www.BOEMax.com
www.EVMax.net
Estimating Systems –
Get Competitive
Tom Shanahan of ProjStream
And David Eck, CPA of Dixon Hughes Goodman
About ProjStream
• Headquartered in Orlando, FL
• Enterprise Software Company
Our Vision
Creating value throughout the entire life cycle of a project,
from the pre-award phase, the transition from pre-award to
award, and delivery
Our Mission
To make our clients successful in winning and delivering
projects
ProjStream | www.ProjStream.com | 800.914.1710
Agenda
• Why is it important to have a solid estimating system?
• Discussion of FAR 15-2 and DFARS 252-242-7005
Compliance
• What is a Basis of Estimate?
• What are the Components of a good BOE?
• Historical Data and Cost Estimating Relationships (CER’s)
• Strategies to Capture Historical Data – Establish a Closed
Loop Estimating System We will touch on these items
(more detailed discussion in follow up webinar – 10/29/14)
• What is Cost Proposal Traceability and why is it
important?
ProjStream | www.ProjStream.com | 800.914.1710
Estimating Systems – Why are
they important?
• Evaluating, re-engineering and maximizing
process efficiency should be a high priority to
government contractors
• Estimating function optimization has a DIRECT
causal beneficial relationship to the organization’s
end strategic goals:
1) To win and execute new business
2) To maximize cost recovery
3) To enhance profitability
ProjStream | www.ProjStream.com | 800.914.1710
What is an Estimating System?
The estimating system is defined as:
“The policies, procedures, and
practices for budgeting and
planning controls, and generating
estimates of costs and other data
included in proposals submitted to
customers in the expectation of
receiving contract awards.”
ProjStream | www.ProjStream.com | 800.914.1710
What is included in an Estimating
System?
• Organizational Structure
• Established lines of authority,
duties and responsibilities
• Internal controls and managerial
reviews
• Flow of work, coordination and
communication
• Budgeting, planning, estimating
methods, techniques,
accumulation of historical costs
and other analyses used to
generate estimates
ProjStream | www.ProjStream.com | 800.914.1710
When is an Estimating System
Required?
Estimating Systems
are required for all
contracts awarded on
the basis of cost or
pricing data.
ProjStream | www.ProjStream.com | 800.914.1710
DFARS Business System Rule
• The Business System Rule will apply to
any DoD CAS covered contracts
• Reference DFAR Sub-part 242-70:
- Contractor Business System
Deficiencies 242.7000
• Contract Clauses
-Contractor Business Systems
252.242.7005
-Estimating System 252.215-7002
ProjStream | www.ProjStream.com | 800.914.1710
Applicability of the Business
System Rule: Estimating System
• The Business System Rule will apply to any DoD
CAS covered contracts
• Reference DFAR Sub-part 242-70:
- Contractor Business System Deficiencies
242.7000
• Contract Clauses
-Contractor Business Systems 252.242.7005
-Estimating System 252.215-7002
ProjStream | www.ProjStream.com | 800.914.1710
Where to Identify Estimating
System Criteria
Criteria
• DFAR 252.215-7002
Audit Plan
• DCAA auditing procedures
from the Budget and Planning
System Internal Controls
(11020) are now included in
the estimating system
ProjStream | www.ProjStream.com | 800.914.1710
Estimating System Basic
Requirements
• Disclosed In Writing to the Administrative
Contracting Officer (ACO)
• Accurately describe:
o Policies, procedures and
practices
o Significant Detail for the
Government to Make an
Informed Decision
• Complies with written
documentation and disclose
significant changes
ProjStream | www.ProjStream.com | 800.914.1710
Estimating System Criteria
1. Establish clear responsibility for preparation, review, and approval
of cost estimates and budgets.
2. Provide a written description of the organization and duties of the
personnel responsible for preparing, reviewing and approving cost
estimates and budgets.
3. Ensure that relevant personnel have sufficient training, experience
and guidance to perform estimating and budgeting tasks in
accordance with the Contractor’s established procedures.
4. Identify and document the sources of data and the estimating
methods and rationale used in developing cost estimates and
budgets.
5. Provide for the adequate supervision throughout the estimating and
budgeting process.
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Estimating System Criteria
6. Provide for consistent application of estimating and budgeting
techniques.
7. Provide for detection and timely correction of errors.
8. Protect against cost duplication and omissions.
9. Provide for the use of historical experience, including historical
vendor pricing information, where appropriate.
10. Require use of appropriate analytical methods.
11. Integrate information available from other management systems.
12. Require management review, including verification of compliance
with the company’s estimating and budgeting policies, procedures,
and practices.
