**Module 15: Business, Cost Estimating and Financial Management**

**Module Outline**

  ------------------------------------------------- --------- ---------------------
  Topic                                                       Time Frame

  Introduction/Objectives                           10        
                                                    minutes   

  Cost Estimating                                   75        
                                                    minutes   

  PPBE Process                                      30        
                                                    minutes   

  Performance Measurement Methods                   50        
                                                    minutes   

  Review                                            10        
                                                    minutes   

  **Estimated/Approximate Time for Module           **3       
  Completion**                                      hours**   
  ------------------------------------------------- --------- ---------------------

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  **Topic 1: Introduction/Objectives**

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| ![](media/image1.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"} **Instructor Notes:**                  |
|                                                                       |
| Module 15 -- Business, Cost Estimating and Financial Management       |
| describes the different processes for financial management and        |
| performance measurement used during the life-cycle of a system or     |
| product.                                                              |
|                                                                       |
| These include: cost estimating, cost analysis, financial planning,    |
| budgeting, Benefit-Cost Analysis, and Earned Value Management.        |
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  **Topic 1: Introduction/Objectives (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| The Federal Government uses many different methods to measure         |
| performance and cost. They do this in order to tell whether or not a  |
| contractor is working in a satisfactory way and providing results in  |
| a timely fashion.                                                     |
|                                                                       |
| Some of these important methods include:                              |
|                                                                       |
| -   Cost Estimating                                                   |
|                                                                       |
| -   Cost Analysis                                                     |
|                                                                       |
| -   Benefit-cost Analysis                                             |
|                                                                       |
| -   Earned Value Management                                           |
|                                                                       |
| -   And many others                                                   |
|                                                                       |
|     We will be covering some of these methods throughout this module. |
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  **Topic 1: Introduction/Objectives (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Objectives]{.underline}                                              |
|                                                                       |
| At the end of this module, you will be able to:                       |
|                                                                       |
| -   Describe the different practices associated with cost-estimating. |
|                                                                       |
|     -   The practices include cost-estimating, cost analysis, and     |
|         reconciliation of cost estimates                              |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Discuss the elements of financial management in the federal       |
|     government.                                                       |
|                                                                       |
|     -   You will learn about the extremely important function of      |
|         budget planning and analysis.                                 |
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  **Topic 1: Introduction/Objectives (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Objectives]{.underline}                                              |
|                                                                       |
| At the end of this module, you will be able to (continued):           |
|                                                                       |
| -   Identify the important forms of performance measurement including |
|     Earned Value Management and Benefit-Cost Analysis.                |
|                                                                       |
|     -   You will learn how to use certain important performance       |
|         measurement tools to track the success of a program or        |
|         project.                                                      |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Define the different procedures included in budget analysis.      |
|                                                                       |
|     -   You will learn how to analyze budgets for government          |
|         acquisitions.                                                 |
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  **Topic 1: Introduction/Objectives (continued)**

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| ![](media/image1.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"} **Instructor Notes:**                  |
|                                                                       |
| This concludes the topic on the introduction and objectives. After    |
| addressing any questions the participants may have, inform them that  |
| we will be moving on to the next topic: Cost Estimating.              |
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  ![](media/image3.png){width="0.5006944444444444in"
  height="0.4888888888888889in"}**What questions do you have regarding
  the Introduction/Objectives?**

