Dos, Don’ts and Whys for Basis

of Estimate
Lynne Ziter
13 March 13

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 Agenda
Business System Rule
DCMA impact
WHAT is a BOE?
WHY is it necessary?
WHO reviews it?
WHAT is it used for?
BOE basic elements:
Header
Task Description
Basis Of Estimate
−Historical similar task performance data
−Parametric data
−Firm Quotation
−Level of Effort
−Engineering Estimate
Bid Detail

EXAMPLES of the King and the Frog (as reviewed by the Prince)
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Business System Rule

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 Business Systems

• Accounting System
• Estimating System
• Purchasing System
• Earned Value Management System (EVMS)
• Material Management and Accounting System
• Property Management System

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Business Systems: DFARS 252-242-7005

• Initial Proposal Dec. 3, 2010.

• Interim Rule with request for comments issued May 11, 2011.
• Final Rule effective February 24, 2012.
• Applies to all CAS –covered contracts.
• Significant deficiency in any system requires ACO to reduce payments
on covered contracts by 5% and if multiple deficiencies, max
withholding of 10%.

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Estimating System: DFARS 252-215-7002

• “Estimating system” means the Contractor's policies, procedures, and

practices for budgeting and planning controls, and generating estimates
of costs and other data included in proposals submitted to customers in
the expectation of receiving contract awards.
• “Significant deficiency” means a shortcoming in the system that
materially affects the ability of officials of the Department of Defense to
rely upon information produced by the system that is needed for
management purposes.

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System Requirements of an Adequate Estimating System
• The Contractor shall disclose its estimating system to the Administrative
Contracting Officer (ACO), in writing.
• An estimating system disclosure is acceptable when the Contractor has provided
the ACO with documentation that—
(i) Accurately describes those policies, procedures, and practices that the
Contractor currently uses In preparing cost proposals; and
(ii) Provides sufficient detail for the Government to reasonably make an
informed judgment regarding the acceptability of the Contractor's estimating
practices.
• The Contractor shall—
(i) Comply with its disclosed estimating system; and
(ii) Disclose significant changes to the cost estimating system to the ACO
on a timely basis.
• The Contractor’s estimating system shall provide for the use of appropriate
source data, utilize sound estimating techniques and good judgment, maintain a
consistent approach, and adhere to established policies and procedures.
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Characteristics of an Adequate Estimating System
• Establish clear responsibility for preparation, review, and approval of cost
estimates and budgets.
• Provide a written description of the organization and duties of the personnel
responsible for preparing, reviewing, and approving cost estimates and budgets.
• Ensure that relevant personnel have sufficient training, experience, and guidance
to perform estimating and budgeting tasks in accordance with the Contractor's
established procedures.
• Identify and document the sources of data and the estimating methods and
rationale used in developing cost estimates and budgets.
• Provide for adequate supervision throughout the estimating and budgeting
process.
• Provide for consistent application of estimating and budgeting techniques.
• Provide for detection and timely correction of errors.
• Protect against cost duplication and omissions.
• Provide for the use of historical experience, including historical vendor pricing
information, where appropriate.
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Characteristics of an Adequate Estimating System
• Require use of appropriate analytical methods.
• Integrate information available from other management systems.
• Require management review, including verification of compliance with the company's
estimating and budgeting policies, procedures, and practices.
• Provide for internal review of, and accountability for, the acceptability of the
estimating system, including the budgetary data supporting indirect cost estimates
and comparisons of projected results to actual results, and an analysis of any
differences.
• Provide procedures to update cost estimates and notify the Contracting Officer in a
timely manner throughout the negotiation process.
• Provide procedures that ensure subcontract prices are reasonable based on a
documented review and analysis provided with the prime proposal, when practicable.
• Provide estimating and budgeting practices that consistently generate sound
proposals that are compliant with the provisions of the solicitation and are adequate
to serve as a basis to reach a fair and reasonable price.
• Have an adequate system description, including policies, procedures, and estimating
and budgeting practices, that comply with the Federal Acquisition Regulation and
Defense Federal Acquisition Regulation Supplement.
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 DCMA ‘Trip Wires’

Primary Trip Wires Secondary Trip Wires

BEI SPI CPLI Contract Baseline
System Baseline <.95 CPI/TCPI Mods Revs
Indicators Indicators 10% 10% 5%

