United States Government Accountability Office

GAO Report to Congressional Committees

DEFENSE BUDGET

Independent Review 

Is Needed to Ensure 

DOD’s Use of Cost 

Estimating Tool for 

Contingency 

Operations Follows 

Best Practices 

September 2008 

 

GAO-08-982 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2008

DEFENSE BUDGET

Independent Review Is Needed to Ensure DOD's Use 

of Cost Estimating Tool for Contingency Operations

Highlights of GAO-08-982, a report to Follows Best Practices congressional committees 

Since the September 2001 terrorist 

attacks, Congress has provided

about $800 billion as of July 2008 to 

the Department of Defense (DOD)

for military operations in support 

of the Global War on Terrorism 

(GWOT). GWOT budget requests

have grown in scope and the 

amount requested has increased 

every year. DOD uses various 

processes and the Contingency 

Operations Support Tool (COST) to

estimate costs for these operations

and to develop budget requests. 

GAO assessed (1) how DOD uses 

COST and other processes to 

develop GWOT budget requests

and (2) what actions DOD has 

taken to ensure COST adheres to 

best practices for cost estimation. 

GAO interviewed DOD officials and

others to determine how the 

services develop GWOT budget

requests using COST and other 

processes. GAO also used its Cost 

Assessment Guide as criteria for 

best practices for cost estimation. 

What GAO Recommends

GAO is recommending that DOD 

(1) arrange for an independent

review of COST to ensure that the 

model adheres to best practices 

and (2) consider options for 

refining COST to better meet the

needs of the services. DOD agreed

with both of GAO’s

recommendations. 

The services use COST as part of their process to develop a GWOT budget 

request. While the Army relies more on the estimate resulting from COST, the 

other services adjust the results of COST to reflect estimates they generate

outside of COST, based on historical obligation data and other information. 

DOD’s financial management regulation and other guidance require 

components to use COST to develop an estimate for the deployment and 

sustainment of military personnel and equipment for ongoing operations in 

support of GWOT. While all services use COST to develop an initial estimate, 

Air Force, Marine Corps, and Navy budget officials alter the results of the tool 

to match information provided by lower level commands and historical 

obligation data that they believe are more accurate than the COST-generated 

estimate. These officials stated that the tool routinely overestimates some

costs and therefore most changes made are decreases in the amount 

estimated by COST. These officials believe that the requirement to use COST 

to develop a GWOT budget request is a duplicative process to their preferred 

method of using historical obligation data and other information better suited 

to their specific service. For example, they stated that COST better represents

the needs of Army ground forces and the tool has not been refined to be as 

effective for estimating needs for their service’s mission. These officials also 

mentioned that COST is better suited for developing estimates for smallerscale contingency operations than for the lengthy deployments and 

sustainment phases associated with a large campaign such as GWOT. To 

develop estimates for items that are outside the scope of COST, such as 

procurement and certain contracts, the military services rely primarily on 

needs assessments developed by commanders and historical obligation data. 

DOD has taken steps to improve the performance and reliability of COST; 

however, COST could benefit from an independent review of the tool’s 

adherence to best practices for high-quality cost estimation as described in 

GAO’s Cost Assessment Guide. COST has been refined many times and cost

factors are routinely updated in an effort to use the most current information 

available to develop an estimate. DOD officials stated they are confident in the 

tool’s ability to provide reasonable estimates because COST is frequently 

updated. However, COST has not been assessed against best practices for cost 

estimation to determine whether COST can provide high-quality estimates that 

are well documented, comprehensive, accurate, and credible. While GAO did

not undertake a full assessment of COST against best practices, it determined 

that some features of the tool meet best practices while other features would 

benefit from further review. For example, the tool adheres to several best 

practices for a comprehensive and accurate cost estimate, such as frequent 

updates to the structure of COST and the data the tool uses to generate 

estimates. However, COST relies on GWOT obligation data that GAO has 

identified as being of questionable reliability. A thorough, independent review

of COST against best practices could provide decision makers with 

information about whether the tool creates cost estimates for GWOT 

expenses that are well documented, comprehensive, accurate, and credible. 

To view the full product, including the scope 

and methodology, click on GAO-08-982. 

For more information, contact Sharon L. 

Pickup, (202) 512-9619, pickups@gao.gov. 
Contents 

Letter 1

Results In Brief 4

Background 6

Services Vary in Their Reliance on COST to Develop GWOT Budget 

Estimates 9

COST Is Frequently Updated and Refined, but Could Benefit from a 

Review of Adherence to Best Practices 14 

Conclusions 19

Recommendations for Executive Action 19 

Agency Comments and Our Evaluation 20 

Appendix I Scope and Methodology 25 

Appendix II The 12 Steps of High-Quality Cost Estimating Mapped 

to Best Practice Criteria 28 

Appendix III An Example of DOD’s GWOT Budget Estimate Process 

Using the Sustainment and Redeployment of the Troop 

Surge 29 

Appendix IV Comments from the Department of Defense 33 

Appendix V GAO Contact and Staff Acknowledgments 36 

Page i GAO-08-982 Defense Budget
Tables 

Table 1: Four Characteristics of a High-Quality, Reliable Cost 

Estimate 7

Table 2: Primary Sources of Data within COST from DOD 

Components 9

Table 3: Example of DOD Estimation for Operations in Support of 

GWOT 30

Table 4: Non-COST estimates for Army Operation and Maintenance 

Costs 31 

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Page ii GAO-08-982 Defense Budget
United States Government Accountability Office

Washington, DC 20548 

September 15, 2008 

Congressional Committees 

Between the terrorist attacks of September 11, 2001, and July 2008, 

Congress has provided about $800 billion to the Department of Defense 

(DOD) for domestic and overseas military operations in support of the 

Global War on Terrorism (GWOT).1

 Over the years, DOD has used different 

approaches to request GWOT funding, including yearly emergency 

supplemental budget requests, amendments to prior supplemental 

requests, and requests included as part of the President’s annual budget 

submission. GWOT budget requests have increased from $14 billion for 

fiscal year 2002 to $189 billion for the total fiscal year 2008 request. The 

DOD components responsible for carrying out activities in support of 

GWOT use various processes to develop budget requests for GWOT. 

DOD’s financial management regulation for contingency operations2

 and 

other guidance require military components to use a DOD-sponsored cost 

estimation tool, called the Contingency Operations Support Tool (COST), 

to develop cost estimates for the deployment and sustainment of military 

personnel and equipment for GWOT. This tool was constructed 10 years 

ago to develop estimates for smaller-scale contingency operations, such as

peacekeeping operations and disaster relief operations, but is now being 

used to also develop a portion of cost estimates for the large-scale GWOT 

operations in Iraq and Afghanistan. 

Between the terrorist attacks of September 11, 2001, and July 2008, 

Congress has provided about $800 billion to the Department of Defense 

(DOD) for domestic and overseas military operations in support of the 

Global War on Terrorism (GWOT).1

 Over the years, DOD has used different 

approaches to request GWOT funding, including yearly emergency 

supplemental budget requests, amendments to prior supplemental 

requests, and requests included as part of the President’s annual budget 

submission. GWOT budget requests have increased from $14 billion for 

fiscal year 2002 to $189 billion for the total fiscal year 2008 request. The 

DOD components responsible for carrying out activities in support of 

GWOT use various processes to develop budget requests for GWOT. 

DOD’s financial management regulation for contingency operations2

 and 

other guidance require military components to use a DOD-sponsored cost 

estimation tool, called the Contingency Operations Support Tool (COST), 

to develop cost estimates for the deployment and sustainment of military 

personnel and equipment for GWOT. This tool was constructed 10 years 

ago to develop estimates for smaller-scale contingency operations, such as

peacekeeping operations and disaster relief operations, but is now being 

used to also develop a portion of cost estimates for the large-scale GWOT 

operations in Iraq and Afghanistan. 

While COST has the capability to develop an estimate for military 

personnel and operating costs, it does not have the capability to estimate 

other costs such as procurement, some reset-level3

 maintenance of 

While COST has the capability to develop an estimate for military 

personnel and operating costs, it does not have the capability to estimate 

other costs such as procurement, some reset-level3

 maintenance of 

 1

After the terrorist attacks of September 11, 2001, the President announced a global war on 

terrorism requiring the collective instruments of the entire federal government to counter

the threat of terrorism. Ongoing military and diplomatic operations overseas, especially in 

Iraq and Afghanistan, constitute a key part of GWOT. These operations involve a wide 

variety of activities, such as combating insurgents, civil affairs, capacity building, 

infrastructure reconstruction, and training military forces of other nations. 

