For the purposes of this guide, a cost estimate is 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.2 The management of a cost estimate involves continually updating the estimate with actual data as they become available, revising the estimate to reflect changes, and analyzing differences between estimated and actual costs—for example, using data from a reliable earned value management (EVM) system.3 The ability to generate reliable cost estimates is a critical function, necessary to support the Office of Management and Budget’s (OMB) capital programming process.4 Without this ability, agencies are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls—all recurring problems that our program assessments too often reveal. Furthermore, cost increases often mean that the government cannot fund as many programs as intended or deliver them when promised. The methodology outlined in this guide is a compilation of best practices that federal cost estimating organizations and industry use to develop and maintain reliable cost estimates throughout the life of a government acquisition program. By default, the guide will also serve as a guiding principle for our auditors to evaluate the economy, efficiency, and effectiveness of government programs.
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