ProjStream | www.ProjStream.com | 800.914.1710
Estimating System Criteria
13. Provide for internal review of, and accountability for, the
acceptability of the estimating system, including the budgetary data
supporting indirect cost estimates and comparisons of projected
results to actual results, and analysis of any differences.
14. Provide procedures to update cost estimates and notify the
Contracting Officer in a timely manner throughout the negotiation
process.
15. Provide procedures and ensure subcontract prices are reasonable
based on documented review and analysis provided with the prime
proposal, when practicable
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Estimating System Criteria
16. Provide estimating and
budgeting practices that
consistently generate sound
proposals that are compliant
with the provisions of the
solicitation and are adequate to
serve as a basis to reach a fair
and reasonable price.
17. Have an adequate system
description, including policies,
procedures, and estimating and
budgeting practices, that
comply with Federal Acquisition
Regulation and Defense
Federal Acquisition Regulation
Supplement.
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Estimating System should tie to
the Disclosure Statement
Mirror the disclosure statement in these areas:
• Direct vs. Indirect Costs
• Allocation of Indirects
• Facilities Cost of Capital
• Material items such as scrap, rework and
spoilage
• Warranties
• Maintenance
• Inflation and Escalation.
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FAR and Proposal Elements
DIRECT LABOR
A time phased (i.e., monthly, quarterly, etc.,) breakdown of labor rates
and hours by category or skill level and the basis for the estimates of
rates and hours (i.e., historical experience, engineering estimates,
learning curves, etc.). If labor is the allocation base for indirect costs,
the labor cost should be summarized in order that the applicable
overhead rate can be applied. (FAR 15.408, Table 15-2 II.B.)
 Hours
 Rates and Costs by Appropriate Category
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Direct Labor
Element of Cost
Engineering Labor
Amount
Reference
$452,151
Schedule 1
26,412
Schedule 1
Direct Labor Overhead @ 56.7%
271,345
Schedule 2
Material
113,175
Schedule 3
5,659
Schedule 4
Manufacturing Labor
Material Handling Overhead @ 5.0%
Subtotal
G&A @ 8.0%
$868,742
69,499
Estimated Cost
$938,241
Profit @ 10.0%
93,824
Total Price
$1,032,065
========
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Schedule 5
Direct Labor Timephased
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Rate Support Schedule
2002 Engineering Labor Cost
Labor Category
Rate/Hr
Hours
Total .
$33.93
683
$23,174
Senior Engineer
26.39
1,200
31,668
Junior Engineer
22.12
1,800
39,816
Engineering Aide
14.50
1,800
26,100
Technical Writer
16.00
-
Metallurgist
18.85
1,900
35,815
Draftsman
18.95
2,200
41,690
9,583
$198,263
Program Manager
Total D/L – Eng
-
2002 Manufacturing Labor Cost
Labor Category
Fabrication
Rate/Hr
Hours
Total .
$10.85
400
$4,340
Assembly
Total D/Labor – Mfg
9.25
400
-
.
$4,340
.
Total Direct Labor
$202,603
==========
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Material
MATERIALS AND SERVICES
Consolidated Price Bill of Materials.
A consolidated priced summary of individual
material quantities included in the various tasks,
orders, or contract line items being proposed and
the basis for pricing (vendor quotes, invoice prices,
etc).
The offeror must include raw materials, parts,
components, assemblies and services to be
produced or performed by others. For all items
proposed, the offeror must identify the item and
show the source, quantity, and price. (FAR 15.408,
Table 15-2 II.A.)
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Material (Consolidated Bill by
Supplier)
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Material (Consolidated by Part in
Descending $ Order)
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Supplier BOE (Cost and Price
Analysis)
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Supplier BOE (Cost and Price
Analysis) – attach documentation
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Supplier BOE (Cost and Price
Analysis) – view documentation
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Indirect Costs
INDIRECT COST DETAIL
Cost Breakdowns, Trends, and Budgetary Data (FAR 15.408, Table 15-2 II.C.)
• How Indirect Costs Are Computed
• Rate = Cost Pool / Allocation Base
• What costs are in the pool?
• How Indirect Costs Are Applied
• What is the allocation base?