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  **Topic 2: Cost Estimating**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Cost estimates are one of the fundamental building blocks of the      |
| acquisition process.                                                  |
|                                                                       |
| -   Cost estimates and the supporting budget are a part of the        |
|     baseline against which a program\'s progress and success are      |
|     measured                                                          |
|                                                                       |
| -   They evaluate whether a system is affordable and consistent with  |
|     the guidelines set out for it and the overall long-range          |
|     investment and force structure plans                              |
|                                                                       |
| -   Cost estimates also form the basis for budget requests to         |
|     Congress                                                          |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Life-Cycle Cost Estimates are a product of an estimating procedure    |
| that specifies the expected dollar cost to develop, procure, operate, |
| support and dispose of a given system or product.                     |
|                                                                       |
| -   Must identify all elements involved in the life-cycle of a system |
|     or product, regardless of funding source or management control    |
|                                                                       |
| -   The importance of Program Cost Estimates:                         |
|                                                                       |
|     -   Basis of program budgets and are also critical in the         |
|         day-to-day management of a program.                           |
|                                                                       |
|     -   Current acquisition regulations require programs to maintain  |
|         a program cost estimate.                                      |
|                                                                       |
|     -   It is necessary to support headquarters-directed analyses, to |
|         defend program budget requirements, or to choose between      |
|         potential contractors in source selection.                    |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Let us discuss how to develop a Preliminary Cost Estimate.            |
|                                                                       |
| -   First you must define the Estimating task (Plan the work to be    |
|     accomplished)                                                     |
|                                                                       |
| -   Includes:                                                         |
|                                                                       |
|     -   Understanding the level of detail required                    |
|                                                                       |
|     -   Determining the accuracy of the estimate                      |
|                                                                       |
|     -   Outlining all characteristics of the system being estimated   |
|                                                                       |
|     -   Establishing ground rules and assumptions                     |
|                                                                       |
|     -   Summarizing all of this information in an estimating plan     |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Then define all work or activities                                |
|                                                                       |
|     -   Consists of data research, collection, and analysis           |
|                                                                       |
|     -   Preliminary decision about which estimating techniques to use |
|         must also be made                                             |
|                                                                       |
|     -   Work Breakdown Structure (WBS) contains a wealth of           |
|         information regarding the scope of work upon which to base an |
|         estimate                                                      |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| There are three types of estimates: Preliminary, Budgetary and        |
| Definitive.                                                           |
|                                                                       |
| 1.  The **Preliminary** estimate is performed early on in the life of |
|     the project without detailed data. This estimate is usually       |
|     requested during the initial evaluation of a project and is often |
|     used to establish the initial funding level on both the resources |
|     and budget levels. It is also referred to as a rough order of     |
|     magnitude, conceptual, or feasibility estimate.                   |
|                                                                       |
| 2.  The **Budgetary** estimate is developed during planning from a    |
|     more detailed project analysis. This estimate is generally        |
|     required for budgeting. It is also referred to as a design,       |
|     control or appropriation estimate.                                |
|                                                                       |
| 3.  The **Definitive** estimate is a detailed, bottom-up estimate     |
|     used for creating a cost estimate baseline and obtaining firm     |
|     commitments. It is prepared from well-defined requirements and    |
|     specifications. It occurs during the executing and monitoring &   |
|     controlling phase, or possibly during detailed planning.          |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Then you must determine Estimating Methodology.                       |
|                                                                       |
| -   Variety of techniques are available to develop a cost estimate    |
|                                                                       |
| -   One chosen depends on the adequacy of the program definition, the |
|     level of detail required, the availability for data, and time     |
|     constraints                                                       |
|                                                                       |
| -   Analyst must have an understanding of the available data models   |
|     and techniques and their preferred applicability                  |
|                                                                       |
| -   crucial that the cost analyst have a clear and complete           |
|     understanding of the program requirements                         |
|                                                                       |
| -   More than one technique may be used to estimate cost for a single |
|     program, depending upon the phase of work and the information     |
|     available about the system                                        |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Determining Estimating Methodologies (continued)                      |
|                                                                       |
| -   In deciding which technique to use, it is important to consider   |
|     several factors:                                                  |
|                                                                       |
|     -   Availability of historical data                               |
|                                                                       |
|     -   Level of detail required                                      |
|                                                                       |
|     -   Adequacy of system description                                |
|                                                                       |
|     -   Time/Resource constraints                                     |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Program and project managers must ensure the cost estimate        |
|     completely defines the program and is technically sound and       |
|     reasonable                                                        |
|                                                                       |
|     The Cost Estimate must be defensible with well-reasoned analysis. |
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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| There are several methods for Cost Estimating. They are:              |
|                                                                       |
| Analogy                                                               |
|                                                                       |
| -   Simplest form of estimating                                       |
|                                                                       |
| -   Uses historical information available for a similar program       |
|     already completed to estimate cost for proposed program           |
|                                                                       |
| -   Estimator makes a subjective evaluation of the differences        |
|     between the new system and historical systems                     |
|                                                                       |
| ![](media/image4.png){width="0.6097222222222223in"                    |
| height="0.6402777777777777in"} Estimating the cost of a new model car |
| based on what you paid for the same make and model five years ago.    |
|                                                                       |
| -   In many cases, it is necessary to compare subsystems of the new   |
|     system or product to subsystems of several old systems or         |
|     products in order to make the most accurate comparisons.          |
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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Analogy (continued)                                                   |
|                                                                       |
| -   Engineer will typically be asked to make a technical evaluation   |
|     of the difference between the new system and the old system       |
|                                                                       |
| -   Based on evaluation, cost estimator must assess the cost impact   |
|     of the technical differences                                      |
|                                                                       |
| -   This method only appropriate very early in the program life cycle |
|     when the system is not yet fully defined.                         |
|                                                                       |
| -   Important that differences between the existing system and the    |
|     proposed system are identified and their impacts estimated        |
|                                                                       |
| [Advantage]{.underline}                                               |
|                                                                       |
| -   Based on actual experience                                        |
|                                                                       |
| [Disadvantage]{.underline}                                            |
|                                                                       |
| -   For the most part, no truly similar programs exist                |
|                                                                       |
| -   Subjective evaluations must be made when determining the cost     |
|     impact                                                            |
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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Another method is engineering (Bottoms-up).                           |
|                                                                       |
| -   Generally a very detailed, costly and time-consuming process for  |
|     estimating costs                                                  |
|                                                                       |
| -   Involves associating costs to the lowest levels of a definable    |
|     work within the WBS                                               |
|                                                                       |
| -   Direct labor hours required to complete the work are estimated    |
|     from engineering drawings and specifications                      |
|                                                                       |
| -   Done by an industrial engineer using company or general industry  |
|     standards                                                         |
|                                                                       |
| -   Raw materials and purchase parts requirements are also estimated  |
|                                                                       |
| -   Remaining cost elements also must be factored in: tooling,        |
|     quality control, other direct costs, and various overhead charges |
|     including systems engineering and project management              |
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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Engineering (Bottoms-up) (continued)                                  |
|                                                                       |
| -   Most often used late in the development or early in the           |
|     production phases                                                 |
|                                                                       |
| -   Encourages the contractor to do his homework early on and define  |
|     all work down to the lowest level of the WBS                      |
|                                                                       |
| -   Also is a great process control technique at the production       |
|     facility                                                          |
|                                                                       |
| [Advantage]{.underline}                                               |
|                                                                       |
| -   Provides a detailed cost estimate                                 |
|                                                                       |
| -   Can be more accurate than other methods                           |
|                                                                       |
| [Disadvantage]{.underline}                                            |
|                                                                       |
| -   Tends to be time and cost intensive                               |
|                                                                       |
| -   Historical data not always available to support estimates         |
|                                                                       |
| -   Tendency to rely extensively on judgment                          |
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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Another method is using actual costs (Extrapolation).                 |
|                                                                       |
| -   Using actual cost data from a system to extrapolate the future    |
|     estimated costs of building the same system                       |
|                                                                       |
| -   Probably most accurate cost estimating method                     |
|                                                                       |
| -   Actual cost experience on prototype units, early engineering      |
|     development hardware, and early production hardware for the       |
|     program should be used as much as possible                        |
|                                                                       |
| -   Usually used in the late phases of acquisition, such as           |
|     production and for replenishment spares                           |
|                                                                       |
| [Advantage]{.underline}                                               |
|                                                                       |
| -   Based on actual costs                                             |
|                                                                       |
| [Disadvantage]{.underline}                                            |
|                                                                       |
| -   Often do not have actual costs until late in the acquisition      |
|     process                                                           |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| A fourth method is the parametric (Statistical) method.               |
|                                                                       |
| -   Uses a database of similar systems and generates an estimate      |
|     based on the relationship between cost and system performance or  |
|     design characteristics                                            |
|                                                                       |
| -   Assumes that there is a relationship between some system or       |
|     product parameter and cost                                        |
|                                                                       |
| -   Appropriate early in the program life cycle when detailed design  |
|     specifications are not available                                  |
|                                                                       |
| -   Database of like systems, performance specifications and costs    |
|     must be available                                                 |
|                                                                       |
| -   Often serves as a useful check of an estimate made using another  |
|     method                                                            |
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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Parametric (Statistical) (continued)                                  |
|                                                                       |
| [Advantage]{.underline}                                               |
|                                                                       |
| -   Fast and easy to use                                              |
|                                                                       |
| -   Easy to change to do what-if drills                               |
|                                                                       |
| [Disadvantage]{.underline}                                            |
|                                                                       |
| -   Relies heavily on the timeliness and accuracy of the database     |
|                                                                       |
| -   Must rely on correlations between cost and performance            |
|     features/characteristics                                          |
|                                                                       |
| -   Historical data is not always available to support these          |
|     estimates                                                         |
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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Parametric (Statistical) (continued)                                  |
|                                                                       |
| -   Use regression analysis to attempt to quantify the relationship   |
|     between variables and then describe the accuracy of that          |
|     relationship                                                      |
|                                                                       |
| -   Has two parts:                                                    |
|                                                                       |
| 1.  Quantifying the relationship between the variables using a        |
|     mathematical expression                                           |
|                                                                       |
| 2.  Describing the accuracy of the relationship by computation of     |
|     various statistics that indicate how well the mathematical        |
|     expression describes the relationship between the variables       |
|                                                                       |
| -   Regression analysis can be very detailed and requires extensive   |
|     training                                                          |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image5.png){width="0.8854166666666666in"                    |
| height="0.8125in"}**Activity:**                                       |
|                                                                       |
| Activity Purpose:                                                     |
|                                                                       |
| This activity will help to reinforce the information presented on the |
| different techniques for cost estimating.                             |
|                                                                       |
| Activity Length: 10 minutes                                           |
|                                                                       |
| Activity Instructions:                                                |
|                                                                       |
| Read the following scenarios and through class discussion, determine  |
| the correct cost estimating method to use (a mention of the four      |
| possible answers may be provided to the participants as well:         |
| Analogy, Engineering, Actual, and Parametric).                        |
|                                                                       |
| 1.  It is early in the program life cycle of new computer software    |
|     that is being created for the Department of Justice. Since it     |
|     just a newer version of the software, and not an entirely new     |
|     product, there is historical data available. **(Analogy or        |
|     Engineering)**.                                                   |
|                                                                       |
| 2.  New police headquarters are being designed for placement outside  |
|     of Phoenix, Arizona. The headquarters will be almost identical to |
|     the police headquarters in Tempe, Arizona, which was recently     |
|     constructed. **(Analogy)**                                        |
|                                                                       |
| 3.  The 101^st^ system of its kind is being created by a group of     |
|     scientists in Washington D.C. It is early in the program          |
|     life-cycle. The changes from system to system are negligible.     |
|     **(Actual)**                                                      |
|                                                                       |
| 4.  The "first ever" matter-transporter has been in development for   |
|     almost 18 months due to budget issues. There is no historical     |
|     data that can be used. **(Engineering)**                          |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Escalation                                                            |
|                                                                       |
| -   Program cost estimates are normally done in constant year dollars |
|                                                                       |
|     -   Ignoring effects of inflation and the budgeting implications  |
|         of using various appropriations, or "colors of money"         |
|                                                                       |
|     -   Allows you to make cost comparisons across the years, see     |
|         where cost growth exists, and see the impact of the learning  |
|         curve on production estimates                                 |
|                                                                       |
| -   **Current-Year Dollars:** include the effects of inflation or     |
|     escalation over the time period that those funds will be expended |
|     (paid out)                                                        |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Escalation (continued)                                                |
|                                                                       |
| -   **Constant Dollars:** Method of relating dollars across the years |
|     of a program's life-cycle by removing the effects of inflation    |
|     and showing all dollars at the value they would have in a         |
|     selected base year (BY)                                           |
|                                                                       |
| -   **Base Year (BY):** A reference period which determines a fixed   |
|     price level for comparison in economic escalation calculations    |
|     and cost estimates                                                |
|                                                                       |
|     -   Price level index for the BY is 1.000.                        |
|                                                                       |
|     -   Constant dollars have the value they would have in a selected |
|         base year (BY)                                                |
+-----------------------------------------------------------------------+

