2012-MMT107

An Approach to Improving Cost Estimating and Budget Integration in Federal Programs

Methods and Models I Track

MMT107_Presentation_ApproachtoImprovingCostEstandBudgetIntegrationinFedPrograms_Hong

Abstract:

Over the past few years, political standoffs in Washington, D.C. have delayed or prevented passage of Federal Appropriations Bills and significantly reduced Federal spending. As Agency budgets continue to shrink, programs must increasingly compete with each other for a slice of dwindling resources. Program and Departmental managers responsible for resource decisions are demanding more detailed and agile resource justifications which can accommodate multiple budget scenarios. In response, program offices require tools that efficiently translate estimated program costs into flexible and defensible budgets.

A program’s Lifecycle Cost Estimates (LCCE) contains a wealth of information on program requirements and future costs, yet programs often do not effectively leverage this valuable data to develop budgets. In some cases, programs develop the LCCE and budget independently of each other. Conversely, the LCCE is frequently used as the budget without any alteration. Each approach risks inaccurate estimation of a program’s future obligation requirements. In the first approach, using separate estimates for budget and LCCE risks omission of requirements from the LCCE or budget. This leads to inconsistent assessment and reporting of future resource requirements, and limits “what-if” budget scenario building. The latter approach reflects a commonly overlooked issue within Federal programs: obligations and the associated expenditure of funds (invoicing) often occur in different fiscal years. Particularly in the acquisition phase of a program, budget funds for procuring goods and services may be needed in the year prior to LCCE-estimated expenditure of those good and services. An LCCE which estimates fiscal year expenditures may not properly reflect a program’s required budget to fund the associated obligation. Traditional LCCEs generally do not give programs the flexibility to view program cost in terms of expenditure and budgets that address practical acquisition and contracting concerns.

This paper reports on a new model that uses a single set of assumptions to develop two estimates- an LCCE that projects program expenditures and a budget estimate that predicts annual obligation requirements based upon projected expenditures. This model ensures that the estimated budget and LCCE are based on the same documented requirements. This highly detailed budget estimate gives program management a more precise way to prioritize requirements, including targeting areas for enhancement and reduction in resource requests. Additionally, this Excel-based model allows a program to quickly develop “what-if” budget scenarios through user-driven cost and schedule input fields giving management the ability to develop multiple, unbiased cost and budget options, assess and present performance trade-offs of resource decisions, and respond more quickly and confidently when facing changes to resource levels.

This integration not only increases the accuracy and agility of a program’s budget development, but ultimately improves the quality and credibility of both products. Linking the LCCE to budget formulation and execution strengthens the traceability of funding from estimated to actual expenditures and enhances the ability of both estimators and budget analysts to refine the scope and accuracy of cost and budget estimates.

Author(s):

Michael Noonan
Booz Allen Hamilton, Inc.
Mr. Michael Noonan is an Associate at Booz Allen Hamilton, Inc. who works on project costing and financial analysis for various government clients. He earned a Bachelors Degree in Physics from University of Virginia, a Masters Degree in Electrical Engineering from the California State University, Fresno, and a Masters of Business Administration from the University of Pennsylvania.

Kristin Jackman
Booz Allen Hamilton, Inc.
Kristin Jackman is an Associate at Booz Allen Hamilton, Inc. specializing in budgeting and budget/performance integration. Before joining Booz Allen, Kristin spent 7 years in Federal consulting supporting Defense and Civilian Agencies financial and performance management. She earned her Bachelor s in Economics and Russian Studies from the University of Virginia.

Eric Hong
Booz Allen Hamilton, Inc.
Mr. Eric Hong is an Associate at Booz Allen Hamilton, Inc. who has provided cost estimation provided cost estimation to multiple clients within Department of Defense (DoD), Department of Treasury, and Department of Homeland Security (DHS). He has specialized in providing cost support for developing emerging technology IT systems. He earned a Bachelors Degree in Policy & Management from Carnegie Mellon University. He is a certified cost estimator.