Actions Needed to Evaluate the Impact of Efforts to Estimate Costs of Reports and Studies

May 10, 2012

DOD is estimating and publishing approximate costs for selected types of internally and externally required reports, but in some cases its approach is not fully consistent with relevant cost estimating best practices and cost accounting standards. Specifically, DOD entities have been directed to use the cost estimating tool to capture marginal costs of activities associated with completing a report or study that would not have been performed otherwise. These costs consist of certain manpower costs (such as the prorated salaries of military and civilian personnel based on the time they spent) and nonlabor costs (such as contract services, travel, or printing). In comparing DOD’s approach to (1) GAO’s Cost Estimating and Assessment Guide—which states that high-quality, reliable cost estimates should be comprehensive, well documented, and accurate—and (2) relevant accounting standards, we found the following.

Comprehensive. GAO’s cost guide states that cost estimates should include all costs, but allows flexibility for the estimates to exclude costs where information is limited as long as steps are taken to clearly define and document what costs are included or excluded. DOD’s guidance on using the tool defines and documents decisions to include certain manpower and all nonlabor costs in its calculation. In addition, it documents the decision to exclude other manpower costs, such as those for health care and training expenses. It also provides broad examples of some types of activities to consider in estimating costs, but leaves it up to the discretion of the individuals generating the cost estimate to decide which types of activities to include or exclude. As a result, based on the nine reports we reviewed, we found inconsistencies in the types of activities individuals decided to include when developing their cost estimates. For example, we found that for six of the nine reports we reviewed, some individuals calculated the manpower costs for activities associated with coordinating the report through the final review while others did not. In addition, according to relevant accounting standards, appropriate procedures and practices should be established to enable, among other things, the interpretation and communication of cost information. However, when presenting the cost estimate on the front cover of a report or study, the language DOD uses does not provide information on what costs are included or excluded. Specifically, it does not indicate that the estimate reflects only certain marginal manpower and nonlabor costs. Without further explanation, this wording could be subject to misinterpretation such that recipients of the reports or studies may assume that all costs are included in the estimate when that is not the case.

Well documented. GAO’s Cost Estimating and Assessment Guide states that cost estimates should be easily traceable to source documents. While DOD’s guidance on using the tool states that individuals should be prepared to explain how they developed the cost estimate, it does not include a requirement for individuals to retain source documentation. In practice, we found that of the nine reports we reviewed, individuals were able to easily retrieve documentation for the estimates prepared for three reports, but not for the other six. As a result, DOD may not have the information needed so that others can understand how a cost estimate was derived and readily replicate it.

Accurate. GAO’s Cost Estimating and Assessment Guide further states that cost estimates should have all cost inputs checked to verify that they are accurate. However, we found that DOD’s guidance on using the tool has no requirement to independently verify the costs used to generate the cost estimate. In practice, the individual generating the cost estimate is responsible for ensuring its accuracy. As a result, without independent verification, DOD cannot ensure that cost estimates are accurate and reliable.

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