Attachment 12: Basis of Estimate Desk Guide

BASIS OF ESTIMATE DEFINITION

Basis of Estimate (BOE) – Documentation that details the premise, or basis, from which proposed costs/prices were developed including cost and labor estimates, material availability, any assumptions or deviations, any studies or analysis used as a reference and any other details which impacted the cost estimates.

In plain English, it represents answers to the following questions: What did you bid?
How did you come up with the estimate?
How do you know it is correct?

METHODS OF ESTIMATION

There are four (4) types of methods for determining the basis of an estimate. These are listed below.

Engineering Estimate (“EE”)
Analogy (“ANA”)
Actuals (“ACT”)
Level of Effort (“LOE”)

Explanations of each method are included in the following paragraphs.

Engineering Estimate
A grass root or “bottom up” estimate is used when there are no comparable tasks previously performed on which to base your estimate. These estimates are based on subject matter expert experience with no specific relevant historical actual cost/hours identified. The subject matter expert develops the estimate based on the product description and tasks and operations required to be performed by the responsible department to manufacture/produce the product. This method requires detailed explanation of the rationale for materials and labor (including labor categories utilized as well as hours proposed), and must include detailed expression of the cost calculations used in the EE.

Analogy
Analogy relies a great deal on expert opinion to modify existing system/performance data to approximate the new system or level of performance. If possible, the adjustments should be quantitative rather than qualitative, avoiding subjective judgments as much as is reasonably possible. This is an estimate derived from the historical actual cost/hours of a similar project, system/subsystem, or end item. Under this methodology you must identify the analogous program that has already been completed and why it is relevant to the same or similar task estimate. Include the relevant project name, project/contract number, period of performance, and task definition. Ensure that you describe a clear trace to how the analogous data was used to derive the current estimate. This technique may use actuals but the efforts are usually “factored” for complexity level. For example if you have actual hours and material expended to generate a specific Unit, these values may be multiplied by a factor to equal the required design. If the Unit is twice as big but not as complex, the material may increase by a factor of 1.2 but the design time may only be .8 of the actuals. Similarly, if there are fewer parts than the prior Unit, the assembly time may be less. All mathematical calculations used to derive the proposed cost/price must be included as support.