estimate captures all requirements. Typically requested by a program manager, outside source, or required by agency policy, it may be used to determine whether the cost estimate reflects the program of record.

Independent cost estimate: Conducted by an organization outside the acquisition chain, using the same detailed technical information as the program estimate, an ICE serves as a comparison with the program estimate to determine whether it is accurate and realistic.

Independent government cost estimate: Used to analyze contractors’ prices or cost proposals for a specific contract, an IGCE only estimates the cost of activities outlined in the statement of work. It excludes all costs not associated with that contract and only reflects costs from a contractor’s viewpoint.

Inflation: Growth in the general, economy-wide, average price level.87

Integrated baseline review (IBR): A joint assessment conducted by the government program manager and the contractor, to facilitate and maintain mutual understanding of the scope of the performance measurement baseline; management control processes; program risks associated with technical performance, cost, schedule, and resources; and corrective actions.88

Integrated master schedule: A program schedule that includes the entire required scope of effort, including the effort necessary from all government, contractor, and other key parties for a program’s successful execution from start to finish. The IMS should consist of logically related activities whose forecasted dates are automatically recalculated when activities change. The IMS includes summary, intermediate, and detail-level schedules.

L

Learning curve: A measure of the rate of change of hours or dollars as a function of the quantity of items produced. Learning curves assume that as a quantity doubles, the hours or dollars decreases by a constant percentage. Learning curves are a common form of extrapolating from actual costs.

Life cycle cost estimate (LCCE): A structured accounting of all labor, material, and other efforts required to develop, produce, operate and maintain, and dispose of a program.

M

Management reserve (MR): Management reserve funds are for “known unknowns” that are tied to a contract’s scope and managed at the contractor level. Unlike contingency, which is funding related, management reserve is budget related. The value of the contract includes these known unknowns in the budget base, and the contractor decides how much money to set aside.

N

Net present value: The discounted value of expected benefits minus the discounted value of expected costs.

Nonrecurring cost: An element of the development and investment costs that generally occurs only once in a system’s life cycle. Includes all the effort required to develop and qualify an item, such as defining its requirements and its allocation, design, analysis, development, qualification, and verification.

O

Overtarget baseline (OTB): An OTB may be implemented when it is determined that the remaining budget and schedule targets for completing a program are significantly insufficient and that the current baseline is no longer valid for realistic performance measurement. The purpose of the OTB is to restore management’s control of the remaining effort by providing a more meaningful basis for performance management.

P

Parametric cost estimating: A cost estimating method that relates cost to one or more technical, performance, cost, or program parameters using a statistical relationship. This method often uses cost estimating relationships to develop estimates.

Performance measurement baseline (PMB): The PMB represents the cumulative value of planned work over time, taking into account that program activities occur in a sequenced order, based on finite resources, with budgets representing those resources spread over time. It is a resource consumption plan for the program and forms the time-phased baseline against which performance is measured.

Point estimate: The sum of the WBS elements, a point estimate is a single value given as an estimate of program cost. High-quality cost estimates usually fall within a range of possible costs, the point estimate being between the best and worst case extremes.

Primary data: Data obtained from the original source.

Program office estimate (POE): The responsibility of the program manager, an estimate that covers the entire life of a program and phased by fiscal year for all years from initiation of the program to the disposal phase. POEs are used to prepare the resource requirements for translation into programming and budgeting documentation and requests.

R

Recurring cost: Costs that occur periodically as items are produced or services are performed.

Risk: A potential event that could affect the program positively or negatively. A negative or unfavorable event is a threat or harm, and a positive or favorable event is an opportunity or improvement.

Risk and uncertainty analysis: Uses statistical techniques to predict the probability of successfully executing a program within its budget by capturing the cumulative effect of program risks and uncertainty.

Risk management: A structured and efficient process for identifying risks, assessing their effect, and developing ways to reduce or eliminate risk; a continuous process that constantly monitors a program’s health.

S

S curve: A cumulative probability distribution particularly useful in portraying the confidence level, or percentile, of a cost estimate.

Schedule performance Index (SPI): The SPI metric is a measure of the amount of work accomplished versus the amount of work planned. An SPI value greater than 1.0 indicates more work was accomplished than planned, while an SPI value less than 1.0 indicates less work was accomplished than planned.89

Secondary data: Data that are derived rather than obtained directly from a primary source. Their quality is lower and less useful than that of primary data. In many cases, secondary data are actual data that have been “sanitized” to obscure their proprietary nature.

Sensitivity analysis: Examination of the effect on program cost of changing one assumption or cost driver at a time while holding all other variables constant.

T

Technical baseline description: A document or set of documents that describe the program or project’s purpose, system, performance characteristics, and system configuration.

Technology readiness level (TRL): Describes the maturity of a given technology within its development life-cycle. In general, TRLs are measured along a 1-9 scale, starting with level 1 paper studies of the basic concept, moving to laboratory demonstrations around level 4, and ending at level 9, where the technology is tested and proven, integrated into a product, and successfully operated in its intended environment.

Time phase: Spreading a program’s expected costs over the years in which they are anticipated to occur.

To complete performance index (TCPI): Cost performance to be achieved, or TCPI, if the remaining work is to meet the contractor’s estimate at completion (EAC). TCPI is an earned value management measure computed by dividing the value of the work remaining by the value of the target cost remaining. The target cost remaining value is tied to some financial goal that management sets. The measure represents cost efficiency from the present time until the end of the contract required to achieve management’s target goal.90

V

Variance analysis: Assessment of the differences between ACWP (actual costs) and BCWP (earned value), differences between BCWP (earned value) and BCWS (planned value), and difference between BAC (budget at completion) and EAC (estimate at completion) for WBS elements and the program.

W

Work breakdown structure: A framework for planning and assigning responsibility for work necessary to accomplish a program’s objectives. It deconstructs a program’s end product into smaller specific elements that are suitable for management control.


  1. DOD, OUSD A&S (AE/AAP), Earned Value Management Implementation Guide, (Washington, D.C.: January 2019).↩︎

  2. International Cost Estimating and Analysis Association, Cost Estimating Body of Knowledge, Module 4 Data Collection and Normalization (Copyright 2002-2010).↩︎

  3. DOD, OUSD A&S (AE/AAP), Earned Value Management Implementation Guide, (Washington, D.C.: January 2019).↩︎

  4. Ibid.↩︎

  5. This definition of confidence level is specific to cost and risk uncertainty analysis. In statistics, confidence level is defined as the percentage of all possible samples that can be expected to include the true population parameter.↩︎

  6. Merriam-Webster, accessed on February 6, 2019, https://www.merriam-webster.com/.↩︎

  7. DOD, OUSD A&S (AE/AAP), Earned Value Management Implementation Guide, (Washington, D.C.: January 2019).↩︎

  8. Department of Defense, Office of the Secretary of Defense, Cost Assessment and Program Evaluation, Inflation and Escalation Best Practices for Cost Analysis (April 2016).↩︎

  9. Defense Acquisition University, accessed on February 11, 2019, https://www.dau.edu/acquipedia/Pages/acquipedia.aspx.↩︎

  10. DOD, OUSD A&S (AE/AAP), Earned Value Management Implementation Guide, (Washington, D.C.: January 2019).↩︎

  11. Defense Acquisition University, accessed on February 6, 2019, https://www.dau.edu/acquipedia/Pages/acquipedia.aspx↩︎