This article describes the use of parametric modeling to support independent government cost estimates at the feasibility/budgeting, acquisition, and on-going project lifecycle procurement support. Benefits over alternate approaches (analogy and bottom-up) are defined, and typical budgets for this activity are presented.
For most system acquisitions, there are three stages at which there is a need for some form of Independent Government Cost Estimate (IGCE) or other cost/price review. The FAR addresses these requirements primarily in FAR 151, although FAR 72 provides the high level requirement, stating that Agency Heads are responsible for “Ensuring that the statement of work is closely aligned with performance outcomes and cost estimates.” The three acquisition stages where IGCEs are necessary are:
- As part of the feasibility or budgeting cycle;
- As part of the proposal analysis during system acquisition; and
- As part of the on-going procurements involving scope changes during the system lifecycle.
This article provides an overview of recommended processes that a government cost estimator can follow at all stages, with an emphasis on parametric modeling using domain specific high level objects as proxies for effort and/or cost.
It’s useful here to differentiate between price analysis and cost analysis as defined in FAR 15.404. Price analysis is the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit. Cost analysis is the review and evaluation of any separate cost elements and profit or fee in an offeror’s or contractor’s proposal. To some extent, Price Analysis is closer to the field of Economics while Cost Analysis is closer to the field of Accounting. The primary focus of this article will be on Price Analysis, although we’ll touch on Cost Analysis briefly toward the end.
There are many approaches to IGCE, and some specific nuances that are important, but before we get into those areas we will present a brief overview of parametric modeling.