2

DOD, Financial Management Regulation, 7000.14-R, vol. 12, ch. 23 (September 2007). 

3

A January 2007 DOD memorandum defines reset as actions to restore units to a desired

level of combat capability, including maintenance and supply activities that restore and 

enhance equipment that was destroyed, damaged, stressed, or worn out beyond economic 

repair due to combat operations by repairing, rebuilding, or procuring replacement 

equipment. 

Page 1 GAO-08-982 Defense Budget
equipment, and certain contract costs. For the first few years of GWOT, 

COST-generated estimates for personnel and operating costs ranged from

around 80 to 50 percent of the total budget request for GWOT for fiscal 

years 2003 to 2005, respectively. However, this COST-generated portion of 

the total has continued to decrease every year. For the fiscal year 2008 

request submitted in February 2007, the COST-generated portion of the 

request was about 30 percent due to a significant increase in certain types 

of estimated costs, such as procurement and reset-related maintenance, 

which are outside the scope of COST. Estimates for these types of costs, 

or the remaining 70 percent of the fiscal year 2008 request, are developed 

using other models and formulas, historical obligation data, and requests

submitted by commanders. Each component submits its estimate for its 

GWOT budget request, including the COST-related portion for military 

personnel and operations needs and the portions developed by other 

means, to the Office of the Under Secretary of Defense (Comptroller).4

These estimates are reviewed and revised by the DOD Comptroller and the 

Office of Management and Budget before they are submitted to Congress. 

Because federal guidelines are limited on the processes, procedures, and 

practices for ensuring credible cost estimates, we reviewed existing best 

practices and developed the Cost Assessment Guide to fill that gap.5

 The 

best practices identified in our guide were compiled from a thorough 

review of relevant legislation, regulations, policy, and guidance for the 

criteria that most pertained to cost estimating. Our guide defines cost 

estimation as the process of using established methods and valid data to 

estimate the future costs of a program based on what is known today, such

as the use of COST to develop a portion of GWOT budget requests. DOD 

and the Office of Management and Budget have issued the majority of 

guidance and regulations regarding cost estimating, and the best practices 

in our guide were compiled from these and other sources. The 

characteristics of high-quality cost estimation support a process that is 

well documented, comprehensive, accurate, and credible. 

Over the past several years, we have conducted a series of reviews under 

the authority of the Comptroller General examining the funding and 

reported obligations for operations in support of GWOT. We have 

 4

For the purpose of this report, we refer to the Office of the Under Secretary of Defense

(Comptroller) as the DOD Comptroller. 

5

GAO, Cost Assessment Guide: Best Practices for Estimating and Managing Program

Costs, GAO-07-1134SP (Washington, D.C.: July 2007). 

Page 2 GAO-08-982 Defense Budget
previously reported that there are reliability concerns regarding DOD’s 

reported GWOT obligations, and problems exist with transparency over 

certain costs. We have made a series of recommendations to the Secretary

of Defense intended to improve the transparency and reliability of DOD’s 

reporting of GWOT obligations and to adjust GWOT funding requests.6

DOD has implemented many of these prior recommendations and 

continues to improve its cost reporting efforts. Because of broad 

congressional interest in issues related to GWOT, we prepared this report 

under the Comptroller General’s authority to conduct evaluations on his 

own initiative. Due to increasing budget requests for DOD’s ongoing 

operations in support of GWOT and to assist members of Congress in their 

oversight role as they consider future GWOT funding, we evaluated DOD’s 

efforts to develop its GWOT budget requests. Specifically, we assessed 

(1) how DOD uses COST and other processes to develop GWOT budget 

requests and (2) what actions DOD has taken to ensure COST adheres to 

best practices for cost estimation. 

To examine how DOD uses COST and other processes to develop budget 

requests for GWOT, we met with key officials from the DOD Comptroller, 

the Joint Chiefs of Staff, and various service officials from the Air Force, 

Army, Marine Corps, and Navy to understand their use of COST to develop

estimates for the deployment and sustainment of troops and equipment 

and about other processes used to develop portions of GWOT budget 

requests that are outside the scope of COST, such as procurement and 

certain types of contracts. We also obtained their perspectives on their 

experiences using COST and other processes to develop a cost estimate 

for yearly emergency GWOT budget requests or amendments to those 

requests. We interviewed representatives from the Institute for Defense 

Analyses (IDA)—the contractor that developed and maintains COST—to 

understand the development, function, and role of COST.7

 We reviewed 

DOD guidance and regulations as well as COST-related documents such as 

briefings and the COST training manual. We also analyzed an example of 

how the cost estimate for the operations portion of an amendment to a 

yearly GWOT supplemental request was developed. To assess the actions

DOD has taken to ensure COST adheres to best practices for cost 

 6

GAO, Global War on Terrorism: DOD Needs to Take Action to Encourage Fiscal 

Discipline and Optimize the Use of Tools Intended to Improve GWOT Cost Reporting, 

GAO-08-68 (Washington, D.C.: Nov. 6, 2007).

7

The Institute for Defense Analyses is a federally funded research and development center

that developed and maintains COST under a contract with DOD. 

Page 3 GAO-08-982 Defense Budget
estimation, we reviewed COST-related documents, such as the manual for 

COST use and financial management regulations. Our Cost Assessment 

Guide provides best practices for cost estimating processes. We 

interviewed DOD and service officials and representatives from IDA about 

steps that have been taken to improve COST’s effectiveness and 

functionality. Finally, we analyzed documents and testimonial evidence 

from DOD officials and IDA representatives and compared this 

information to the four characteristics of high-quality cost estimation. 

While we did not conduct a full assessment of COST against best 

practices, we identified some features of the tool that either met best 

practices or appeared to not meet best practices.

We conducted this performance audit from July 2007 through 

September 2008 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

While the military services use COST as part of their process to develop a 

GWOT budget request, the Army relies more on the estimate resulting 

from COST than the other services, which significantly adjust the results 

of COST to reflect estimates they generate outside of COST. These 

estimates are based on historical obligation data and other information, 

which they believe is more representative of future GWOT budget needs.

DOD’s financial management regulation and other guidance require the 

components to use COST to develop an estimate for the deployment and 

sustainment of military personnel and equipment for ongoing operations in 

support of GWOT, and the guidance additionally provides certain 

parameters and assumptions to be used in the tool. While all the services 

use COST to develop an initial estimate, Air Force, Marine Corps, and 

Navy budget officials stated that they alter the results of the tool to match 

information provided by lower level commands and historical obligation 

data that they believe are more accurate than the COST-generated 

estimate. These officials report that the required process of using COST to 

develop cost estimates is duplicative to their preferred process of using 

historical obligation data and other information better suited to their 

specific service to develop a GWOT budget request. For example, they

stated that while COST better represents Army ground forces than the 

unique characteristics of the other forces, the tool has not been refined to

be as effective for estimating certain needs for their service’s mission. 

Results In Brief 

Page 4 GAO-08-982 Defense Budget
These officials also mentioned that COST is better suited for developing 

estimates for small-scale, short-duration contingency operations than for 

the lengthy deployments and sustainment phases associated with a large 

campaign such as GWOT. For the remaining types of funding needs that

are outside the scope of COST, such as procurement and certain contracts, 

DOD guidance or regulations do not prescribe set processes for estimating 

these types of costs. As a result, all military services rely primarily on 

needs assessments developed by commanders and historical obligation 

data to develop estimates for these types of costs. 

DOD has taken steps to improve the performance and reliability of COST; 

however, COST could benefit from an independent review of the tool’s 

adherence to best practices for high-quality cost estimation. For example, 

COST has been refined many times over the past several years and cost 

factors are routinely updated in an effort to use the most current 

information available to develop an estimate. However, COST has not 

been assessed against best practices for cost estimation to determine 

whether COST can provide high-quality estimates that are well

documented, comprehensive, accurate, and credible. While we did not 

undertake a full assessment of COST against best practices, during the 

course of our review we identified some features of the tool that meet best

practices, as well as other features that would benefit from further review. 

For example, the tool meets several best practices that help create a

comprehensive and accurate cost estimate, such as frequent updates to 

the structure of COST and the data that COST uses to generate estimates. 

However, while COST appears to largely encompass the types of costs that 

are incurred to deploy and sustain Army ground forces and their related 

equipment, it does not comprehensively or accurately estimate some costs 

for the other services. The tool also relies on GWOT obligation data that

we have previously identified as being of questionable reliability. DOD 

Comptroller officials stated they are confident in the tool’s ability to 

provide reasonable estimates because COST is frequently updated. 