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Indirect Costs (Overhead)
Element of Cost
Engineering Labor
Manufacturing Labor
Direct Labor Overhead @ 56.7%
Material
Material Handling Overhead @ 5.0%
Subtotal
G&A @ 8.0%
Estimated Cost
Profit @ 10.0%
Total Price
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Amount
$452,151
26,412
271,345
113,175
5,659
$868,742
69,499
$938,241
93,824
$1,032,065
========
Reference
Schedule 1
Schedule 1
Schedule 2
Schedule 3
Schedule 4
Schedule 5
Indirect Costs (Overhead)
Schedule 2
Cost Element
D/L – Engineering
D/L – Manufacturing
Total Direct Labor
2002
$198,263
4,340
$202,603
(Sched 1A)
D/L Overhead Rate
56.7%
2003
$148,838
8,776
$157,614
(Sched 1B)
56.7%
2004
$105,050
13,296
$118,340
Total
$452,151
26,412
$478,563
(Sched 1C)
56.7%
56.7%
$67,102
.
$271,345
(Schedule 2A)
Direct Labor O/H
$114,876
$89,367
=========
========
ProjStream | www.ProjStream.com | 800.914.1710
========
=========
Indirect Costs (Overhead)
Budget for FY 2002 Labor Overhead
Actual Overhead Expenses for FY 1999 - 2001
(Note 2)
Overhead Expenses
Indirect Payroll
Payroll Taxes
Vacation
Holiday
Sick Leave
Pensions
Employee Morale
Entertainment
Office Equipment
Depreciation
Subscriptions
Travel
Miscellaneous
Stationery
Reproduction
Maintenance
Rent
Telephone
Insurance
Total Pool
Less Unallowable Costs
Entertainment
Net Allowable Expenses
Budget
2002
$260,000
228,000
120,000
110,000
50,000
171,000
5,000
50,000
7,000
5,000
1,500
22,000
2,000
6,000
17,000
5,000
202,000
11,000
102,000
$1,374,500
50,000
$1,324,500
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Actual Expenses (Note 1)
2001
255,120
223,615
117,692
107,885
49,038
167,712
4,530
45,820
3,251
5,125
1,485
25,352
2,421
5,421
16,891
4,871
200,000
10,545
98,500
$1,1345,274
45,820
$1,299,454
2000
280,450
245,538
129,231
118,462
47,832
184,154
5,960
57,352
4,525
5,075
1,450
18,085
2,310
7,921
18,451
5,431
200,000
11,752
96,000
$1,439,979
1999
225,320
197,308
130,846
95,192
43,269
147,981
4,210
39,820
6,320
4,925
1,475
21,025
1,824
5,105
14,555
4,322
196,000
9,850
92,000
$1,214,347
57,352
$1,382,627
39,820
$1,174,527
Indirect Costs (Overhead)
Budget for FY 2002 Labor Overhead
Actual Overhead Expenses for FY 1999 - 2001
(Note 2)
Overhead Expenses
Net Allowable Expenses
Budget
2002
2001
$1,324,500
$1,299,454
Actual Expenses (Note 1)
2000
1999
$1,382,627 $1,174,527
Allocation Base
Direct Labor
$2,336,000
$2,221,289 $ 2,613,662 $2,147,216
(Note 3)
Rate
=======
56.7%
=======
58.5%
=======
52.9%
=======
54.7%
=======
(Note 4)
Explanatory Notes
1. Provide the prior three years’ actual overhead expense and allocation base in the same format as the budget for 2002. For the year 2001, actuals to date are
provided.
2. The projected overhead expenses are based on the company’s operating budget for 2002. The operating budget supporting data is located in file "DAAH0102-R-0001, Overhead Operating Budget" and is immediately available upon request.
3. Includes Bid and Proposal Labor of $5,000
4. The same rate is estimated for fiscal years 2003 and 2004. We anticipate minimal inflation and a stable business base. The data and analysis supporting this
assertion is located in file "DAAH01-02-R-0001, Overhead Forecast" and is immediately available upon request.
ProjStream | www.ProjStream.com | 800.914.1710
Data Driven Estimates
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Cost Traceability
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What is a Basis of Estimate?
• Provides the elements and rationale of every component of the work
that is the basis of the final price
• Provides the logic, estimating methodology, data and calculations
used to estimate the resources required to perform the work
• Provides credibility in the numbers and assists the government in
determining if the estimates, and therefore the price is reasonable
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Basis of Estimate (BOE)
Brings together:
• Work Breakdown
Structure (WBS)
• Schedules
• with labor category
estimates, material, travel
• ODC estimates
• includes quantities and
unit pricing
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Proposal
Stage / PreAward
Execution
Stage /
Post-Award
Delivery Stage /
Close-out
Attributes of a BOE
• Meets Customer Constraints
• Demonstrates Understanding
of Requirements
• Estimates and Assumptions are well documented
• Conveys that estimates are credible, defendable and realistic
• Aligns with WBS, SOW and other project structures such as CLIN
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What is a Basis of Estimate Used For?