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  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Escalation (continued)                                                |
|                                                                       |
| -   Life Cycle Cost Estimates (LCCEs) are prepared in terms of        |
|     constant/base-year dollars, where the base year is usually the    |
|     year of program initiation.                                       |
|                                                                       |
| -   In order to input estimates into PPBE process, must convert the   |
|     constant dollars to "current" or "then-year" dollars to account   |
|     for inflation                                                     |
|                                                                       |
| -   Then-year dollars will be used as input to the POM (Program       |
|     Objectives Memorandum), BES (Budget Estimate Submission), and the |
|     President's Budget.                                               |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image5.png){width="0.8854166666666666in"                    |
| height="0.8125in"}**Activity**                                        |
|                                                                       |
| Activity Purpose:                                                     |
|                                                                       |
| This activity allows the participants to review an example and then   |
| practice cost estimating skills.                                      |
|                                                                       |
| Activity Length: 10-15 minutes                                        |
|                                                                       |
| Activity Instructions:                                                |
|                                                                       |
| Break down the class into groups of 4. Have each group read the       |
| following scenario and determine a cost estimation for the best       |
| possible alternative. Give the groups 5-10 minutes to discuss and     |
| determine the answer and then share answers from the group as part of |
| a class discussion.                                                   |
|                                                                       |
| ![](media/image6.png){width="1.0104166666666667in" height="0.3125in"} |
|                                                                       |
| The Slate Construction Company has been contracted to build a new     |
| office that will connect to a Federal Building in Washington D.C. The |
| exact layout of the office has not been determined. Construction      |
| costs will be \$350/square foot. The office will be in the shape of a |
| circle with a diameter of 30 ft.                                      |
|                                                                       |
| The contractor has been allotted 2500 hours of labor for this         |
| project, which has not been considered for the cost of each square    |
| foot. There will be 10 construction workers that will be paid         |
| \$10/hour, with a \$12 base rate for each day worked (they receive    |
| this on top of their hourly wage). They can only work 8 hours a day.  |
| Determine a cost estimate for this project.                           |
|                                                                       |
| **Answer:**                                                           |
|                                                                       |
| Construction costs (apart from labor) = 15 x 15 x π x \$350 =         |
| \$247,275                                                             |
|                                                                       |
| Labor = (2500 x 10) + (12 x 31) = \$25,372                            |
|                                                                       |
| Cost Estimate = \$25,372 + \$247,275 = \$272,647                      |
|                                                                       |
| (To tie the activity a bit tighter into the topic, consider asking    |
| the participants once they have finished with the math, to report     |
| what estimating technique they used. The correct answer is            |
| **Parametric.**)                                                      |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| One way to distinguish between cost analyses and cost estimating is   |
| the way in which they are processed critically.                       |
|                                                                       |
| -   Cost estimating is often times viewed as a forward looking        |
|     process                                                           |
|                                                                       |
| -   Cost analysis may be viewed as a backward looking process.        |
|                                                                       |
| Let us discuss Cost Analysis in greater detail.                       |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Cost Analysis                                                         |
|                                                                       |
| -   Review and evaluation of the separate cost elements and           |
|     profit/fee in an offeror's or contractor's proposal               |
|                                                                       |
|     -   Includes cost or pricing data or information other that cost  |
|         or pricing data                                               |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   And, the application of Judgment                                  |
|                                                                       |
| -   Used to determine how well the proposed costs represent what the  |
|     cost of the contract should be, assuming reasonable economy and   |
|     efficiency                                                        |
|                                                                       |
| -   You must use cost analysis to evaluate the reasonableness of cost |
|     elements when cost or pricing data are required.                  |
|                                                                       |
| -   You may also use cost analysis to evaluate information other than |
|     cost or pricing data to determine cost reasonableness or cost     |
|     realism.                                                          |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Cost Analysis (continued)                                             |
|                                                                       |
| -   A cost is reasonable if, in its nature and amount, it does not    |
|     exceed the cost which would be incurred by a prudent person in    |
|     the conduct of competitive business.                              |
|                                                                       |
| -   Costs in an offeror's proposal must be:                           |
|                                                                       |
|     -   Realistic for the work to be performed under the contract     |
|                                                                       |
|     -   Reflect a clear understanding of contract requirements        |
|                                                                       |
|     -   Consistent with the various elements of the offeror\'s        |
|         technical proposal                                            |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Perform price analysis even when you perform cost analysis        |
|                                                                       |
|     -   Assuring the reasonableness of individual elements of cost    |
|         does not always assure overall price reasonableness           |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| ![](media/image4.png){width="0.6465277777777778in"                    |
| height="0.6798611111111111in"}Suppose that you wanted to acquire a    |
| custom-made car identical to a Pontiac Trans Am. Your neighborhood    |
| mechanic has agreed to build the car for you. Before building the     |
| car, the mechanic obtains competitive quotes on all the necessary     |
| parts and tooling, pays laborers only the minimum wage, and asks for  |
| a very meager profit.                                                 |
|                                                                       |
| How will the newly assembled car compare to an actual Trans Am, built |
| on the assembly line? Most likely, it will be about ten times as      |
| expensive. Parts alone may be five times more expensive. The entire   |
| cost of tooling will be charged to one car. Labor, although cheaper   |
| per hour, will likely not be as efficient as assembly-line labor.     |
| **Is the price reasonable?** That decision can only be made using a   |
| thorough price analysis, and is the reason why it is so important.    |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Here are the Cost Analysis Techniques and Procedures as described in  |
| FAR 15.404.                                                           |
|                                                                       |
| -   The following techniques should be used, as appropriate, for cost |
|     analysis                                                          |
|                                                                       |
| -   Evaluate cost elements, including:                                |
|                                                                       |
|     -   The necessity for and reasonableness of proposed costs,       |
|         including allowances for contingencies                        |
|                                                                       |
|     -   Projections of the offeror\'s cost trends, on the basis of    |
|         current and historical cost or pricing data or information    |
|         other than cost or pricing data                               |
|                                                                       |
|     -   A technical appraisal of the estimated labor, material,       |
|         tooling, and facilities requirements, and scrap and spoilage  |
|         factors                                                       |
|                                                                       |
|     -   The application of audited or negotiated indirect cost rates, |
|         labor rates, cost of money factors, and other factors         |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Cost Analysis Techniques and Procedures as described in FAR 15.404    |
|                                                                       |
| -   Evaluate the effect of the offeror\'s current practices on future |
|     costs.                                                            |
|                                                                       |
|     -   Ensure that the effects of inefficient or uneconomical past   |
|         practices are not projected into the future                   |
|                                                                       |
|     -   In pricing production of recently developed complex           |
|         equipment, perform a trend analysis of basic labor and        |
|         materials even in periods of relative price stability         |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Cost Analysis Techniques and Procedures as described in FAR 15.404    |
|                                                                       |
| -   Compare costs proposed by the offeror for individual cost         |
|     elements with:                                                    |
|                                                                       |
|     -   Actual costs previously incurred by the offeror               |
|                                                                       |
|     -   Previous cost estimates from the offeror or from other        |
|         offerors for the same or similar items                        |
|                                                                       |
|     -   Other cost estimates received in response to the              |
|         Government\'s request                                         |
|                                                                       |
|     -   Independent Government cost estimates by technical personnel  |
|                                                                       |
|     -   Forecasts or planned expenditures                             |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Cost Analysis Techniques and Procedures as described in FAR 15.404    |
| (continued):                                                          |
|                                                                       |
| -   Verify that the offeror\'s cost submissions are in accordance     |
|     with the contract cost principles and procedures in [FAR Part     |
|     31](http://www.acqnet.gov/far/current/html/FARTOCP31.html#253693) |
|     and any applicable Cost Accounting Standards Board Cost           |
|     Accounting Standards.                                             |
|                                                                       |
| -   Determine whether any cost or pricing data necessary to make the  |
|     contractor\'s proposal accurate, complete, and current have not   |
|     been either submitted or identified in writing by the contractor. |
|                                                                       |
| -   If there are such data:                                           |
|                                                                       |
|     -   Attempt to obtain the data and negotiate using the data       |
|         obtained                                                      |
|                                                                       |
|     -   Or, make satisfactory allowance for the incomplete data       |
|                                                                       |
| -   Analyze the results of any make-or-buy program reviews, in        |
|     evaluating subcontract costs.                                     |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 2: Cost Estimating (continued)**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image1.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"} **Instructor Notes:**                  |
|                                                                       |
| This concludes the topic on Cost Estimating. After addressing any     |
| questions the participants may have, inform them that we will be      |
| moving on to the next topic: Planning, Programming, Budgeting, and    |
| Execution Process.                                                    |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ![](media/image3.png){width="0.5006944444444444in"
  height="0.4888888888888889in"}**What questions do you have regarding
  Cost Estimating?**

