Given the size and significance of the government’s investment in IT, it is important that projects be managed effectively to ensure that public resources are wisely invested. Effectively managing projects entails, among other things, developing reliable and high-quality cost estimates that project realistic life-cycle costs. A life-cycle cost estimate provides an exhaustive and structured accounting of all resources and associated cost elements required to develop, produce, deploy, and sustain a particular program. In essence, life cycle can be thought of as a “cradle to grave” approach to managing a program throughout its useful life. Because a life-cycle cost estimate encompasses all past (or sunk), present, and future costs for every aspect of the program, regardless of funding source, it provides a wealth of information about how much programs are expected to cost over time. We have previously reported that a reliable cost estimate is critical to the success of any government acquisition program, as it provides the basis for informed investment decision making, realistic budget formulation and program resourcing, meaningful progress measurement, proactive course correction, and accountability for results. Having a realistic, up-to-date estimate of projected costs—one that is continually revised as the program matures—can be used to support key program decisions and milestone reviews. In addition, the estimate is often used to determine the program’s budget spending plan, which outlines how and at what rate the program funding will be spent over time. Because a reasonable and supportable budget is essential to a program’s efficient and timely execution, a reliable estimate is the foundation of a good budget. However, we have also found that developing reliable cost estimates has been difficult for agencies across the federal government.Too often, programs cost more than expected and deliver results that do not satisfy all requirements. In 2006, the Office of Management and Budget (OMB) updated its Capital Programming Guide, which requires agencies to develop a disciplined cost-estimating capability to provide greater information management support, more accurate and timely cost estimates, and improved risk assessments to help increase the credibility of program cost estimates. Further, according to OMB, programs must maintain current and well- documented estimates of costs, and these estimates must encompass the full life cycle of the program. Among other things, OMB states that generating reliable cost estimates is a critical function necessary to support OMB’s capital programming process. Without this ability, programs are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls. Building on OMB’s requirements, in March 2009, we issued a guide on best practices for estimating and managing program costs that highlights the policies and practices adopted by leading organizations to implement Specifically, these best practices an effective cost-estimating capability. OMB, Circular No. A-11, Preparation, Submission, and Execution of the Budget (Washington, D.C.: Executive Office of the President, June 2006) and Capital Programming Guide: Supplement to Circular A-11, Part 7, Planning, Budgeting, and Acquisition of Capital Assets (Washington, D.C.: Executive Office of the President, June 2006). OMB first issued the Capital Programming Guide as a supplement to the 1997 version of Circular A-11, Part 3. We refer to the 2006 version. OMB later updated this guide again in August 2011. identify the need for organizational policies that define a clear requirement for cost estimating; require compliance with cost-estimating best practices; require management review and acceptance of program cost estimates; provide for specialized training; establish a central, independent cost-estimating team; require a standard structure for defining work products; and establish a process to collect and store cost- related data. In addition, the cost-estimating guide identifies four characteristics of a reliable cost estimate that management can use for making informed program and budget decisions: a reliable cost estimate is comprehensive, well-documented, accurate, and credible. Specifically, an estimate is comprehensive when it accounts for all possible costs associated with a program, is structured in sufficient detail to ensure that costs are neither omitted nor double counted, and documents all cost- influencing assumptions; well-documented when supporting documentation explains the process, sources, and methods used to create the estimate, contains the underlying data used to develop the estimate, and is adequately reviewed and approved by management; accurate when it is not overly conservative or optimistic, is based on an assessment of the costs most likely to be incurred, and is regularly updated so that it always reflects the current status of the program; and credible when any limitations of the analysis because of uncertainty or sensitivity surrounding data or assumptions are discussed, the estimate’s results are cross-checked, and an independent cost estimate is conducted by a group outside the acquiring organization to determine whether other estimating methods produce similar results. We have previously reported on weaknesses associated with the implementation of sound cost-estimating practices at various agencies and the impact on budget and program decisions. For example, In January 2012, we reported that the Internal Revenue Service did not have comprehensive guidance for cost estimating. Specifically, the