By Carol Cha, U.S.G.A.O.
Read or Download GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs (GAO-09-3SP). PDF
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Extra info for GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs (GAO-09-3SP).
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In this context, contingency funding is added to an estimate to allow for items, conditions, or events for which the state, occurrence, or effect is uncertain and experience shows are likely to result in additional costs. Management reserve funds, in contrast, are for “known unknowns” that are tied to the contract’s scope and managed at the contractor level. Unlike contingency reserve, which is funding related, management reserve is budget related. The value of the contract includes these known unknowns in the budget base, and the contractor decides how much money to set aside.
Budget cycles overlap—the formulation of one budget begins before action has been completed on the previous one. ) For the acquisition and management in use phases, reliable cost estimates are also important for program approval and for the continued receipt of annual funding. However, cost estimating is difficult. To develop a sound cost estimate, estimators must possess a variety of skills and have access to high-quality data. Moreover, credible cost estimates take time to develop; they cannot be rushed.