  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  **Topic 3: PPBE Process for Federal Acquisitions**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| The **Planning, Programming, Budgeting, and Execution** (PPBE)        |
| process is the Department of Defense (DoD) internal methodology used  |
| to allocate resources to capabilities deemed necessary to accomplish  |
| the Department's missions. The PPBE is primarily used for two         |
| objectives:                                                           |
|                                                                       |
| -   The PPBE outputs funding proposed to be included in the           |
|     President's Budget (PB) which is submitted to Congress.           |
|                                                                       |
| -   The PPBE provides Combatant Commanders (COCOMs) with the optimal  |
|     mix of forces, equipment, and support attainable within           |
|     established fiscal constraints.                                   |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 3: PPBE Process for Federal Acquisitions (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| The PPBE is a calendar-driven process. Therefore, it is important to  |
| view required actions, events and decisions along a timeline. There   |
| are four steps that make up the PPBE:                                 |
|                                                                       |
| -   Planning                                                          |
|                                                                       |
| -   Programming                                                       |
|                                                                       |
| -   Budgeting                                                         |
|                                                                       |
| -   Execution                                                         |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 3: PPBE Process for Federal Acquisitions (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| -   The first phase of the PPBE is called the **Planning** phase. The |
|     planning phase identifies the capabilities required to deter and  |
|     defeat threats.                                                   |
|                                                                       |
| -   It defines for the upcoming Programming Phase national defense    |
|     policies, objectives, strategy, and guidance for resources and    |
|     force requirements to meet the capabilities and objectives.       |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 3: PPBE Process for Federal Acquisitions (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| -   The second phase of the PPBE is called the Programming phase. The |
|     programming phase is designed to allocate resources in varying    |
|     support roles.                                                    |
|                                                                       |
| -   It is during this phase that previous planning decisions,         |
|     programming guidance, and Congressional guidance are translated   |
|     into detailed allocation of time-phased resource requirements     |
|     which include forces, personnel, and funds.                       |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 3: PPBE Process for Federal Acquisitions (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| -   The third phase is called the Budgeting Phase. This phase occurs  |
|     concurrently with the Programming phase.                          |
|                                                                       |
| -   After the submission of the Program Objectives Memorandum (POM)   |
|     and the Budget Estimate Submission (BES), budget analysts from    |
|     the Office of Management Budget (OMB) conducts a review of the    |
|     BES portion of the Components' submission.                        |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 3: PPBE Process for Federal Acquisitions (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| -   The fourth and final phase is called the Execution Review phase.  |
|     The Execution review phase is intended to prioritize the programs |
|     which best meet government strategies.                            |
|                                                                       |
| -   The purpose of the Budget review is to decide how much to spend   |
|     on each program while the purpose of the Execution Review is to   |
|     assess what is received for the money spent.                      |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 3: PPBE Process for Federal Acquisitions (continued)**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image1.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"} **Instructor Notes:**                  |
|                                                                       |
| This concludes the topic on the PPBE Process for federal aquisitions. |
| After addressing any questions the participants may have, inform them |
| that we will be moving on to the next topic: Performance Measure      |
| Methods.                                                              |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ![](media/image3.png){width="0.5006944444444444in"
  height="0.4888888888888889in"}**What questions do you have regarding
  the PPBE Process for federal acquisitions?**