agency’s guidance did not clearly discuss the appropriate uses of different types of cost estimates. Further, our review of the agency’s Information Reporting and Document Matching program’s cost estimate found it was unreliable. Among other things, the program’s projected budget of $115 million through fiscal year 2016 was only partly supported by the cost estimate, which included costs only through fiscal year 2014. As a result, the agency did not have a reliable basis for the program’s budget projection. We made multiple recommendations to improve the quality of the agency’s cost and budget information, including ensuring that the Information Reporting and Document Matching program’s cost estimate is reliable and that the agency’s cost-estimating guidance is consistent and clearly requires the use of current and reliable cost estimates to inform budget requests. The agency partially agreed with these recommendations and stated that they have taken steps to ensure that their cost-estimating practices and procedures follow consistent documented guidance. In January 2010, we reported that the Department of Energy lacked comprehensive policy for cost estimating, making it difficult for the agency to oversee development of high-quality cost estimates. Specifically, the agency’s policy did not describe how estimates should be developed and did not establish a central office for cost estimating. Further, we reviewed four programs at the department, each estimated to cost approximately $900 million or more, and reported that they did not have reliable cost estimates. For example, three of the cost estimates did not include costs for the full life cycles of the programs, omitting operations and maintenance costs or portions of program scope. Additionally, three of the cost estimates did not use adequate data, one of which relied instead on professional opinion. Further, the cost estimates did not fully incorporate risk— specifically, they did not address correlated risks among project activities. As a result, these programs were more likely to exceed their estimates and require additional funding to be completed. We made multiple recommendations to improve cost estimating at the department, including updating its cost-estimating policy and guidance and ensuring cost estimates are developed in accordance with best practices. The Department of Energy generally agreed with our recommendations and stated that it had several initiatives underway to improve cost-estimating practices, including the development of a new cost-estimating policy and guidance, a historical cost database to support future estimates, and additional training courses. Finally, we reported in December 2009 that the Department of Veterans Affairs had 18 construction projects that had experienced cost increases due, in part, to unreliable cost estimates. For example, many estimates were completed quickly, one of which was a rough-order-of-magnitude estimate that was not intended to be relied on as a budget-quality estimate of full project costs. Additionally, we found that some projects had not conducted a risk analysis to quantify the impact of risk on the total estimated costs. As a result, in some cases, projects had to change scope to meet their initial estimate and, in others, additional funds had to be requested from Congress to allow the agency to complete the project. We recommended that the department improve cost estimating at major construction projects by conducting cost risk analyses and mitigating risks that may influence projects’ costs. The Department of Veterans Affairs agreed with our recommendation and stated that it was taking steps, such as developing a multiyear construction plan to ensure that reliable projections of program costs are available for budgeting purposes, and planning to improve its risk analyses. According to OMB, agencies should develop a disciplined cost- estimating capability to provide greater information management support, more accurate and timely cost estimates, and improved risk assessments to help increase the credibility of program cost estimates. In addition, we have reportedpolicies and procedures that that leading organizations establish cost-estimating define a clear requirement for cost estimating; identify and require compliance with cost-estimating best practices, and validate their use; require that estimates be reviewed and approved by management; require and enforce training in cost estimating; establish a central, independent cost-estimating team; require, at a high level, a standard, product-oriented work breakdown structure; and establish a process for collecting and storing cost-related data to support future estimates. Table 1 describes the key components of an effective cost-estimating policy. While the eight agencies varied in the extent to which their cost- estimating policies and procedures addressed best practices, most did not address several key components of an effective policy. Specifically, only the Department of Defense’s (DOD) policy was fully consistent with all seven components. While the Department of Homeland Security addressed most components of an effective cost-estimating policy, other agencies’ policies had significant weaknesses, particularly in cost- estimating training and in establishing a process to collect and store cost- related data. Table 2 provides a detailed assessment of each agency’s policies against the components of an effective cost-estimating policy. In addition, a discussion of each policy component follows the table.