Update the Program Cost Estimate with Actual Costs
Regardless of whether changes to the program result from a major contract modification or other factors, the cost estimate should be regularly updated to reflect all changes. The estimate should also be kept current as the program passes through new phases or milestones. Not only is this a sound business practice, it is also a requirement outlined in OMB’s Capital Programming Guide.41 The purpose of updating the cost estimate is to check its accuracy, defend the estimate over time, shorten turnaround time, and archive cost and technical data for use in future estimates. After the internal agency and congressional budgets are prepared and submitted, it is imperative that cost estimators continue to monitor the program to determine whether the preliminary information and assumptions remain relevant and accurate.
Keeping the estimate current gives decision-makers accurate information for assessing alternative decisions. Cost estimates must also be updated whenever requirements change, and the results should be reconciled and recorded against the old estimate baseline. Several key activities are associated with updating the cost estimate, including:
documenting all changes that affect the overall program estimate so that differences from past estimates can be tracked;
updating the estimate as requirements change, or at major milestones, and reconciling the results with the program budget;
updating estimates with EVM estimates at completion (EACs) and independent EACs, if applicable;
updating the estimate with actual costs as they become available during the program’s life cycle;
recording reasons for variances so that the estimate’s accuracy can be tracked;
recording actual costs and other pertinent technical information such as source lines of code sizing, effort, schedule, risk items, and the like so they can be used for estimating future programs; and
assessing and recording lessons learned as the program progresses to inform the next version of the estimate.
After these activities are completed, the estimator should document the results in detail, including reasons for all changes. This critical step allows others to track the estimates and to identify when, how much, and why the program cost is more or less than planned. Further, the documented comparison between the current estimate (updated with actual costs) and old estimate allows the cost estimator to determine the level of variance between the two estimates. In other words, it allows estimators to see how well they are estimating and how the program is changing over time. Case study 20 shows the impact of not updating a cost estimate after major program changes.
The Space Launch System (SLS) is National Aeronautics and Space Administration’s (NASA) first heavy-lift launch vehicle for human space exploration in over 40 years. For development efforts related to the first flight of SLS, NASA established its cost and schedule commitments at $9.7 billion and November 2018. The program, however, had continued to pursue more aggressive internal goals for cost and schedule.
GAO concluded that the cost and schedule estimates for the SLS program substantially complied with five of six relevant best practices, but could not be deemed fully reliable. In particular, the program had not updated its cost and schedule estimates, rendering them less reliable as program management and oversight tools. Since the estimate was created, the program had substantial funding increases but had also realized both expected and unexpected risks that were forcing the program to delay its internal goal for launch readiness. The program’s cost estimate, however, did not reflect all of these changes or the 2 years of additional contractor performance data that the program had accumulated since the development of the cost estimate. Without regular updates, developed in accordance with best practices—including thorough explanations of how the updates were prepared—cost estimates lose their usefulness as predictors of likely outcomes and as benchmarks for meaningfully tracking progress. Updated cost and schedule estimates would have provided program and agency officials with a more informed basis for decision making and provided the Congress with more accurate information to support the appropriation process.
GAO recommended that to ensure that the SLS cost and schedule estimates better conform with best practices and are useful to support management decisions, the NASA Administrator should direct SLS officials to update the SLS cost and schedule estimates, at least annually, to reflect actual costs and schedule, and record any reasons for variances before preparing their budget requests for the ensuing fiscal year. To the extent practicable, these updates should also incorporate additional best practices, including thoroughly documenting how data were adjusted for use in the update and cross-checking results to ensure they are credible. In July 2018, NASA provided GAO the results of its latest assessment of the SLS’s cost and schedule estimates against its Agency Baseline Commitment. NASA explained how data were adjusted for the updated estimate and the reasons for variances between the original estimate and the current estimate.Office of Management and Budget, Capital Programming Guide: Supplement to Circular A-11, Part 7, Preparation, Submission, and Execution of the Budget (Washington, D.C.: December 2019), 70.↩︎