  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Three major performance measurement tools are as follows: Benefit     |
| Cost Analysis (BCA) Earned Value Management (EVM) and Return On       |
| Investment (ROI).                                                     |
|                                                                       |
| Let us look at Benefit Cost Analysis first.                           |
|                                                                       |
| -   Program and project managers must prepare, update, and submit to  |
|     the office of Management and Budget representative a benefit cost |
|     analysis                                                          |
|                                                                       |
|     -   For each new, modified, or fully integrated program or        |
|         project                                                       |
|                                                                       |
| -   Level of detailed analysis in a BCA must be:                      |
|                                                                       |
|     -   Proportionate to the size of the investment and rely on       |
|         systematic measures of mission performance                    |
|                                                                       |
|     -   Consistent with the methodology described in OMB Circular     |
|         A-94, "Guidelines and Discount Rates for Benefit-Cost         |
|         Analysis of Federal Programs."                                |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| -   Program/project managers must:                                    |
|                                                                       |
|     -   Follow regulatory approval thresholds                         |
|                                                                       |
|     -   Apply the BCA process                                         |
|                                                                       |
|     -   Determine BCA pitfalls and limitations                        |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   OMB A-94 should be used for all investments                       |
|                                                                       |
| -   Use the Clinger Cohen Act for information technology (IT)         |
|     investments and criteria for BCA                                  |
|                                                                       |
| -   OMB A-11 and the FAR require that a BCA be included with the      |
|     annual budget when:                                               |
|                                                                       |
|     -   An IT initiative exceeds \$30 M over the system's life cycle  |
|                                                                       |
|     -   Or exceeds \$10 M in any one year                             |
|                                                                       |
|     -   If life cycle cost is below \$10M, simplified BCA is required |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Another source for guidelines associated with BCA is OMB Circular     |
| A-94, "Guidelines and Discount Rates for Benefit-Cost Analysis for    |
| Federal Programs"                                                     |
|                                                                       |
| -   BCA is required for development, integration or maintenance       |
|     projects that exceed \$100K.                                      |
|                                                                       |
| -   The BCA effort should be tailored to the size of the project.     |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Let's take a look at the BCA Process.                                 |
|                                                                       |
| -   As you know, the BCA process is a systematic methodology for      |
|     comparing alternative means of meeting a specific objective       |
|                                                                       |
| -   It consists of eight steps                                        |
|                                                                       |
|     -   One or more steps may be emphasized, depending on the stage   |
|         of the project life cycle                                     |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Steps:                                                                |
|                                                                       |
| 1.  Establish and define the goals or objectives                      |
|                                                                       |
| 2.  Formulate appropriate assumptions                                 |
|                                                                       |
| 3.  Identify alternatives for accomplishing the objective             |
|                                                                       |
| 4.  Determine the benefits and costs of each alternative              |
|                                                                       |
| 5.  Evaluate alternatives by comparing their benefits and costs       |
|                                                                       |
| 6.  Test the sensitivity of the analysis outcome to major             |
|     uncertainties                                                     |
|                                                                       |
| 7.  Present the results                                               |
|                                                                       |
| 8.  Recommend an alternative                                          |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image5.png){width="0.8854166666666666in"                    |
| height="0.8125in"}**Activity:**                                       |
|                                                                       |
| Activity Purpose:                                                     |
|                                                                       |
| This activity will provide the participants with an example of        |
| Benefit-Cost Analysis.                                                |
|                                                                       |
| Activity Length: 10 minutes                                           |
|                                                                       |
| Activity Instructions:                                                |
|                                                                       |
| Discuss as a class. Use the following information to determine        |
| whether the purchase of a new stamping machine would be a wise        |
| investment for your department. (Costs shown are per month and        |
| amortized over four years.)                                           |
|                                                                       |
| 1.  Purchase of Machine = -\$20,000\                                  |
|     includes interest and taxes                                       |
|                                                                       |
| 2.  Installation of Machine = -\$3,125\                               |
|     including screens & removal of existing stampers                  |
|                                                                       |
| 3.  Increased Revenue = \$27,520\                                     |
|     net value of additional 100 units per hour, 1 shift/day, 5        |
|     days/week                                                         |
|                                                                       |
| 4.  Quality Increase Revenue = \$358\                                 |
|     calculated at 75% of current reject rate                          |
|                                                                       |
| 5.  Reduced material costs = \$1,128\                                 |
|     purchase of bulk supply reduces cost by \$0.82 per hundred        |
|                                                                       |
| 6.  Reduced Labor Costs = \$18,585\                                   |
|     3 operators salary plus labor o/h                                 |
|                                                                       |
| 7.  New Operator = -\$8,321\                                          |
|     salary plus overhead. Includes training                           |
|                                                                       |
| 8.  Utilities = -\$250\                                               |
|     power consumption increase for new machine                        |
+-----------------------------------------------------------------------+

