Cost Estimate

The total cost of each project is composed of the price of the training system and the cost for support from NAWCTSD in acquiring and supporting that product. To determine these cost, several questions must be answered:
  • What is the training requirement?
  • What tasks are to be trained?
  • What student throughput is required?
  • What is the entering skill level and desired ending skill level of the students?
  • Does the training need to occur in a specific geographic location or facility?
  • How is this training requirement currently accomplished (is there an existing training system)?
  • When is the training required?
  • What is the budget, type of funds (appropriation), and fiscal year profile of the funds?
  • Will the training system include Information Technology (IT)? Note there are costs associated with IT approval. See the IT Purchase and Approval page for details.
  • Will the training system include new developmental items, non-developmental items (NDI), or commercial products? Good market research should put you close to an answer. However in this era of performance based requirements and rapidly evolving technology, it is possible that the ultimate solution proposed by a contractor may differ significantly from what was anticipated at the preliminary estimate stage.
  • Based on the answers to the above questions, what functional skills and how many labor hours will be required by NAWCTSD?
To answer some of these questions a Training System Requirements Analysis (TSRA) may be needed. This process helps the customer better understand what their training needs are and what technologies will best match that requirement.

Estimating Training System Costs

A training system cost estimate is an evaluation and analysis of future costs of a system or service generally derived by relating historical cost, performance, schedule and technical data of similar items or services. Cost analysis support can be provided in several ways depending on the time available and purpose

Training system cost estimating is performed by NAWCTSD competency 4.2G. The 4.2G Cost Team will provide comprehensive cost analysis support and EVM analyses for all acquisition, nonacquisition pre-milestone A, Rapid Deployment Capability and special interest programs. To initiate support from Code 4.2, send an email containing the type of estimate requested, anticipated due date for the estimate, sources of support, team members, and a funding code to charge the work to Code 4.2G division head.

Listed below are a few types of estimate deliverables that are generally provided:

Rough Order of Magnitude (ROM) An estimate that must be produced quickly with little time for detailed analysis. This estimate relies heavily on analogy of similar system costs and subject matter expert opinions. Well suited for budgetary planning wedges or “What If” type exercises.
Independent Government Cost Estimate (IGCE) An estimate that requires detailed analysis and rigor. This estimate is usually based on an engineering or “Bottoms Up” approach using labor hours, labor rates, and material. It can also rely on subject matter experts, analogous systems, parametric modeling, actual historical costs, etc. to derive the final estimate. Well suited for all phases of the acquisition process.
Program Office Estimate (POE)/Life Cycle Cost Estimate (LCCE) The total cost to the government of acquisition and ownership of a system over its useful life. It includes the cost of development, acquisition, operations, and support (to include manpower), and where applicable, disposal. For defense systems, LCC is also called Total Ownership Cost (TOC). DoD Instruction 5000.2 requires that the Program Office prepare a Life Cycle Cost Estimate (LCCE) (known as the Program Office Estimate (POE)) in support of program initiation. The POE is to be updated for each subsequent milestone and decision review. For Acquisition Category (ACAT) ID programs with significant cost risk or high visibility, the Component Acquisition Executive (CAE) may request a Component Cost Analysis (CCA) estimate be prepared in addition to the POE and the Cost Assessment and Program Evaluation (CAPE) Independent Cost Estimate (ICE).
Business Case Analysis (BCA) An estimate that requires detailed analysis and rigor and designed to compare potential options for an acquisition strategy. (i.e., Contractor vs. Government; Sole Source vs. Competitive). This estimate relies heavily on subject matter experts and uses a variety of estimating techniques.
Source Selection Support The formal process used to call for proposals, evaluate proposals, pass recommendations to higher authority, and final awarding of a contract by the selection authority. Support of this effort includes: 1) Solicitation Preparation, 2) Proposal Evaluation 3) Discussion/Negotiation Support, and 4) Award. This requires extensive cost analysis support using management, cost estimating, and good communication techniques.
Other Cost Estimating Support Any other cost estimating product can be tailored to the needs of the program and requestor. The product or service will be based on purpose, details, and schedule.

