Jul 05 2007

Estimating Costs and EVM

GAO set to release new draft guide of best practices.

The Government Accountability Office is about to release a first-of-its-kind guide for project cost estimating and earned value management.

The “Cost Guide,” set for release this month online at www.gao.gov, has two main purposes, says Karen Richey, a senior cost analyst who spearheaded the effort for GAO. The first is to provide agencies with generally accepted best practices for generating credible cost estimates on government programs. The second is to help agencies understand the link between cost estimating and earned value management.

“This is essentially a best practices manual that agencies can use to plan and manage their programs,” Richey says. “When we audit agencies, these are the practices we will be looking for in EVM and cost estimating.”

The Cost Guide will be posted online as an “exposure draft,” which means that readers are encouraged to read and comment on the draft. During the two-year effort to create the guide, GAO sought information and advice from more than 100 experts in government and industry. GAO intends to keep the guide up-to-date as it continues to gather recommendations from experienced project managers, analysts and experts in cost estimating and EVM disciplines.

Big Help

“This guide is going to be the single biggest leap in cost and schedule management that we’ve seen in a long time,” says Bill Mathis, senior director of solutions for federal technology programs at Price Systems, a provider of EVM tools for validating systems projects’ baseline estimates, variance analysis and cost projections.

The guide recognizes that cost estimating and EVM are complementary functions, said Mathis, who advised on the project. “Previously, cost estimates and EVM were developed in different offices,” he says. “But if you want to establish realistic program baselines and get better predictive estimates, you need to fully integrate your cost-estimation practices and systems with your EVM practices and systems.”

The guide discusses pitfalls that can cause government agencies to accept unrealistic budget requests, and it provides case studies illustrating EVM principles and highlighting problems typically associated with cost estimating. For example, GAO auditors have found that cost growth in many programs results from optimistic assumptions about technological enhancements. Many program managers believe they can deliver state-of-the-art technology upgrades before the requirements have proved feasible. In reality, it typically costs more to develop technology from scratch than to develop the technology incrementally over time, according to GAO.

The Cost Guide is especially relevant because agencies are now expected to perform EVM on government activities. Richey says contractors will still be responsible for the bulk of EVM work, but agencies will have to step up their efforts. “It’s important for agencies to establish effective EVM processes and systems because the government needs to have its schedules in place and the right people available and government-furnished equipment ready to be delivered on time,” she says.