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  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image5.png){width="0.8854166666666666in"                    |
| height="0.8125in"}**Activity: (continued)**                           |
|                                                                       |
| 9.  Insurance = -\$180\                                               |
|     premiums increase                                                 |
|                                                                       |
| 10. Square footage = 0\                                               |
|     no additional floor space is required                             |
|                                                                       |
| **Answer:**                                                           |
|                                                                       |
| Benefits total \$47,591 and Costs total \$31,876                      |
|                                                                       |
| Benefits -- Costs = Net Savings per Month = \$15,715                  |
|                                                                       |
| Your cost benefit analysis clearly shows the purchase of the stamping |
| machine is justified. The machine will save your company over         |
| \$15,000 per month, almost \$190,000 a year.                          |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Program/project managers must demonstrate a projected Return of       |
| Investment on all investments.                                        |
|                                                                       |
| -   Must be clearly equal to or better than alternative uses of       |
|     available public resources                                        |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   ROI must be evaluated on the following criteria:                  |
|                                                                       |
|     -   Improved mission performance in accordance with Government    |
|         Performance Results Act (GPRA) measures                       |
|                                                                       |
|     -   Reduced cost                                                  |
|                                                                       |
|     -   Increased quality                                             |
|                                                                       |
|     -   Improved speed and/or greater flexibility                     |
|                                                                       |
|     -   Increased customer and employee satisfaction                  |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Return of Investment (ROI) (continued)                                |
|                                                                       |
| -   ROI analysis must provide a quantifiable method for assessing,    |
|     justifying, and prioritizing project funding                      |
|                                                                       |
| -   It also must, where appropriate, reflect actual returns observed  |
|     through pilot projects and prototypes                             |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Earned Value Management (EVM)                                         |
|                                                                       |
| EVM is another important program/project management technique.        |
|                                                                       |
| -   Integrates technical performance requirements, resource planning, |
|     with schedules, while taking risk into consideration              |
|                                                                       |
| -   Major objectives:                                                 |
|                                                                       |
|     -   Encourage contractors to use effective internal technical,    |
|         cost and schedule management control systems                  |
|                                                                       |
|     -   Permit the customer to rely on timely data produced by those  |
|         systems for better management insight                         |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Data is then used for determining product-oriented contract       |
|     status, and projecting future performance based on trends to      |
|     date.                                                             |
|                                                                       |
| -   Also, EVM allows better and more effective management decision    |
|     making.                                                           |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ---------------------------------------------------- ------------------
  ![](media/image7.png){width="4.236805555555556in"    Notes: Slide \#
  height="2.68125in"}                                  HERE (Topic \# -
                                                       Slide #)