However, COST has not been independently verified as an effective tool 

for the estimation of GWOT costs. Based on our Cost Assessment Guide, 

we believe that a thorough, independent review of COST against best 

practices could provide decision makers with information about whether 

the tool creates a cost estimate for GWOT expenses that is well 

documented, comprehensive, accurate, and credible. 

To ensure that the DOD budget requests for GWOT are based on a sound 

cost estimation process, we recommend that the Secretary of Defense 

direct the Under Secretary of Defense (Comptroller) to arrange for an 

independent review of COST. Furthermore, based on the results of such a 

Page 5 GAO-08-982 Defense Budget
review and taking into consideration how each service presently uses 

COST, we also recommend that the Secretary of Defense direct the Under

Secretary of Defense (Comptroller) to consider options for refining COST, 

determine the appropriate items or types of costs for which COST should 

be used, and identify methods to be used when COST is not appropriate. In

written comments on a draft of this report, DOD agreed with both of our 

recommendations. In addition, DOD provided technical comments which 

we have incorporated as appropriate. DOD’s comments and our evaluation

of them are discussed in detail in a later section of this report and the 

department’s comments are reprinted in appendix IV. 

Cost estimation is a difficult process that requires both data and judgment, 

and seldom, if ever, are estimates precise—the goal is to find a 

“reasonable” estimate of future needs. Cost estimates are necessary for 

government programs for many reasons: for example, to support decisions 

about whether to fund one program over another, develop annual budget 

requests, or evaluate resource requirements at key decision points. As 

discussed in our Cost Assessment Guide, developing a good cost estimate 

requires stable program requirements, access to detailed documentation 

and historical data, well-trained and experienced cost analysts, a risk and 

uncertainty analysis, and the identification of a range of confidence levels. 

The guide also outlines 12 steps for a high-quality cost estimation process,8

which are to: 

Background 

• Define the estimate’s purpose 

• Develop the estimating plan 

• Define the program 

• Determine the estimating approach 

• Identify ground rules and assumptions 

• Obtain the data 

• Develop the point estimate 

• Conduct sensitivity analysis 

• Conduct risk and uncertainty analysis

• Document the estimate 

• Present estimate to management for approval 

• Update the estimate to reflect actual costs and changes. 

 8

The 12 steps of the cost estimating process are iterative and can sometimes be 

accomplished in varying order or concurrently. Additionally, the analysis, presentation, and 

updating of the estimate can lead to repeating previous steps. 

Page 6 GAO-08-982 Defense Budget
It is important that cost estimators and independent organizations validate 

that all cost elements are credible and can be justified by acceptable 

estimating methods, adequate data, and detailed documentation. Hence, in

addition to the 12 steps of a high-quality cost estimation process, the guide 

also describes four best practice characteristics of a high-quality, reliable 

estimate generated by a sound cost estimation process. Specifically, the 

estimate should be well documented, comprehensive, accurate, and 

credible. Table 1 describes these characteristics in more detail. Adherence

to these best practices can help ensure that a cost estimation process 

provides a reasonable estimate of how much it will cost to accomplish all 

tasks related to a program and that the estimate is traceable, accurate, and 

reflects realistic assumptions. 

Table 1: Four Characteristics of a High-Quality, Reliable Cost Estimate 

Characteristic Description

Well documented Thoroughly documented, including source data and significance, 

clearly detailed calculations and results, and explanations of why 

particular methods and references were chosen. Data can be 

traced to their source documents. 

Comprehensive Enough detail to ensure that cost elements are neither omitted nor 

double counted. All cost-influencing ground rules and assumptions 

are detailed in the estimate’s documentation.

Accurate Unbiased, not overly conservative or overly optimistic, and based

on an assessment of most likely costs. Few, if any, mathematical 

mistakes are present and those that are present are minor. 

Credible Any limitations of the analysis because of uncertainty or bias

surrounding data or assumptions are discussed. Major 

assumptions are varied and other outcomes are recomputed to 

determine how sensitive they are to changes in the assumptions. 

Risk and uncertainty analysis are performed. Estimate’s results are 

cross-checked and an independent cost estimate is developed to 

determine whether other estimation methods produce similar 

results. 

Source: GAO.

Appendix II presents the 12 steps of a high-quality cost estimation process 

mapped to the four characteristics of reliable, high-quality estimates. 

Because DOD’s cost estimates for military operations in Bosnia during the 

1990s were consistently well below the actual costs, DOD contracted with 

IDA to develop a tool to assist in developing preliminary and detailed cost 

estimates for contingency operations. By 1998, IDA had developed the first 

version of COST. The tool generates a cost estimate for a contingency

operation on the basis of type of mission, duration, operational tempo or 

Page 7 GAO-08-982 Defense Budget
intensity, number of personnel and equipment, transportation needs, 

subsistence for personnel, and the originating and destination site. 

Accordingly, the tool contains data relating to geographic locations, 

military unit types, military equipment types, management and cost 

factors, and adjustment factors pertaining to climate, terrain, and 

operational intensity. Formulas within the tool draw on these data and

user-defined inputs, such as the number of personnel or equipment and 

duration of operations, to develop cost estimates for many types of costs 

associated with contingency operations from predeployment to 

reconstitution, up to 250 line items or types of costs depending on the 

operation in question. The tool cannot estimate every type of cost that 

might be incurred for a contingency operation. Rather, it can only estimate 

certain incremental costs from the personnel, personnel support, 

operating, and transportation cost categories. However, some types of 

costs within those categories—such as depot-level maintenance of 

equipment and certain contracts, as well as all costs in the investment cost 

category, including procurement and military construction—are outside 

the scope of COST’s estimating capabilities. 

Military components, including the services, are primary sources of data 

for the tool. Table 2 illustrates the primary sources of data from each 

component that uses COST to develop estimates for GWOT budget 

requests.9

 Cost factors and management factors are key types of data that

the tool uses to develop estimates. Cost factors function as variables in the 

tool, and a few examples are hardship duty pay, cost for operating and 

support of a ship, or average cost per ton mile for equipment airlift. Cost 

factors are developed from four main sources; DOD databases of record, 

service models for various statistics such as Air Force flying hours, DOD’s 

Cost of War reports, and other information provided by the service budget

offices. Management factors include information such as the average 

metric tons per person of materiel for deployment or redeployment of the 

monthly flying hours of aircraft. 

 9

For this review, we did not assess the reliability of any of these data sources nor did we 

assess the appropriateness of these data sources for the purposes of GWOT cost

estimation. 

Page 8 GAO-08-982 Defense Budget
Table 2: Primary Sources of Data within COST from DOD Components 

Military component Data source 

Army Force and Organization Cost Estimating System Model 

Army Cost and Factors Handbook 

Army 

Operating and Support Management Information System (part 

of DOD’s Visibility and Management of Operating and Support 

Costs) 

Air Force Air Force Portal 

Air Force Instruction 65-503

Navy Visibility and Management of Operating and Support 

Costs 

Navy 

Navy Budget Office 

Marine Corps I Marine Expeditionary Force 

II Marine Expeditionary Force

Special Operations

Command (SOCOM) 

SOCOM 

Defense Finance and Accounting Service 

Defense Health Program 

Transportation Command

All 

Joint Operation Planning and Execution System 

Source: GAO analysis of DOD and IDA provided information.

The services use COST as required as part of their process to develop a 

GWOT budget request, but the degree to which each service relies on the 

COST results differs. Both DOD officials and IDA representatives state 

that COST is better suited for Army ground forces and was primarily 

intended to develop incremental10 personnel and operations cost estimates 

for operations with discreet phases and time frames. They noted it was not 

built to estimate costs for the long-term nature and broad scope of 

activities and needs related to operations such as GWOT. Therefore, 

service officials report varying degrees of confidence in the tool’s 

functionality and accuracy for their specific service. The Army relies on 

COST’s results when developing estimates related to personnel and 

operations, while Air Force, Navy, and Marine Corps officials often rely 

more on historical obligation data and other information than the 

Services Vary in Their 

Reliance on COST to 

Develop GWOT 

Budget Estimates 

 10The term “incremental costs” means those directly attributable costs that would not have

been incurred if it were not for the operation.

Page 9 GAO-08-982 Defense Budget
COST-generated estimates. COST does not currently have the capability to 

estimate other types of costs, such as procurement, most equipment 

maintenance, and some contract costs. As a result, all the services develop

this portion of GWOT budget requests using historical obligation data and 

other information. 

