2.6.3 Understanding Cost Analysis Process in United States Government Systems Acquisition

Abstract Cost estimates are one of the most widely known attributes of a program, but from an outsider's perspective, the process of cost estimation and analysis often appears to be a “black art.” The purpose of this paper is to describe the development and use of cost estimates and cost analysis, particularly with respect to United States (U. S.) government systems acquisition, and describe the systems engineers' role in this process. First, we discuss why a systems approach to cost analysis is critical to mission success and needs to begin at the time of program formulation. Second, we describe the cost analysis process. Third, we examine the most common methods used in cost estimation; the estimates' accuracies often depend on which methods are chosen and when these methods are used. Fourth, we describe the evolutionary process of cost estimation throughout the program lifecycle. Since the amount of information available to estimate the cost of a program changes over the lifecycle as the program evolves, so too should the methods used to estimate the program's cost. Finally, we describe the use of cost estimates in cost‐risk and cost‐benefit analysis.