  ---------------------------------------------------- ------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [EVM and Management Needs]{.underline}                                |
|                                                                       |
| A fundamental requirement for managing any major acquisition system   |
| is insight into the contractors\' performance, specifically the       |
| management and control. Proper EVM implementation ensures that the PM |
| is provided contractor performance data that:                         |
|                                                                       |
| -   Properly relates cost, schedule, and technical accomplishment.    |
|                                                                       |
| -   Relates time-phased budgets to specific contract tasks and/or     |
|     statements of work (SOW).                                         |
|                                                                       |
| -   Objectively measures work progress.                               |
|                                                                       |
| -   Allows for informed decision making and corrective action.        |
|                                                                       |
| (continues on next slide)                                             |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [EVM and Management Needs (continued)]{.underline}                    |
|                                                                       |
| -   Is valid, timely, and able to be audited                          |
|                                                                       |
| -   Allows for statistical estimation of future costs                 |
|                                                                       |
| -   Supplies managers at all levels with status information at the    |
|     appropriate level, and                                            |
|                                                                       |
| -   Is derived from the same EVM system used by the contractor to     |
|     manage the contract.                                              |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| -   Components of program/project management:                         |
|                                                                       |
|     -   Technical Performance                                         |
|                                                                       |
|     -   Cost Resources                                                |
|                                                                       |
|     -   Schedule Time                                                 |
|                                                                       |
|     -   Risk                                                          |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   EVM provides an objective measurement of how much work has been   |
|     accomplished                                                      |
|                                                                       |
| -   Management team can readily compare how much work has actually    |
|     been completed against the amount of work planned to be           |
|     accomplished                                                      |
|                                                                       |
| -   All work is planned, budgeted, and scheduled in time-phased       |
|     "planned value" increments constituting a **Performance           |
|     Measurement Baseline (PMB)**                                      |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ---------------------------------------------------- ----------------------
  ![](media/image8.png){width="3.9965277777777777in"   Notes: Slide \# HERE
  height="2.3541666666666665in"}                       (Topic \# - Slide #)

  ---------------------------------------------------- ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| ![](media/image4.png){width="0.6479166666666667in"                    |
| height="0.6819444444444445in"}Graph illustrates a task with a total   |
| budget amount of \$240k, which is planned for accomplishment over     |
| 24-month time frame                                                   |
|                                                                       |
| -   \"Time-now\" line shows that \$100k of the project resources was  |
|     planned to be completed at this point in the project              |
|                                                                       |
| -   Project was planned to be 41.6% complete (\$100k / \$240k) at     |
|     this point in time                                                |
|                                                                       |
| -   As work is performed, it is \"earned\" on the same basis as it    |
|     was planned, in dollars or other quantifiable units such as labor |
|     hours                                                             |
|                                                                       |
| -   Comparing earned value with the planned value measures the dollar |
|     value of work accomplished versus the dollar value of work        |
|     planned                                                           |
|                                                                       |
|     -   Difference is called a schedule Variance                      |
|                                                                       |
|     -   Earned Value -- Planned Cost = Schedule Variance (SV)         |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ---------------------------------------------------- ----------------------
  ![](media/image9.png){width="3.9965277777777777in"   Notes: Slide \# HERE
  height="2.3541666666666665in"}                       (Topic \# - Slide #)

  ---------------------------------------------------- ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| -   Task was planned to have accomplished \$100k worth of work in     |
|     twelve months                                                     |
|                                                                       |
| -   Real accomplishment was only \$60k                                |
|                                                                       |
| -   Graph shows a \"behind schedule\" condition                       |
|                                                                       |
| -   Schedule variance in dollars would be a negative \$40k            |
|                                                                       |
|     -   \$60k - \$100k = **(\$40k)**                                  |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| EVM (continued)                                                       |
|                                                                       |
| -   Value for the work performed compared with the actual cost        |
|     incurred for the work performed, provides an objective measure of |
|     cost efficiency                                                   |
|                                                                       |
| -   Any difference called a cost variance                             |
|                                                                       |
|     -   Earned Value - Actual Costs = Cost Variance (CV)              |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Negative variance means more money was spent for the work         |
|     accomplished than was planned.                                    |
|                                                                       |
| -   Positive variance means less money was spent for the work         |
|     accomplished than was planned to be spent                         |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ----------------------------------------------------- ----------------------
  ![](media/image10.png){width="3.9965277777777777in"   Notes: Slide \# HERE
  height="2.3541666666666665in"}                        (Topic \# - Slide #)

  ----------------------------------------------------- ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| EVM (continued)                                                       |
|                                                                       |
| -   From the performing organization\'s own accounting system, we     |
|     determine the actual costs for performing the \$60K work was      |
|     \$110K                                                            |
|                                                                       |
| -   When actual costs are compared with the earned value of \$60K,    |
|     the difference is the cost variance                               |
|                                                                       |
| -   Earned value of \$60K less the actual cost of \$110K, is a        |
|     negative cost variance of \$50K                                   |
|                                                                       |
| -   Our example shows an overrun condition of \$50K                   |
|                                                                       |
|     -   \$60k - \$110k = (\$50k)                                      |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Analysis of these variances should reveal the factors causing the |
|     deviation from plan                                               |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| EVM (continued)                                                       |
|                                                                       |
| -   Task Manager uses information in conjunction with his knowledge   |
|     of the task, to project an estimate to complete for this task     |
|                                                                       |
| -   Task Manager analyzes variances resulting from comparisons of     |
|     these five basic data elements:                                   |
|                                                                       |
|     -   Planned work                                                  |
|                                                                       |
|     -   Work accomplished                                             |
|                                                                       |
|     -   Actual costs                                                  |
|                                                                       |
|     -   Total budget at completion                                    |
|                                                                       |
|     -   Estimate at completion                                        |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Work breakdown structure provides a useful framework for          |
|     summarizing this performance information for all levels of        |
|     management                                                        |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| EVM (continued)                                                       |
|                                                                       |
| -   EV improves on the \"normally used\" spend plan concept (budget   |
|     versus actual incurred cost) by requiring the work in process to  |
|     be quantified                                                     |
|                                                                       |
| -   Planned value, earned value, and actual cost data provide an      |
|     **objective**, **quantifiable** measurement of performance        |
|                                                                       |
|     -   Enables trend analysis and evaluation of any cost estimate at |
|         completion within multiple levels for the project             |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   EVM valuable tool in the program/project manager's "toolbox" for  |
|     gaining valuable insight into project performance                 |
|                                                                       |
| -   Tool that integrates technical, cost, schedule and risk           |
|     management                                                        |
|                                                                       |
| -   Also provides valuable quantifiable performance metrics for       |
|     forecasting at-completion cost and schedule for their project.    |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Successful Government Implementation of EVM: Example]{.underline}    |
|                                                                       |
| Lawrence Livermore Labs (part of the Energy Department's National     |
| Nuclear Security Administration) successfully uses EVM to support its |
| mission: to ensure that nuclear weapons are safe, secure and          |
| reliable. Some information about this example include:                |
|                                                                       |
| EVM is used to manage about 20 projects with a total value of about   |
| \$500 million.                                                        |
|                                                                       |
| In August 2005, the lab transitioned from spreadsheets to commercial  |
| software (Primavera Systems' EVM suite) to simplify and automate      |
| project management.                                                   |
|                                                                       |
| EVM enhances the ability of lab managers to keep projects on schedule |
| and on budget.                                                        |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Successful Government Implementation of EVM: Example                 |
| (continued)]{.underline}                                              |
|                                                                       |
| EVM data contributes to DOE's planning and investment control         |
| efforts. Data about past trends is used to forecast the future,       |
| mitigate risk and increase the potential for program success.         |
|                                                                       |
| Management wants to expand the use of EVM at Lawrence Livermore in    |
| the future.                                                           |
|                                                                       |
| More information about Lawrence Livermore Labs use of EVM is          |
| available online:\                                                    |
| <http://www.fcw.com/print/13_36/management/150387-1.html>             |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Performance Measurement Methods (continued)**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image1.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"} **Instructor Notes:**                  |
|                                                                       |
| This concludes the topic on the performance measurement methods.      |
| After addressing any questions the participants may have, inform them |
| that we will be moving on to the next topic: the Review.              |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ![](media/image3.png){width="0.5006944444444444in"
  height="0.4888888888888889in"}**What questions do you have regarding
  the performance measurement methods?**