System Indicator (Primary) New Schedule Metrics

• EV Certification withdrawn • Baseline Execution Index – used to
• Major Subcontractors do not hold EV measure efficiency with which actual work has
Certification been accomplished when measured against the
• DCMA Level 3 or higher CAR’s issues plan

Baseline Indicators (Primary) Critical Path Length Index - used to measure

• Was initial review conducted within 180 days the realism of completing the contract on time.
• On-going reviews triggered by major
modifications and/or OTB Standard EV Metrics – SPI, CPI, TCPI
• Outcome of the reviews
• Is scope fully & mutually understood Revision Metrics
• Does the baseline capture all work • PMB Revisions – changes to monthly time-
• Is MR adequate given expected risk phased PMB value of 5%
• Does the contract have an executable , • Contract Mods – contract mod to original
time phased baseline base value of 10% or more

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 Provided BOE (Simple Government Guidance)
YELLOW requires:
• Previous experience but no actual detail
data provided
COLOR CODE • Analogous experience provided but no
CATEGORY CHARACTERISTICS GRADING actual detail task and cost data.
Unsupported Estimate  “Engineering Judgement” • Scaling factors defined but not
 “Company Experience” supported by justification.
 No Substantive Supporting Information RED
GREEN requires:
Based on Specific Experience  Judgement, Including Qualification of “Judge”
 Previous Project Experience YELLOW • Detailed task breakdown
- Identify Project(s), but Provide No Actual Data
• Detailed and thorough comparison of
 Cost Estimating Relationship
- No Supporting Information
analogous and estimated tasks
• Justification is thorough for the scaling
Scaled Actuals, Work Not  Use Historical Actual Data factor(s) derived to account for estimate
Shown - General Description of Scaling, but no Details YELLOW task variances from the analogous task
Scaled Actuals, Work Shown  Historical Actual Data
 Justify, In Detail, the Scaling Factors Used BLUE requires:
GREEN
• Multiple analogous historical tasks and
Multiple Scaled Actuals  Same as above, but Cite Multiple Sources
cited and analyzed
 Cost Estimating Relationship BLUE /
- Document Model / Inputs • Multiple sources are provided to
GREEN validate the integrity of the relationship
between estimate details and past
experience tasks and performance
actuals

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 Responsibility & Risk
Accepting controlled risk typically means the difference
between “winning” and “loosing”. What does controlled
mean?
•Every BOE author is responsible to review and
challenge proposed task approaches to minimize
execution cost.
•Ensure that all key assumptions and risks accepted are
captured in the program risk register, and mitigation
planning has management visibility.
•Continuously evaluate options planning and executing
tasks in more cost effective ways.
•Continuously work with interfacing work tasks to
eliminate redundancies and comply with dependencies
requirements.
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 Results of a Recent DCMA Audit
• DCMA has staffed the EVM Center of Excellence
• Deep Dive DCMA Review teams are targeting programs and
Companies across the industry based on Trip Wire Metrics
• Bad EV review could result in loss of approved EV system which can
result in:
– Stoppage of progress payments
– Inability to bid on major contracts requiring EV
– Significant Company internal cost to gain approval back
• Recent Industry review results have caused the DCMA teams to
question
– The ability of current management processes and practices to
assess emerging issues of cost & schedule in a timely manner
– The accuracy and validity of the PMB data
– The adequacy of the Estimate At Complete information
– Commitment of the Company to use EV as a management
process
– Adequacy employees training to understand the need for EVMS,
what has changed, and the rules under which to execute it.
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The lack of EV culture can lay the foundation for failure
 Basis of Estimate – WHAT is it?

BOE = Explanation & justification of

your estimate to do the work.
 Documents the thought process, approach, and
rationale used to arrive at the estimate being
proposed

 Explainsthe logic, rationale method, data and

calculations used to estimate the resources
required to perform the work

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 Basis of Estimate - WHY Is It Necessary?

External Solicitations may require it.

 New opportunity solicitation responses
 Existing contract new work scope control

Internal Management may require it.

 Evaluate bids before committing the company
 Review program baseline setting or updates

Does your process require BOEs?

Would you do them if it were not “required”? WHY?