Each of these estimate types follow a specific process, yet every estimate is different. There are many factors that go into preparing an estimate that may influence the estimate results. Time and data are the most critical resources when preparing an estimate. If either of these resources is missing when preparing an estimate, it could affect the estimate and prompt the estimator to make assumptions when developing the estimate. This will also affect the risk assessment which is part of every estimate.

There are five basic tasks that a estimator will use to develop a credible cost estimate. These tasks are identified in the table below.
1 Establish Needs with Customer Establishes to define the purpose and scope of the estimate or analysis. The purpose and scope are used to forecast the amount of resources required (i.e., time, manpower and funding).
2 Establish Cost, Technical, and Program Baseline Identifies and defines the technical and programmatic parameters that bound the cost estimate. One key to developing a credible estimate is having an adequate understanding of the acquisition program, the acquisition strategy, technical definition, characteristics, system design features, and technologies to be included in the design.
3 Develop Cost Estimate This is the process by which the cost analyst formulates the system cost, technical and programmatic data into a cost model capable of producing cost estimates.
4 Validate and Verify Cost Estimate This process ensures that the cost estimate adequately reflects the program being estimated (e.g., technical and programmatic baseline, risk areas) and the cost estimate is reasonable/realistic.
5 Present/Defend Estimate It is the process through which the cost analyst gains the customer's acceptance of the estimate.

Estimating NAWCTSD Labor Support Costs

1. Background.

NAWCTSD is a Navy Working Capital Fund (NWCF) activity. NWCF activities operate much like a business where customers order products or services. NAWCTSD initially incurs expenses and then bills the customer in order to recoup the full cost associated with the product or service. NAWCTSD customers include Navy, Army, Air Force, Foreign Military Sales, and other federal agencies.

Normally, cost estimates to customers will be based on “stabilized” rates. The stabilized rate is composed of salaries, fringe benefits, and overhead expenses (which includes awards). Current average pay band salary rates and overhead expense rates for estimation purposes can be obtained on the myNAWCTSD website in the Comptroller Information section. These rates are loaded into the Navy ERP system and inflated for the future fiscal years. NWCF activities must estimate a single composite labor rate two years in advance and have it approved by NAVAIR/FMB/OSD/OMB. During the year, the Comptroller will publish competency specific planning and execution rates based on the latest budgetary information available. However, the customer will be billed at the official NAWCTSD stabilized and overhead rates for that execution year.

Based on the nature of the requirement, occasionally, costs to an external customer might be estimated at the NAWCTSD composite rate rather than the competency specific planning rate. It is more advisable to estimate at the competency specific planning rates when labor resources (and associated pay bands) are known. The composite rate is calculated as an “average” of all NAWCTSD employee pay bands.

The customer of an NWCF activity will reimburse NAWCTSD for all costs associated for that project, e.g., labor, travel, printing, supplies.

2. Estimating NAWCTSD In-House Labor Hours

The in-house labor hours required to support a training system acquisition has a major impact on the total project cost and on the internal NAWCTSD workload planning and resource staffing processes. The quality of the estimate will affect the ability to provide the right mix of skills when needed during the procurement as well as having the funds available to pay the in-house workforce salaries. In addition to the quality, timeliness is also of major importance. The resource sponsor needs the estimate as soon as possible in order to secure the necessary funding.