Use of COST Is Required 

as Part of DOD’s GWOT 

Budget Request Process 

DOD components are required to use COST as part of the GWOT budget

request process. The DOD financial management regulation that provides 

financial policy and procedures for small-, medium-, and large-scale 

campaign level military contingency operations requires that COST be 

used to develop a cost estimate for the deployment of military personnel 

and equipment. The regulation further states that the DOD Comptroller 

will issue specific guidance providing factors and cost criteria necessary to 

develop an estimate, and that the COST estimate will address the funding 

requirements for operations and maintenance and military personnel 

costs. The DOD Comptroller issues guidance that directs the development 

of a fiscal year’s GWOT budget request. This guidance specifically directs 

the use of COST to calculate operations costs related to GWOT, and also

provides information guiding COST use, such as the level and intensity of 

operations to be assumed. Much of the guidance details the type and level 

of detail that must be provided in supporting materials that should 

accompany components’ estimated GWOT budget requests.

COST does not develop estimates for items that are not attributable to the 

deployment or sustainment of personnel and equipment, such as 

procurement, most types of equipment maintenance, and certain major 

contracted needs and services. As discussed later, the services must use 

other processes to develop this portion of their GWOT budget requests. 

Neither DOD Comptroller guidance nor DOD financial management 

regulations prescribe the use of any particular method of developing 

estimates for these categories. A 2006 memo from the Deputy Secretary of 

Defense expanded allowable costs for GWOT in several categories, 

especially reset-related procurement and equipment maintenance.11 These 

types of costs accounted for about 70 percent of the total GWOT budget 

request for fiscal year 2008, which is a significant increase over previous 

years. Due to this increase in costs outside the tool, the COST-related 

portion of GWOT budget requests fell from about 80 percent to about 

 11Deputy Secretary of Defense Memorandum Ground Rules and Process for Fiscal Year 

2007 Spring Supplemental (Oct. 25, 2006). 

Page 10 GAO-08-982 Defense Budget
30 percent of the total, although the amount of the COST-generated 

estimate remains stable at between $40 billion and $55 billion per year. 

The Army Relies More on 

COST to Develop 

Personnel and Operations 

Estimates, but the Other 

Services Rely on Their 

Own Estimates 

The Army uses COST as intended by relying on the tool to generate an 

estimate for many personnel and operations costs for GWOT budget 

requests. During the Army’s development of an estimate using COST, 

minor adjustments to COST’s standard settings are made to better match 

realities on the ground. For example, an official developing an estimate in 

COST might reduce the costs for the transportation of equipment if a unit

will be using equipment already in theater instead of taking equipment 

with them. DOD officials and IDA representatives stated that COST is 

better suited for Army ground forces; therefore, the Army relies on the 

final estimate developed by COST and submits this information to the 

DOD Comptroller as part of its GWOT budget request. About 40 to 45 

percent of the Army’s final GWOT budget requests are typically for the 

operation and maintenance category of appropriations, and an Army 

budget office official stated that the majority of this portion is estimated 

by COST. Army officials further stated that COST is an effective tool for 

cost estimation because it is frequently updated with cost data the Army 

submits to IDA. An Army model and database that contain cost 

information for personnel and equipment are the sources for much of the 

Army-related data used by COST and also are primary sources for 

developing the Army’s base budget requests. 

The Air Force, Marine Corps, and Navy all fulfill the requirement to 

develop an estimate for their respective service’s personnel and operations 

funding requirements for GWOT using COST; however, these services 

significantly alter the COST results to match estimates they have 

developed outside COST, using historical obligation data and other 

information. Officials from the Air Force, Marine Corps, and Navy budget

offices reported various concerns regarding the functionality and accuracy 

of COST as reasons for relying more on historical obligation data and 

other information. Several budget officials from each of these services 

reported that COST routinely overestimated some costs. As a result, most 

of the changes they make to COST results, based on historical obligation

data, are decreases in the amount estimated by COST. For example, a 

service budget official stated that for one fiscal year’s GWOT budget 

request, the total COST-developed estimate was $100 million more than 

the estimate developed by the service for the same types of costs using 

historical obligation data. Specifically, COST overestimated transportation 

costs by about $275 million, while underestimating certain personnel 

support costs by about $200 million, among other discrepancies. Navy 

Page 11 GAO-08-982 Defense Budget
officials stated that COST often overestimated some types of 

transportation costs and the results had to be manually adjusted to match 

historical obligation data or other information. Similarly, Marine Corps 

officials reported that most adjustments they make to the COST output 

result in a decrease of the estimate. An Air Force budget official stated 

that COST overestimated some transportation costs by about $1 billion in

a prior year’s estimate, while other costs were not captured and therefore 

underestimated. While these discrepancies were adjusted prior to 

submission as a GWOT budget request, this official stated that an IDA 

representative had since suggested strategies to develop a more accurate

transportation estimate in future uses of the tool. Furthermore, a Navy 

official stated that COST is unable to project certain costs associated with

civilians, and hence might underestimate the total costs due to this 

exclusion. For example, the official stated that COST does not 

automatically estimate costs for civilian support positions associated with 

an operational unit, such as a ship or ground unit. Aside from accuracy 

concerns, officials from the Air Force, Marine Corps, and Navy reported 

that COST and the cost breakdown structure that forms the basis of 

COST’s organization and resulting estimations better represent Army 

ground forces than the unique characteristics of the other forces. Navy 

officials stated that COST automatically estimates food, ice, and water for 

all units because deployed ground forces require these items. However, 

the Navy funds these items for sailors on deployed ships through base 

budget funding because these costs are incurred regardless of a ship’s 

location. The tool has not been refined to accurately estimate these costs; 

therefore, Navy officials must manually remove these types of costs from 

an estimate for GWOT funding. Several service officials stated that, 

because of the limitations to COST, the required process of using COST to 

develop a cost estimate was duplicative of their preferred method of using 

historical obligation data and other information better suited to their 

specific service to develop a GWOT budget request. 

Service officials stated that COST is a useful tool for estimating costs for 

small-scale and short-duration operations or for situations for which 

information is unknown or new, such as the recent troop surge or for 

other general rough-order-of-magnitude estimates produced early in 

operation planning while options are being weighed by decision makers. 

However, officials stated the tool does not perform as well for estimating 

costs for the lengthy deployment and sustainment phases associated with 

a large campaign such as GWOT. Furthermore, COST is not able to 

estimate all costs associated with GWOT. 

Page 12 GAO-08-982 Defense Budget
Because COST does not have the capability to estimate costs such as 

procurement, reset-related equipment maintenance, and contracted needs 

and services, service budget officials report using historical obligation 

data, other models and formulas, and other information, such as 

deployment information, to estimate these costs. Reset-related 

procurement estimates for GWOT are devised in multiple ways. For 

example, to estimate costs to procure new equipment to replace lost or 

damaged equipment, officials stated that incident reports are tracked to 

provide information on how many pieces of equipment are needed to

replace battle losses. For procurement to replace equipment that has 

reached the end of its useful life because of GWOT’s higher operating 

tempo, formulas, based on historical data, provide information on the 

normal extent of wear and tear for certain types of equipment, and wear 

above the normal extent is attributed to GWOT.12 Most types of equipment 

maintenance are not estimated by COST, such as intermediate- and depotlevel maintenance; therefore the services again rely on historical 

obligation data to develop estimates for the GWOT-related costs. For 

example, Army logistics officials track the units that are scheduled for 

redeployment and develop estimates for the cost of resetting a particular 

unit’s equipment based on the type of brigade the unit is part of, such as a 

heavy brigade combat team or Stryker brigade combat team, and the 

average cost of resetting that type of brigade unit developed from 

historical obligation data, adjusted for inflation. For other items outside 

the scope of COST—such as the Logistics Civil Augmentation Program 

costs for the Army, intelligence needs, and contracts for other needs such

as linguists—functional experts within each service provide the service

budget offices with information to develop estimates. This information is 

based on contract task orders or needs assessments developed by intheater commanders. For example, in-theater commanders submit 

requests for additional linguists to Army intelligence officials, and the 

estimated cost for these linguists is developed based on historical costs for 

the same type of linguist. Army budget officials stated that contracting 

Military Services Use 

Other Methods to 

Determine Cost Estimates 

for Procurement, Most 

Equipment Maintenance, 

and Some Contract Costs 

 12During the course of this review, we did not validate or assess the appropriateness or 

effectiveness of the processes the services use to estimate reset-related funding needs. We

have reported that the Army and Marine Corps cannot be assured that their reset strategies 

will sustain equipment availability for units deployed in or preparing to deploy to Iraq and 

Afghanistan while meeting ongoing operational requirements and also that the Army and 

Marine Corps did not report detailed reset expenditures within the procurement accounts

in a way that confirms that funds appropriated for reset were obligated and expended for 

reset. See GAO, Defense Logistics: Army and Marine Corps Cannot Be Assured That

Equipment Reset Strategies Will Sustain Equipment Availability While Meeting Ongoing 

Operational Requirements, GAO-07-814 (Washington, D.C.: Sept. 19, 2007). 