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 Basis of Estimate – WHO Reviews it?
External (solicitation response) Someone who:
Does not work for your company
Does not necessarily understand your products or
business practices
Does not always understand your job
Will decide whether your BOE is justifiable and
awardable
Will negotiate award value based upon your BOE
Internal (baseline or estimate justification) Someone who:
Does work for your company
Does understand your products or business practices
Does not always understand your job
Will help decide your baseline budget
Food for thought . . WHICH one is more difficult to do?
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 Basis of Estimate – WHAT Is It Used For?

To evaluate the Cost Reasonableness and

Realism of your estimate.
Realism – Compatibility of estimate with scope (as
defined in the estimate Task Statement)
Reasonableness – Justification for estimate
development methodology, and Completeness and
Accuracy of the mathematics applied.

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Basic BOE Components (format can vary greatly)

1. Header Information

2. Task Description

3. Basis of Estimate

4. Bid Detail

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 Basic BOE Components - Header

1.Header Information
 WBS or Task ID: Where this estimate
fits/maps to the CWBS
 Period of Performance (Start / End):
When this activity will happen within the
program schedule – and for how long

VERY easy way for auditor to check bid validity

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 Basic BOE Components - Task Description
2.Task Description Do not do work that is not required,
unless authorized by stakeholders with
 WHY is this task being done?
the authority to do so.

Reference “driving” document (Spec, SOW, etc.)

Avoids requirement

 WHAT will be done? Provide a complete

misinterpretations, and
clarifies the “gray” areas.
& clear explanation of the tasks included.
 EQUALLY important to state the tasks NOT included. The more detail . . . the
 Provide detail to fully describe the tasks to be performed. better the plan, the
 Provide detail to a level that bid hours/task will be small. estimate, and the ultimate
performance.
 ASSUMPTIONS for this estimate? Identify
assumptions that the estimate is based on. Defines boundary
 Can lead directly to identification and mitigation of risk. conditions that can impact
the estimate (GFE receipt,
 PLAN INTEGRATION: Define inputs and IRAD product arrival,
number of re-tests, etc.
outputs of tasks when appropriate.
 Key tasks & deliverables should align with schedule .
Assists in plan and
IMS integration.

This information defines the work (tasks) you are committing to do

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 Basic BOE Components - Basis of Estimate
3. Basis Of Estimate
 RATIONALE: HOW you derived the estimate
to execute the effort described in the Task
Description section.
 TYPICAL RATIONALE TYPES: Most
Desired
 Historical Program(s) task and cost data.
 Historical Program or Organizational Productivity
parametric data
 Firm Quotation (from a subcontractor or supplier)
 Level of Effort
 Engineering Estimate
Least
Desired

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 Basic BOE Components - Basis of Estimate cont’d

3.Basis Of Estimate
A. Historical Programs (s) task and cost data – comparison of estimated scope to
analogous work previously performed.
 ANALAGOUS PROGRAM SELECTION
- WHY program selected is validly comparable to estimated effort
- Detailed comparison of program and tasks to estimated effort
- Can be directly analogous “factored” (scaled to reflect differences)
 RELATIVE FACTOR – Adjusted actuals from similar task.
- Compares complexity (or other characteristic) to analogous task
- Factor selection methodology (detail of rationale & reasonableness)
 RELATIVE LABOR MIX -
- Detailed rationale for how accounted for in the estimate (compare
historical program mix to estimate mix, with rationale)
- Discuss hours & equivalent heads, not headcount or staffing levels.

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Basic BOE Components - Basis of Estimate cont’d
3.Basis Of Estimate
B. Historical Programs or Organizational Productivity Data
HISTORICAL PRODUCTIVITY DATA (parametric estimates)
- Functional productivity data (SE, SW, HW, etc.)
- Rate based (Rqmts/Hr, ELOC/Hr, Hrs/Drawing, etc.).
- Calibrated by historical experience
 SIMILARITY DETERMINATION
- Select similar programs (products, technology, etc.)
 RANGE DETERMINATION
- Forecast position where program estimate should fall within
the family of similar program productivities (at estimate
launch).
- Show position where program estimate productivities do fall
within the family of similar program productivities (as estimate
review). 23
Basic BOE Components - Basis of Estimate cont’d
3.Basis Of Estimate
c. Firm Quote
D. Level Of Effort
 Most common guidance is that LOE estimate value should
not exceed 15-20% of project value (they are difficult to
manage and mask performance data).
 Segregate discrete tasks - move definable/discrete tasks
and products out of the LOE task whenever feasible)
 Analogous LOE work used for estimate basis of LOE tasks:
 Must detail the analogous tasks to significant detail, and
provide direct correlation to corresponding estimate
tasks.
 Must examine the skill mix of the analogous and current
estimate task, and explain how analyzed and reflected in
the estimate.
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 Basic BOE Components - Basis of Estimate cont’d