The primary tools and process for in-house labor resource cost estimating are the Resource Cost Estimate (RCE) worksheet and the Project Work Statement. These tools provide a detailed in-house labor resource cost estimate along with the basis and assumptions for the estimate. The RCE worksheet and associated estimating process was developed in 2005 as a result of a NAVAIR AIRSpeed project. Additional cost estimating worksheets such as the the Quick Cost Estimator (QCE) worksheet have also been developed. The QCE worksheet will provide a rough order of magnitude estimate of labor resources and travel costs. The QCE worksheet will be used as a first pass estimate when there is insufficient time or information to create a detailed estimate. The QCE worksheet will be updated to the RCE worksheet as soon as possible and the RCE worksheet will be the resource cost estimate of record. The "Project Work Statement" (PWS) will be used with both the QCE and RCE worksheets to provide the known and assumed basis for the estimate. Details on the RCE worksheet process are as follows:

The Estimating In-House Labor Hours process consists of four primary steps. Start to finish these steps should normally be completed within 10 working days:

Resource Cost Estimating Process

Step 1 - Project Initialization

  1. PJM/PM POC Documents Resource Cost Estimate (RCE) Request on a Project Work Statement form. This step consists of the PJM/PM POC communicating with the program sponsor (e. g. PMA205 for aviation projects) and completing a PWS form. The PWS consists of program parameters such as funding availability, time constraints, assumptions, etc. The PJM/PM POC will negotiate the start time of the cost estimate based on PJM/PM POCs current and planned workload.
  2. PJM/PM POC Coordinates and Forms a Resource Cost Estimating (RCE) IPT. The RCE IPT consists of NAWCTSD Program Management, Engineering, Logistics, and Contracts personnel. The IPT duties are considered priority One (unless otherwise coordinated with the project manager and the IPT members management chains). The RCE IPT conference room requirements are also considered priority One.
  3. PJM/PM POC Distributes Pre-IPT Meeting Documents. Documents included are requirements documents, IPT meeting agenda, and other material for the IPT to review prior to meeting as a group.

Step 2 - Project Refinement

  1. IPT Refinement Meeting. This step is where the IPT meets to scope the project and layout parameters necessary to begin estimating the hours. Three sub-steps are defined:
    1. IPT Review Requirements & Establish Timeline.
    2. IPT Establish Acquisition Strategy & Update Timeline. Note the acquisition strategy developed here is an initial strategy used for the cost estimating process. It is further refined once the work is excepted. See the acquisition strategy section for details on the formal process.
    3. IPT Update Project Work Statement.
  2. PJM/PM POC Provide Final PWS & Timeline to Competencies and Project Sponsor. The purpose of this step is to provide all concerned with the latest project acquisition details and assumptions. This information forms the basis for the estimate and will be important for historical purposes and when changes occur (funding cuts, plus-ups, schedule changes, etc).

Step 3 - In House Labor Hours Estimate

  1. IPT Completes Applicable Portions of WBS Template. The RCE Worksheet contains standard In-House Labor WBS Templates. These WBS templates are used to enter the estimated labor hours for each WBS element. The IPT will tailor the WBS templates to conform to the current project requirements. Tailoring includes hiding elements not used and adding elements unique to the particular project under way. The PWS should also be updated to reflect any additional assumptions or critical parameters identified during this step.
  2. Roll Up WBS Task Elements to Labor Categories. Within the RCE Worksheet, the in-house labor hours associated with each labor category are rolled up into total hours and total workyears and are grouped by competency and fiscal year. Prior to releasing the estimate, the IPT should do a "Sanity Check" on the roll up hours. Reviewing past projects and using judgment based on experience will help to validate the estimated hours. Again, the PWS should be updated to reflect any additional assumptions or critical parameters identified during this step.

Step 4 - PJM/PM POC Summary Actions

Cost Estimate Summary ActionsWithin the RCE Worksheet, the In house labor hours are converted to dollars. The PJM/PM POC then combines the labor hour cost with the training system costs. The resulting estimate is reviewed for accuracy. If the estimate is okay, the total cost estimate is provided to the customer (Project Sponsor). If any adjustments are required, the recommended changes are sent to the effected Competencies for review. Once the adjustments are approved, the total cost estimate is provided to the customer. If the customer accepts the cost estimate and wants the work done, the project enters the NAWCTSD work acceptance process. If the customer rejects the cost estimate, the effort ends or the PJM/PM POC negotiate a solution that is satisfactory for both parties.

Last Update: 12 June 2015
Project Initialization Project Refinement Project Estimated Summary Actions