To evaluate the Cost Reasonableness and Realism
of your estimate.
• Realism – Compatibility of estimate with scope
(as defined in the estimate Task Statement or
Statement of Work)
• Reasonableness – Justification for estimate
development methodology, and completeness
and accuracy of the mathematics applied
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What are the components of a BOE?
1. Proposal and BOE Header Information
2. Task Description
3. Assumptions and Risk Development/Mitigation
4. Estimating Methodology
5. Rationale or Justification
6. Cost Estimate Distribution
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BOE Header Information
Typical BOE Header Data
• SOW mapping to the WBS is critical for the proposal
manager or pricing lead
• Dole out estimating responsibilities to the team
• This process leads to verification that all SOW items are
addressed by Task Descriptions and no items are
duplicated or omitted
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Task Description
SOW 3.4.2: The assembled structural and aerodynamic components of the air vehicle that support subsystems essential to
designated mission requirements. Includes basic structure, rotary wing pylons, alighting gear, secondary power, instruments,
transmissions, gearboxes, etc.
Task Description: Includes assembly, integration and test and checkout of all elements into the airframe as a whole, all
administrative and technical engineering to perform integration of level 3 air vehicle and airframe elements, installation,
integration, test and checkout of avionic systems
Why is this task being
done? Reference driving
document, usually the
SOW
Avoids requirements
misinterpretation,
clarifies gray areas
Interprets the SOW and defines what will be done.
Provides a complete and clear explanation of the tasks that will be done
in relation to the Statement of work.
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Assumptions
SOW 3.4.2: The assembled structural and aerodynamic components of the air vehicle that support subsystems essential to
designated mission requirements. Includes basic structure, rotary wing pylons, alighting gear, secondary power, instruments,
transmissions, gearboxes, etc.
Task Description: Includes assembly, integration and test and checkout of all elements into the airframe as a whole, all
administrative and technical engineering to perform integration of level 3 air vehicle and airframe elements, installation,
integration, test and checkout of avionic systems
Assumptions: Includes labor to analyze, design, and develop avionic suite interfaces, drawing prep and establish avionics
interface equipment requirements and specs, coordination with Subcontractors and test groups. Does not include:
development, testing and integration of software, avionic system testing, assumes two retests of all subsystems
Defines boundary
conditions that can
impact the estimate
Examples could include
number of retests,
receipt of GFE
Identify assumptions that the estimate is based on
Can lead directly to identification and mitigation
of risk.
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Estimating Methodology
There are two main categories of estimating methodologies:
1. Historical – Always reference historical data if it exists
2. Judgment – Level of Effort, Engineering Estimates, etc.
Supplier quotes are more supportable than LOE or Subject Matter
Expert Judgment – Supplier Analysis attached to the BOE’s is
important as part of the subcontract price analysis
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Estimating Methodology
Reliability Estimate Methodology
High
Actual Program Cost History
Estimate
Classification
Historical
Analogous Estimates
Parametric or CER's (Cost Estimating
Relationships)
Low
Standards
Historical
Unit or Multiplier Methods
Historical & Judgment
Level of Effort
Judgment
Expert Judgment
Historical resource based estimates are easier to support than
judgmental type estimates
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Rationale or Justification
• Back Up the Estimating Methodology
• Explain why you chose the particular methodology
• Explain how the estimate in question relates to work that
was previously done.
Provide a convincing argument to support the estimate here:
Convince your customer that you understand the requirement and
can perform the work as estimated
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Cost or Estimate Distribution
• Time phase spread the estimate
• Ensure dates of the estimated activity support the RFP
contractual requirements
• The time-phased estimates and cost schedules that result
in an RFP submittal should at least be the beginning of
the planning function for an IMS
Incorrect time phasing of estimated work can lead to incorrect costs
due to escalated rates
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Basis of Estimate Example
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Basis of Estimate Example: Subject
Matter Expert
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Basis of Estimate Example: Unit or
Multiplier method
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Basis of Estimate Example: Unit or
Multiplier method
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Basis of Estimate Example: Basis of
Quantities
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The Power of BOEMax™
Planning
Estimating
Add Data Driven Estimates
with BOE documentation,
Interface with IMS Schedule
Build WBS, Map Statement of
Work (SOW), create Work
Flow, BOE Templates
Process Flow
Create Versioning, Global
Updates, Project Version
Reports, Restore Bid Version
Scenario Analysis
ProjStream | www.ProjStream.com | 800.914.1710
BOE Report, Cost Summary
Report, Ad Hoc Pivot Reports,
Rate Reports
Reporting
Question & Answer
Tom Shanahan &
David Eck