  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  **Topic 5: Review**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Let's review the learning objectives for this module on Business,     |
| Cost Estimating and Financial Management:                             |
|                                                                       |
| -   Describe the different practices associated with cost-estimating. |
|                                                                       |
| -   Discuss the elements of financial management in the federal       |
|     government.                                                       |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Define the different procedures included in budget analysis.      |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Identify the important forms of performance measurement including |
|     Earned Value Management and Benefit-Cost Analysis.                |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 5: Review (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| As you learned, the federal government uses several different methods |
| for measuring performance and cost.                                   |
|                                                                       |
| Some of these important methods include:                              |
|                                                                       |
| -   Cost Estimating                                                   |
|                                                                       |
| -   Cost Analysis                                                     |
|                                                                       |
| -   Benefit-cost Analysis                                             |
|                                                                       |
| -   Earned Value Management                                           |
|                                                                       |
| -   And many others                                                   |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 5: Review (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| We learned that cost estimates are one of the fundamental building    |
| blocks of the acquisition process.                                    |
|                                                                       |
| -   Cost estimates and the supporting budget are a part of the        |
|     baseline against which a program\'s progress and success are      |
|     measured.                                                         |
|                                                                       |
| -   They evaluate whether a system is affordable and consistent with  |
|     the guidelines set out for it and the overall long-range          |
|     investment and force structure plans.                             |
|                                                                       |
| Cost estimates also form the basis for budget requests to Congress.   |
|                                                                       |
| We discussed Life Cycle Cost Estimates and said that they were a      |
| product of an estimating procedure that specifies the expected dollar |
| cost to develop, procure, operate, support and dispose of a given     |
| system or product.                                                    |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 5: Review (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| We also discussed how to develop a Preliminary Cost Estimate. The     |
| steps were to:                                                        |
|                                                                       |
| 1.  Define the Estimating task (Plan the work to be accomplished)     |
|                                                                       |
| 2.  Define all the work or activities                                 |
|                                                                       |
| 3.  Determine an Estimating Methodology                               |
|                                                                       |
| Remember, the Cost Estimate must be defensible with well-reasoned     |
| analysis.                                                             |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 5: Review (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| The different methods for Cost Estimating are as follows:             |
|                                                                       |
| -   Analogy                                                           |
|                                                                       |
| -   Another method is engineering (Bottoms-up).                       |
|                                                                       |
| -   Another method is using actual costs (Extrapolation).             |
|                                                                       |
| -   A fourth method is the parametric (Statistical) method.           |
|                                                                       |
| -   Learning Curve Theory                                             |
|                                                                       |
| We also learned about escalation and how it is used in Cost           |
| Estimating.                                                           |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 5: Review (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| We covered Cost Analysis, which is the Review and evaluation of the   |
| separate cost elements and profit/fee in an offeror's or contractor's |
| proposal                                                              |
|                                                                       |
| -   Includes cost or pricing data or information other that cost or   |
|     pricing data                                                      |
|                                                                       |
| We also went into three other major performance measurement tools:    |
|                                                                       |
| -   BCA                                                               |
|                                                                       |
| -   EVM                                                               |
|                                                                       |
| -   ROI                                                               |
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  **Topic 5: Review (continued)**

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                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Remember the steps for a BCA are as follows:                          |
|                                                                       |
| 1.  Establish and define the goals or objectives                      |
|                                                                       |
| 2.  Formulate appropriate assumptions                                 |
|                                                                       |
| 3.  Identify alternatives for accomplishing the objective             |
|                                                                       |
| 4.  Determine the benefits and costs of each alternative              |
|                                                                       |
| 5.  Evaluate alternatives by comparing their benefits and costs       |
|                                                                       |
| 6.  Test the sensitivity of the analysis outcome to major             |
|     uncertainties                                                     |
|                                                                       |
| 7.  Present the results                                               |
|                                                                       |
| 8.  Recommend an alternative                                          |
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  **Topic 5: Review (continued)**

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  ------------------------------------------------ ----------------------
                                                   Notes: Slide \# HERE
                                                   (Topic \# - Slide #)

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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Earned Value Management (EVM)                                         |
|                                                                       |
| -   Integrates technical performance requirements, resource planning, |
|     with schedules, while taking risk into consideration              |
|                                                                       |
| -   The major objectives of Earned Value Management are to:           |
|                                                                       |
|     -   Encourage contractors to use effective internal technical,    |
|         cost and schedule management control systems                  |
|                                                                       |
|     -   Permit the customer to rely on timely data produced by those  |
|         systems for better management insight                         |
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  **Topic 5: Review (continued)**

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| ![](media/image1.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"} **Instructor Notes:**                  |
|                                                                       |
| Address any questions the participants may have. Inform them that we  |
| are moving on to the next module, Course Review.                      |
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  ![](media/image3.png){width="0.5006944444444444in"
  height="0.4888888888888889in"}**What questions do you have about Module
  15: Business, Cost Estimating and Financial Management?**

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