3.Basis Of Estimate
E. Engineering Estimate
 Not desired. Only used when other methods are impractical
and historical data is not available (least preferred method)
 Educated guess not backed by documented previous
experiences.
 Guidance:
- Need step-by-step explanation of activities to be
performed
- Break activities into small tasks, with small number of hours
for each (easy to understand)
- Caution . . Credibility is very difficult to achieve because the
detail is not based on any quantitative program or
organizational measures or experience.
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 Basic BOE Components - bid Detail

4.Bid Detail

 Show ALL calculations for how your arrive at your

final hour total

 Provide summary tables of ALL tasks, hours by

labor group, and totals
 Show totals for ALL areas of estimate (for WBS
elements)

This information defines the cost (budget) you are committing to!

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 BOE Format – best practice
2. “Basis of Estimate/ Supporting Data” details
– All BOEs should have same format with these
four sections
1.Hour Summary
2.Task Comparison – Compare to “similar-to”
task on similar domain program or same
program
3.Rationale – explain why task is similar-to and
any complexity factor (backed up of course)
4.Task Calculation – spell out the summary of
components with simple equations
– Exception – Refer to the contract for specific
BOE requirements/guidelines/templates
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 BOEs - Guidelines
• BOEs must be specific with rationale
– Based on similar-to program, or previous actual on same
program is an ECP
– Provide reference charge numbers for similar-to comparisons
– Avoid the use of “engineering estimates”. No WAGs!
• Do NOT have rationale statements saying “as directed by
engineering management

• Explain why “5 drawings”, “288 requirements”, or other

such quantitative statements

• Explain efficiency factors. Examples:

– 25% efficiency gain due to update of existing document
– 10% efficiency gain due to application of lessons learned from
original production contract
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 BOEs – Guidelines (cont’d)
• Eliminate Assumptions (put into risk if not confirmed)

• Check Math
– Provide equations. Spell it out (40 + 20 + 4 = 64
Hours)
– Totals should match in Summary (top) and BOE
(bottom)

• BEST PRACTICE: Program should provide guidance

on minimum hours/BOE and ‘bogeys’
– Rarely used
– Benefit is greatly reduced number of BOEs and
estimates within the desired value of the offer.
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 BOE – Example (1 of 2)
Raytheon Page - 5 -
BASIS OF ESTIMATE
Prime ID #: Date: 8/7/06 2:40 Assist ID #:
Program 1.2.2.3.4.5
XYZ WBS:
Name:
Task Title: 8/7/06
Test 2:41Review
Readiness Option: CLIN/SLIN:
Location: Timbuktu
NCS Northeast Engineering Prepared By: SOW Ref: 1.1.1.3
Approved
Perf Org: 30034 Bob Boe
by:
Period of
Start: 5/2007 End: 5/2008 Other: F009
Performance:
Summary:

Material $ 0

Labor (by skill mix):

SE Total Hrs
244 244

ODC $

PoP and SOW Reference Very Important

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 BOE – Example (2 of 2)
BASIS OF ESTIMATE(SPECIFY) : 5
(1) COMPARISON METHOD (SIMILAR TO SPECIFIC TASK) (6) ENGINEERING ESTIMATE
(2) UNIT METHOD (ESTIMATED HOURS PER DRAWING) (7) PARAMETRIC
(3) FACTOR METHOD (SPECIFY HOW FACTORS WERE DERIVED) (8) LEVEL OF EFFORT (LOE)
(4) TIME & COST EST APPROACH (TIME STUDY,REGRESSION ANAL.) (9) SUPPLIER QUOTATION TO BOE CODE
(5) HISTORY (BE SPECIFIC, IDENTIFY PROGRAM, DSO, ETC.)