Page 13 GAO-08-982 Defense Budget
costs, including the Logistics Civil Augmentation Program, linguist, and 

security services, are one of the most expensive cost categories that falls 

outside of COST. Officials from all services stated that, after many years of 

ongoing operations in support of GWOT, they believe few requirements 

are truly unknown or based on emerging needs, so therefore they are 

comfortable relying on historical obligation data and other information to 

develop estimates for these types of costs. For an example of how DOD 

develops a GWOT budget request and the use of COST and other methods 

of developing an estimate, see appendix III. 

DOD has taken steps to improve the performance and reliability of COST; 

however, COST could benefit from a review of the tool’s adherence to best 

practices for high-quality cost estimation as outlined in our Cost 

Assessment Guide. Revisions have been made to the tool to improve its 

performance, and frequent updates are made to the data used by the tool. 

However, a review of COST according to the best practices for cost 

estimation could provide decision makers with information on the extent

to which the tool generates reliable estimates and identify opportunities 

for improvement. Our guide defines high-quality cost estimates as well 

documented, comprehensive, accurate, and credible. While we did not 

undertake a full assessment of COST against best practices, during the 

course of our review we identified features of COST’s estimation process 

that meet best practices and other features that would benefit from further 

review. For example, COST adheres to several best practices for a 

comprehensive and accurate cost estimate, such as frequent updates to 

the structure of COST and the data that COST uses to generate estimates. 

While COST appears to largely encompass the types of costs that are 

incurred to deploy and sustain Army ground forces and their related 

equipment, COST may not comprehensively and accurately estimate costs 

for the other services. COST also relies on GWOT obligation data from 

DOD’s Supplemental and Cost of War Execution Reports that we have 

identified as being of questionable reliability, and DOD is taking steps to 

improve.13 These might be areas for which a thorough and full review of 

COST Is Frequently 

Updated and Refined, 

but Could Benefit 

from a Review of 

Adherence to Best 

Practices 

 13See GAO, Global War on Terrorism: DOD Needs to Improve the Reliability of Cost Data 

and Provide Additional Guidance to Control Costs, GAO-05-882 (Washington, D.C.: Sept.

21, 2005), Global War on Terrorism: Fiscal Year 2006 Obligation Rates Are Within

Funding Levels and Significant Multiyear Procurement Funds Will Likely Remain

Available for Use in Fiscal Year 2007, GAO-07-76 (Washington, D.C.: Nov. 13, 2006), and 

GAO-08-68. 

Page 14 GAO-08-982 Defense Budget
the tool could improve the resulting estimates that are used to develop

GWOT budget requests.

IDA has made changes to the structure of COST, either at the request of 

the DOD Comptroller or the services, or on its own initiative, and has 

refined the tool many times over the past several years to improve 

functionality or performance. Recent refinements to COST included 

changes that provide the ability to alter the percentage of officer and 

enlisted personnel within a unit and the types of diagnostic and summary

reports that the tool can create. A 3-year development effort culminated in

June 2007 with the release of a new version of COST supported by new 

software and hardware that increased functionality and performance. This 

new version allows the user to simultaneously develop estimates for 

multiple operations within the same contingency. The services and others 

frequently submit new information for tool updates. For example, 

components are asked to submit updated cost factor data prior to the 

development of any request for supplemental emergency funding. 

Additionally, the DOD Comptroller has asked IDA to review the inputs, 

assumptions, and processes the services used to generate COST estimates 

for GWOT budget requests since fiscal year 2005. The reviews revealed 

issues that were consistent across the services or significant enough to 

warrant attention in future use of COST. For example, a review found that 

COST users estimated an excessive use of airlift for the movement of 

cargo with no scheduled cargo for the return flight. Additionally, a review

identified confusion regarding the use of different operational tempo 

factors and pay offsets. IDA consolidated these and other issues identified

in the review of fiscal years 2007 and 2008 into a lessons learned briefing 

and checklist to assist the services as they use COST in the development 

of future GWOT budget requests. 

While DOD has taken steps to revise and update COST to improve 

effectiveness, COST has not been assessed according to best practices for

cost estimation that define reliable, high-quality cost estimates. A review 

of regulations, guidance, and best practices for cost estimation and best 

practices established by professional cost analysts, and compiled in our 

Cost Assessment Guide, identified four characteristics of high-quality, 

reliable cost estimates.14 As shown in table 1, cost estimates should be well

COST Revised and 

Frequently Updated in an 

Effort to Improve 

Effectiveness 

COST Could be Assessed 

for Adherence to Cost 

Estimation Best Practices 

 14See GAO-07-1134SP and OMB, Guidelines and Discount Rates for Benefit-Cost Analysis

of Federal Programs, Circular No. A-94 Revised (Washington, D.C.: Oct. 29, 1992). 

Page 15 GAO-08-982 Defense Budget
documented, comprehensive, accurate, and credible. DOD Comptroller 

officials stated they are confident in the tool’s ability to provide reasonable 

estimates because COST is frequently updated. However, neither DOD, nor 

any other entity, has assessed COST and its resulting cost estimates 

against these best practices. While we did not perform a full assessment of 

COST against best practices, during the course of our work we identified

some features of COST that meet best practices for cost estimation and 

other areas that could benefit from further review. 

• Well Documented: A well documented cost estimate is based on data 

that have been gathered from actual historical costs and technical 

experts, analyzed for cost drivers, and collected from primary sources. 

These best practices appear to be met by COST. Additionally, any 

adjustments made to COST’s standard settings are flagged and must be 

accompanied by an explanatory note that details why information was 

changed, and these situations are reviewed by DOD Comptroller 

officials. Furthermore, best practices also require that previous cost 

factors and data are stored after updates so that an estimation process 

is repeatable and can be later verified. The newest version of COST 

does have this capability and IDA maintains records of cost factors and 

other data. However, best practices also require that data used in a 

model should be traced back to the source documentation and any 

normalization steps should be documented. The services are 

responsible for ensuring data are reliable and neither IDA nor DOD, 

including the services, traces all data back to the source documents. 

Additionally, IDA officials stated that unusually high or low data might 

be removed and no record of these actions would be kept, and best 

practices require that these sorts of steps should be documented. 

Further review could reveal if these or other areas might need more 

work to ensure the estimate is well documented. 

• Comprehensive: Estimates for personnel and operations costs 

developed by COST appear to meet several, but not all, of the criteria 

for comprehensive cost estimates. For example, the cost breakdown 

structure, which defines the cost elements within COST and forms the 

foundation of formulas within the tool, has more than three levels of 

detail, the structure is updated as changes occur, and each element is 

defined in a cost breakdown structure dictionary included in the 

financial management regulation for contingency operations. These 

steps are all considered best practices for a comprehensive cost 

estimate. However, our analysis of the cost breakdown structure in the 

financial management regulation revealed that there are some errors 

Page 16 GAO-08-982 Defense Budget
and ambiguities in the structure’s definitions that might allow for 

double counting of costs.15 Furthermore, while COST appears to largely

encompass the types of costs that are incurred to deploy and sustain 

Army ground forces and their related equipment, it may not 

comprehensively estimate some of the types of costs incurred by the 

other services. For example, COST does not develop an estimate for 

the costs of certain Navy ground support units, such as intelligence, 

that are not associated with a naval fleet. Moreover, COST is not used 

by the Air Force to develop estimates for the cost of transporting 

people in non-combat situations, such as the transport of military or 

civilian personnel from the International Zone to a forward operating 

base, for example. An Air Force official stated that this is because the 

tool automatically assumes that any flying hour-related expenses are 

operational or combat-related and these costs should instead be 

attributed to transportation-related expenses. Further review could 

identify cost data or formulas within the tool that could be refined to 

better suit the other services or might reveal some types of costs for 

which COST should not be used to develop an estimate. Additionally, 

the tool does not comprehensively estimate all GWOT costs, such as 

procurement and many types of equipment maintenance. The GWOT 

cost estimate presented in appendix III illustrates the revisions made to 

COST results and the types of costs that were estimated outside of 

COST for a particular estimate that was to be comprised primarily of 

military personnel and operations costs. 

• Accurate: Similarly, the tool’s estimates appear to meet some, but not 

all, of the best practices for accuracy. For example, an accurate 

estimate should be based on cost factors that reflect updates and 

changes. IDA does ask the components to submit updated cost factors, 

which are sometimes based on historical obligation data, prior to every

run of the tool for a fiscal year’s GWOT request, but the components 

are not required to update the factors. IDA reviews the cost factor 

submission to ensure general consistency across years, but the services 

and other components that submit data are ultimately responsible for 

the data and are not required to validate the data prior to their 

inclusion into the tool. According to IDA representatives, IDA does not 

validate the data sources or obtain assurances that the data submitted 

are reliable, because this requirement is not included in its contract 

 15For example, two categories are defined as including costs related to the logistics civil 

augmentation program (LOGCAP): both the category for facilities and base support and a

separate category for LOGCAP. DOD stated in its technical comments regarding a draft of

this report that this issue has been reviewed and is currently under revision.

Page 17 GAO-08-982 Defense Budget
with DOD. The services do not validate all data submitted to IDA for 

updates, nor do they submit updates for all factors that need updating. 

Additionally, some cost factors are developed from the Cost of War 

reports and other data are compared against these reports as a 

validation check. These practices might benefit from review since our 

previous work has raised concerns about the reliability of reported 

GWOT obligation data. For example, we have reported that there is a 

lack of transparency over certain obligations in the Cost of War reports 

and we have identified inaccuracies in these reports. Consequently, we 

were unable to ensure that DOD’s reported obligations for GWOT are 

complete, reliable, and accurate, and believe that they should therefore 

be considered approximations. However, we acknowledge that DOD 

has taken steps to address our recommendations and the department 

has several initiatives underway to further improve the reliability of 

GWOT obligation data. Additionally, according to service officials, 

many adjustments to COST results for transportation and other types 

of costs are made to decrease estimates. This raises concerns regarding 

the accuracy or applicability of some data in COST. 

• Credible: Many of the best practices associated with a credible cost 

estimate require sensitivity analysis, risk and uncertainty analysis, and 

a comparison against an independent cost estimate to be performed.16

Sensitivity analysis has been performed to understand cost drivers and 

this type of analysis can be performed during estimate development as 

characteristics of the operation change. However, IDA representatives 

stated that risk analysis is unnecessary since the largest sources of risk 

stem from the changing and unpredictable nature of warfare and policy 

changes that also cannot be predicted. Additionally, uncertainly

analysis can assess the impact that the variability of certain unknown 

factors will have on resulting estimates. For example, uncertainty 

analysis of possible fuel price changes could result in various cost 

scenarios that might occur depending on future fuel prices. Finally, 

cost results should be compared to an independent cost estimate which 

is another best practice for a credible cost estimation process. A Joint 

Staff or other official will often develop a COST estimate to compare 

against an estimate developed by a service official to ensure the 

appropriate assumptions were used. A thorough assessment against 

 16Sensitivity analysis can identify key elements that drive cost and provide information to 

decision makers regarding the potential for cost increases and reasons for increases. Risk

and uncertainty analysis assess the variability in the cost estimate. Specifically, uncertainty 

analysis provides perspective on the potential variability of the estimate should facts, 

circumstances, and assumptions change. 

Page 18 GAO-08-982 Defense Budget
best practices would reveal if these or other areas might need more 

work to ensure the estimate is sufficiently credible. 

Estimating needs and costs that will occur in the future is not an exact 

science, and the use of cost estimation tools or historical obligation data, 

along with other factors, can be reasonable means of projecting future 

costs. However, due to the significant and ever-increasing size of GWOT 

budget requests, every attempt should be made to ensure that a cost 

estimation process is sound. COST has been used to generate hundreds of 

billions of dollars in budget requests for GWOT over the past several years 

and the services are required to use it. While the tool and underlying data

have been refined and updated, COST’s overall effectiveness for estimating 

GWOT costs has not been assessed. Best practices criteria to measure 

COST’s extent of sufficient documentation, comprehensiveness, accuracy, 

and credibility could provide additional information about the tool’s 

effectiveness at generating high-quality cost estimates and steps of the 

process that could be further improved. Without a thorough review of 

COST according to these best practices, decision makers within both DOD 

and Congress cannot be assured that estimates generated by the tool are 

developed using valid data and sound processes. Officials from across 

DOD and the services report that COST performs well for predicting 

budget needs for ground forces and for small-scale operations of short 

duration, or for situations in which detailed information is unknown. 

However, in light of service officials’ concerns that COST does not 

perform as well for their needs and might generate estimates that are too 

high in certain areas, it is important that DOD review the applicability of

COST for all of the services or investigate ways in which to make the tool 

better suit the needs of all the services. 

To ensure that DOD budget requests for GWOT are based on a sound cost

estimation process, we recommend that the Secretary of Defense direct 

the Under Secretary of Defense (Comptroller) to 

Conclusions 

Recommendations for 

Executive Action 

• Arrange for an independent review of COST against best practices for 

cost estimation. 

Page 19 GAO-08-982 Defense Budget
Based on that review, and taking into consideration how each service uses 

COST, we recommend that the Secretary of Defense direct the Under 

Secretary of Defense (Comptroller) to 

• Consider options for refining COST, determine the appropriate items or 

types of costs for which COST should be applied, and identify methods to 

be used when COST is not appropriate. 

In written comments on a draft of this report, DOD agreed with both of 

our recommendations for executive action. These written comments 

additionally provided examples of steps DOD has taken or plans to take 

that it considers actions that address aspects of our recommendations. 

Also, DOD provided us with technical comments which we incorporated in 

the report where appropriate. DOD’s comments are reprinted in 

appendix IV.

DOD agreed with our recommendation that the DOD Comptroller arrange 

for an independent review of the Contingency Operations Support Tool 

(COST) against best practices for cost estimation. In its comments on this 

recommendation, DOD agreed with the concept of an independent review 

of the tool against best practices, and further noted that the Air Force 

Studies and Analyses Agency (AFSAA) conducted a review of COST’s use 

in developing cost estimates for the air war over Serbia. This review 

compared the tool’s output against the actual reported costs compiled by

the Defense Finance and Accounting Service. DOD stated that the 

recommendations for improvement identified in the review were 

incorporated into the tool. While the review and the incorporation of its 

recommendations into the tool are positive steps, the review did not 

assess COST’s use in estimating the broad scope of costs that are 

associated with a large-scale campaign such as GWOT. For example, the 

scope of the AFSAA review of COST was limited to the 3-month air war 

over Serbia and primarily reviewed costs of the Air Force. Furthermore, 

the AFSAA review was not a thorough review against best practices for 

cost estimation, which requires cost estimates to be well documented, 

comprehensive, accurate, and credible. Therefore, we continue to 

recommend that an independent and thorough review of the tool against 

best practices for cost estimation be pursued. This type of review would 

include an assessment of the risk and uncertainty associated with the 

inputs to the tool and the accuracy of the underlying equations and data

the tool relies on to estimate costs. DOD additionally stated that 

(1) COST’s factors, processes, and algorithms are updated as needed and 

the tool is updated to reflect changes to congressionally determined 

Agency Comments 

and Our Evaluation 

Page 20 GAO-08-982 Defense Budget
factors, such as military pay rates, and (2) COST relies on many of the 

same service-specific cost factors that are used during the development of 

baseline budgets. While we acknowledge in this report that factors and 

other aspects of the model are regularly updated, these actions are a check 

for accuracy by the users of the data and our recommendation specifically

calls for an independent review of COST. Finally, DOD stated that, due to 

our recommendation, the DOD Comptroller will issue guidance that will 

be incorporated into DOD’s financial management regulation that includes 

a process for updating COST to ensure it reflects the most current 

budgetary assumptions and a process for evaluating the functionality of 

the model to determine if adjustments are needed. As this revision of the 

financial management regulation has not been finalized, we did not assess 

this planned action. However, this positive step, once completed, should 

be taken into account as part of an independent and thorough review of 

COST against best practices for cost estimation. 