BID METRIC CODE : GGAA

Task Description (include list of subtasks if appropriate):

Prior to formal testing a Test Readiness Review (TRR) is held. This review is to ensure that the
hardware, software, and test procedures are ready for formal testing.

Subtasks
ID Title Description Hours

Scope
Since much of the testing is time phased there will be multiple TRR's. This BOE covers TRR's for
Performance DVT, Environmental DVT, EMI/EMI, and RGT.

Basis of Estimate / Supporting Data

Hours Summary
340 hours
Total - 244 Hrs (1.6 MM)

Task Comparison
These TRR's are similar to the TRR held under Bob the Builder
Airborne program, program
Laser Terminal (reference
(NWAcharge number ABC
6002347730523 for
61 hours).

Rationale
Four TRR's will be held due to the time phasing of the testing using different terminal
configurations/baselines.

Task Calculation
4 4TRR's
TRRs x x8561 hours/TRR
hours = 244 Hrs
= 340 hours

Note method (5) – No WAGs (6)

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 BOE Examples – Acceptable
Task Description (include list of subtasks if appropriate):
Integrated Product Development System reference OH MY.05.01, PREPARE VERIFICATION/VALIDATION
PROCEDURES.

Subtasks

ID Title Description Hours

Scope
Creation/Update of widget procedures applicable to program. The widget
procedures will cover CDRLs B097 and B040.

Basis of Estimate / Supporting Data

Hours Summary
Total - 1646 Hrs (10.6 MM)
Task Comparison
This task can leverage from existing procedures. Therefore a high productivity was chosen (Bob the Builder program)
Rationale
There are 1176 total widgets (1367 total widgets
for act I (1117) & act II (250), minus 191 duplicate I & II widgets.

Bob the Builder program productivity was 1.4 Hrs/widget under Charge number XYZ
Task Calculation
1176 widgets x 1.4 hrs/widget = 1646 Hrs (10.6 MM)

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 BOE Examples – Acceptable
Task Description (include list of subtasks if appropriate):
Task covers the support for Moving Demonstration (M-Demo).

Subtasks

ID Title Description Hours

Scope

M-Demo covers the integration of 120 parts of the electronics portion of program XYZ.

Basis of Estimate / Supporting Data

Hours Summary
Total = 480 Hrs (3.1 MM)
Task Comparison
This task is similar to the system integration task for similar Toy programs (Able builder, Toy builder).
Rationale
The M-demo integration is similar to system integration with a complexity of 0.5 (toy has completed
integration and road tests), This effort is to integrate fault insertions into a working system and to
monitor and verifying truck responding to these faults.
Integration Productivity: Able builder (65148722641 14.0 hrs/widget).
Using the highest productivity program (We will use the highest productivity at 8.0 hrs per widget due
to task is integrate toy versus truck integration effort).
Required Fault on this task = 120 faults
Task Calculation
8 hrs/fault x 120 faults x 0.5 complexity = 480 hrs

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 BOE Examples – Flawed
Task Description (include list of subtasks if appropriate):
Task covers the Road Noise Test of the widget.

Subtasks

ID Title Description Hours

Scope

Basis of Estimate / Supporting Data

Hours Summary
Total = 91 Hrs (0.6 MM)
Task Comparison
This task is similar to a road test conducted for a similar toy development to conduct
test and including engineering support. Based on road test cost from a similar toy program, charge number ABC program, , TO-
40 4006 = 182 hrs for
2 tests (91 hrs/test).
Task Calculation
1 road test @ 61 hrs (0.6 MM)

SCOPE missing, no Rationale, hours don’t match, no Charge

Number history
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BOE Examples – Flawed

Hour mismatch, spelling, WAGs

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BOE Examples – Flawed

WAG is entire BOE, format, travel details

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BOE Examples – Flawed

Format, NWA, material quote used?

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 Summary
• Follow Program guidance for many things,
including Task Function Matrix, Bogey, BOE
Format, R&O Guidance, Management review
timeframe, and more
• Adjust R&O according to changes required by
bogey
– Adjust risk up if need to be more aggressive
– Adjust opportunity up if head room
– Work the R&O during the bid, vs. afterthought
• BOE needs to be defendable by
– using metrics
– Valid similar-to task with Charge Numbers
– backed up complexity factors

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Q&A

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