DOD agreed with our recommendation that, based on an independent 

review, it should consider options for refining COST, determine the 

appropriate items or types of costs for which COST should be applied, and 

identify methods to be used when COST is not appropriate. In its 

comments, DOD stated that it uses every opportunity to refine and 

improve the COST model, such as the multi-level review of COST results 

and assumptions during the development of GWOT budget requests. 

Additionally, changes to COST are made based on training sessions and 

feedback from COST users. Finally, DOD stated that an extensive review 

process is in place for each non-COST line item of GWOT budget requests. 

While we did not assess the process DOD uses to review non-COST line 

items, our report acknowledges that DOD has refined and updated COST 

many times as information has changed and the needs of the department 

have evolved. However, we reiterate our view that the tool should be 

subject to an independent review, and COST should be further refined 

based on the findings of that review, as needed. 

We are sending copies of this report to other interested congressional 

committees; the Secretary of Defense; the Under Secretary of Defense 

(Comptroller), and the Director, Office of Management and Budget. Copies 

of this report will also be made available to others upon request. In 

addition, this report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

Page 21 GAO-08-982 Defense Budget
If you have any questions regarding this report, please contact Sharon 

Pickup at (202) 512-9619 or pickups@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this report. GAO staff who made major contributions to this 

report are listed in appendix V. 

Sharon L. Pickup 

Director, Defense Capabilities and Management 

Page 22 GAO-08-982 Defense Budget
List of Congressional Committees

The Honorable Carl Levin 

Chairman 

The Honorable John McCain 

Ranking Member 

Committee on Armed Services 

United States Senate 

The Honorable Kent Conrad 

Chairman 

The Honorable Judd Gregg 

Ranking Member 

Committee on the Budget 

United States Senate 

The Honorable Daniel K. Inouye 

Chairman 

The Honorable Thad Cochran 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

United States Senate 

The Honorable Ike Skelton 

Chairman 

The Honorable Duncan L. Hunter 

Ranking Member 

Committee on Armed Services 

House of Representatives 

The Honorable John M. Spratt, Jr. 

Chairman 

The Honorable Paul Ryan 

Ranking Member 

Committee on the Budget 

House of Representatives 

Page 23 GAO-08-982 Defense Budget
The Honorable John P. Murtha 

Chairman 

The Honorable C.W. Bill Young 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

House of Representatives 

Page 24 GAO-08-982 Defense Budget
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To assess how the Department of Defense (DOD) uses the Contingency 

Operations Support Tool (COST) and other processes to develop Global 

War on Terror (GWOT) budget requests, we reviewed and analyzed 

relevant documents and interviewed key DOD and service officials and 

representatives from the Institute for Defense Analyses (IDA). Documents 

that we used for our review included, but were not limited to, (1) relevant 

DOD directives, instructions, and memoranda related to budgeting 

processes; (2) DOD financial management regulations that provide policy 

and procedures for contingency operations; (3) DOD guidance for the 

preparation and submission of requests for incremental funding for 

GWOT; and (4) service budget office guidance for the preparation and 

submission of GWOT budget requests. We obtained testimonial evidence 

from officials representing the Office of the Under Secretary of Defense 

(Comptroller) and the Joint Staff regarding the processes used to develop

GWOT budget requests and the role of COST in that process. Specifically, 

we obtained their perspectives on COST’s effectiveness and accuracy, as 

well as the processes employed to develop estimates for costs that are 

outside the scope of the tool’s estimating capabilities. We similarly 

interviewed key service officials in the financial management or budget 

office responsible for developing GWOT cost estimates for contingency

operations in the Air Force, Army, Marine Corps, and Navy to understand 

their experiences using COST during the development of prior years’ 

GWOT budget requests, including strengths and weaknesses of the tool. 

We additionally interviewed service officials that were identified as 

functional experts for the types of costs that must be estimated outside of

the tool, such as procurement, reset-level equipment maintenance, and 

intelligence needs. We discussed what processes they use to develop 

estimates for these types of costs. We attended several briefings regarding

COST presented by IDA and attended training sessions on the tool. We 

interviewed IDA representatives about the tool and reviewed numerous 

briefings about COST’s use in cost estimation, the structure of the tool, 

and the tool’s development. Finally, in order to understand how DOD 

developed an actual GWOT budget request and the use of COST and other 

methods to develop that estimate, we asked DOD to demonstrate how an

estimate was developed for a case study, which was the $6.3 billion 

estimate for military operations that was included as part of DOD’s 

October 2007 $42.3 billion amendment to the Fiscal Year 2008 GWOT 

supplemental request for emergency funding. We chose this example as 

our case study because it was a recent estimate and was assumed to be 

Page 25 GAO-08-982 Defense Budget
Appendix I: Scope and Methodology 

comprised primarily of military personnel and operations costs, due to the 

description of this estimate in the justification document for the 

amendment to the Fiscal Year 2008 GWOT budget request.1

 DOD provided 

the initial and approved estimate for this request by service and by 

appropriation category. We discussed this estimate with DOD and service 

officials, including the assumptions and processes that were used to 

develop this estimate, the reasons for changes between the initial and 

approved estimates, and the types of costs estimated by COST or outside 

of COST. We did not validate the assumptions used to generate this 

estimate or the data DOD presented in this example. 

To assess what actions DOD has taken to ensure COST adheres to best 

practices for cost estimation, we reviewed applicable best practices and 

compared DOD’s efforts against those best practices we found to be 

consistently associated with reliable, high-quality cost estimation.2

 We 

reviewed DOD guidance regarding requirements for the verification, 

validation, and accreditation of tools and simulations used by DOD. We 

reviewed documents obtained from DOD and IDA and had discussions 

with DOD officials and IDA representatives about COST; for example, we 

reviewed numerous briefings about COST and the training manual that

documents the tool’s specifications, development, and use in detail. We

interviewed DOD Comptroller and IDA representatives about 

improvements and updates that have been made to COST and the purpose 

of those updates. We obtained testimonial evidence from DOD 

Comptroller officials and IDA representatives about the steps to develop 

COST and the processes that surround the tool’s use as part of developing

a GWOT budget request, and identified steps that appeared to meet certain

criteria of established best practices and those that appeared to warrant 

further review. We did not perform a full review of COST against all best 

practices, but presented examples of how the tool meets certain best 

practices to provide some context to decision makers about what might be 

considered strengths of the tool and we highlighted some areas that might 

benefit from a full and independent review of COST. These examples are 

meant to serve as illustrative detail to provide more information to 

decision makers, but should not be considered the results of a complete, 

thorough, and independent review of the tool. 

 1

DOD, Fiscal Year 2008 Global War on Terror Amendment (October 2007). 

2

GAO, Cost Assessment Guide: Best Practices for Estimating and Managing Program

Costs, GAO-07-1134SP (Washington, D.C.: July 2007). 

Page 26 GAO-08-982 Defense Budget
Appendix I: Scope and Methodology 

We conducted this performance audit from July 2007 through 

September 2008 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

Page 27 GAO-08-982 Defense Budget
Appendix II: The 12 Steps of High-Quality 

Cost Estimating Mapped to Best Practice Appendix II: The 12 Steps of High-Quality Criteria 

Cost Estimating Mapped to Best Practice 

Criteria 

Characteristic Related step

Well documented

• The estimate is thoroughly documented, including source data and 

significance, clearly detailed calculations and results, and explanations for 

choosing a particular method or reference. 

• Data have been traced back to the source documentation. 

• A technical baseline description is included. 

• All steps in developing the estimate are documented, so that a cost analyst 

unfamiliar with the program can recreate it quickly with the same result. 

• All data sources for how the data were normalized are documented. 

• The estimating methodology and rationale used to derive each cost 

breakdown structure element’s cost are described in detail.

Define the estimate’s purpose 

Define the program 

Identify ground rules and assumptions 

Obtain the data 

Document the estimate 

Present estimate to management 

Comprehensive 

• The estimate’s level of detail ensures that cost elements are neither omitted

nor double counted. 

• All cost-influencing ground rules and assumptions are detailed. 

• The cost breakdown structure is defined and each element is described in a 

cost breakdown structure dictionary. 

Develop the estimating plan 

Determine the estimating approach 

Accurate 

• The estimate is unbiased, not overly conservative or overly optimistic, and 

based on an assessment of most likely costs. 

• It has few, if any, mathematical mistakes; those it has are minor. 

• It has been validated for errors like double counting and omitted costs. 

• It has been compared to the independent cost estimate for differences. 

• Cross-checks have been made on cost drivers to see if results are similar. 

• The estimate is timely. 

• It is updated to reflect changes in technical or program assumptions and new 

phases or milestones. 

• Estimates are replaced with the earned value management estimate at 

completion and the independent estimate at completion from the integrated

earned value management system. 

Develop the point estimate 

Update the estimate to reflect actual costs and 

changes 

Credible 

• Any limitations of the analysis because of uncertainty or biases surrounding

data or assumptions are discussed. 

• Major assumptions are varied and other outcomes recomputed to determine

how sensitive outcomes are to changes in the assumptions.

• Risk and uncertainty analysis is performed to determine the level of risk 

associated with the estimate.

• The results are cross-checked and an independent cost estimate is 

developed to determine if other estimating methods produce similar results. 

Conduct sensitivity analysis 

Conduct risk and uncertainty analysis 

Source: GAO.

Page 28 GAO-08-982 Defense Budget
Appendix III: An Example of DOD’s GWOT 

Budget Estimate Process Using the 

Sustainment and Redeployment of the Troop 

Surge 

Appendix III: An Example of DOD’s GWOT 

Budget Estimate Process Using the Sustainment 

and Redeployment of the Troop Surge 

To better understand how the Department of Defense (DOD) develops a 

Global War on Terrorism (GWOT) budget request and the use of the 

Contingency Operations Support Tool (COST) and other methods of 

developing an estimate, we asked DOD to demonstrate how the services 

used COST and other methods to develop the $6.3 billion budget estimate 

for military operations that was included as part of DOD’s October 2007 

$42.3 billion amendment to the fiscal year 2008 GWOT supplemental 

request for emergency funding. DOD justification materials for the 

amendment describe this $6.3 billion portion as needed to support the 

continued sustainment and redeployment of the five Army brigades and 

two Marine Corps infantry battalions that were considered part of the 

troop surge.1

 This portion of the amendment was also requested to support 

the simultaneous deployment of combat support forces augmenting these 

combat forces and other costs related to the presence of the troop surge. 

Table 3 presents DOD’s estimate for this $6.3 billion portion of the 

amendment meant to fund additional operations, broken into the COSTgenerated portion and the portion that was estimated by other means. 

Typically, service budget officials develop cost estimates for GWOT, but 

officials stated that time constraints for this specific estimate required that

Joint Staff and DOD Comptroller officials develop the initial estimate using 

both COST and other processes outside of COST as necessary. After 

discussions with service budget officials, and the September 10, 2007, 

testimony of the Commander of the Multi-National Force-Iraq before 

Congress, the estimates were revised. This is reflected in the approved 

estimate for each service, again broken into the COST portion and the 

“non-COST” portion. Each service’s estimate is further broken down into 

estimates for Military Personnel appropriations and Operation and 

Maintenance appropriations. 

 1

In late January 2007, the President announced a “surge” strategy in Iraq, providing for the 

deployment of an additional 30,000 troops to support stability operations. He also 

announced the deployment of additional personnel to Afghanistan to provide increased

security against an anticipated insurgent offensive. 

Page 29 GAO-08-982 Defense Budget
Appendix III: An Example of DOD’s GWOT 

Budget Estimate Process Using the 

Sustainment and Redeployment of the Troop 

Surge 

Table 3: Example of DOD Estimation for Operations in Support of GWOT 

Dollars in millions 

Initial Estimate Approved Estimate 

COST Estimate 

Non-COST 

Estimate Total Estimate COST Estimate 

Non-COST 

Estimate Total Estimate

Army Total $4,107 $775 $4,882 $3,918 $1,837 $5,755

Military Personnel 731 0 731 705 (961) (256)

Operation & 

Maintenance (O&M) 3,376 775 4,151 3,213 2,798 6,011

Navy Total $92 $0 $92 $96 $100 $196

Military Personnel 10 0 10 10 30 40

O&M 83 0 83 87 69 156

Marine Corps Total $25 $0 $25 $146 $163 $309

Military Personnel 6 0 6 25 163 188

O&M 19 0 19 121 0 121

Air Force Total $103 $0 $103 $19 $25 $44

Military Personnel 11 0 11 4 0 4

O&M 92 0 92 15 25 40

SOCOM $10 $0 $10 $7 $0 $7

Total Defense-Wide $4,337 $775 $5,112 $4,186 $2,125 $6,311

Source: DOD. 

As shown in table 3, the Army’s estimate of nearly $5.8 billion comprises 

the majority of the $6.3 billion total estimate. COST-generated estimates 

for military personnel or operation and maintenance did not change 

significantly for the Army from its initial estimate to the approved final

estimate. Substantial changes were made, however, to the portions of the 

estimate that are outside the scope of COST. Army budget officials 

reported that the large decrease in requested military personnel funding 

was due to lower mobilization levels than originally predicted, adjusted 

overstrength levels, and reduced permanent change of station and 

subsistence costs. The COST portion for both military personnel and 

operations for the Army decreased slightly from the initial to the approved

estimate. Army budget officials reported that the approximately $2 billion 

increase in operation and maintenance costs that was derived outside of 

COST was due to force protection and other equipment or services needed 

to support the troop surge and the additional operations performed by 

surge troops. Table 4 provides more details on these costs. 

Page 30 GAO-08-982 Defense Budget
Appendix III: An Example of DOD’s GWOT 

Budget Estimate Process Using the 

Sustainment and Redeployment of the Troop 

Surge 

Table 4: Non-COST estimates for Army Operation and Maintenance Costs 

Dollars in millions 

Operation and Maintenance Cost Estimated

Amount 

Estimated

Force protection $255

Theater maintenance support 763

Communications support 198

Predeployment training 447

CONUS based support 70

Detainee operations 251

Linguistics and intelligence support 200

LOGCAP 242

Subsistence transportation 373

Total Non-COST Estimate $2,798

Source: Army. 

Note: Total may not add due to rounding. 

Similarly, major adjustments were made to the non-COST portions of the 

Air Force, Marine Corps, and Navy estimates for either military personnel 

costs, operation and maintenance costs, or both appropriation categories, 

depending on the service. These changes were due to changed

assumptions regarding deployment and specialized needs. For example, 

the Navy’s non-COST personnel estimate was increased for costs 

associated with permanent change of station and active duty for special 

work needs. The Marine Corps increased its non-COST personnel request

by $163 million in anticipation of increased requirements for reserve and 

Individual Ready Reserve activations to active duty. The adjustments to 

the Marine Corps and Air Force COST-generated portions were likewise 

substantial. The Marine Corps’ increase for personnel costs reflected in

the COST-attributed portion reflects an anticipated increase in counterinsurgency operations in Afghanistan, while the Air Force estimate was 

refined to exclude a KC-10 and the Air National Guard and Air Force 

Reserve personnel that would accompany the KC-10. From this case study, 

it is clear that changing the assumptions regarding the deployment of 

personnel and equipment can have substantial impact on the COST-related 

portion of a GWOT budget request. Also, significant changes were made to 

the non-COST portion of the request, which in this example increased 

from $775 million to about $2.1 billion, including the nearly $1 billion 

offset in Army personnel cost estimates. The information regarding the 

non-COST portion of this example reveals the significance and size of 

Page 31 GAO-08-982 Defense Budget
Appendix III: An Example of DOD’s GWOT 

Budget Estimate Process Using the 

Sustainment and Redeployment of the Troop 

Surge 

estimates generated outside the tool, even in a situation where the 

majority, if not all, of the costs would be assumed to be related to 

personnel and operations. 

We did not validate any of the data DOD presented in the above 

discussion, or any of the assumptions or other information used by DOD 

to develop this estimate. 

Page 32 GAO-08-982 Defense Budget
Appendix IV: Comments from the Department Appendix IV of Defense : Comments from the 

Department of Defense 

Page 33 GAO-08-982 Defense Budget
Appendix IV: Comments from the Department 

of Defense 

Page 34 GAO-08-982 Defense Budget
Appendix IV: Comments from the Department 

of Defense 

Page 35 GAO-08-982 Defense Budget
Appendix V: 

A

GAO Contact and Staff 

cknowledgments 

Page 36 GAO-08-982

Appendix V: GAO Contact and Staff 

Acknowledgments 

Sharon Pickup, (202) 512-9619 or pickups@gao.gov

In addition to the contact named above, Ann Borseth (Assistant Director), 

Grace Coleman, Susan Ditto, Linda Keefer, Lonnie McAllister II, Lisa 

McMillen, Charles Perdue, Suzanne Perkins, Karen Richey, and Karen 

Werner made key contributions to this report. 

Defense Budget

GAO Contact 

Acknowledgements 

(351074) 
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