Cost Estimating Procedures

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ASSISTANT DEPUTY MINISTER (FINANCE) SOUS-MINISTRE ADJOINT (FINANCES)

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Background

• NGFC Annual Update 2012

– KPMG Independent Review – OAG Audit Report 2011

• Comparison of costing capability to allies • Areas of improvement

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Internal Process Perspective Decision Maker Perspective

Learning & Growth Perspective Stakeholder Perspective Decision Repeatable Results Structured Costing Traceable Reporting Value Proposition

CBS & Data Costing Techniques Modeling and Reporting Risk Assessment and Reporting Inform Stakeholders Support CFO Attestation Scenario Management

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Costing Process - CCD

Establish

GR&As Cost ModelDevelop

Review, Analyze & Update Present Provide Assurance Plan Approach

Not Necessarily Sequential Many activities are iterative and can be accomplished in varying order or concurrently! Each Component must be

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• The cost purpose is defined

– What decision will the estimate support?

• The cost scope is described

– Capability description – Time frame

• The cost estimate development work is planned

– Team

– Approach

– Schedule & Deliverables – Quality Assurance

Purpose & context determine what cost information should be

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• Cost Plan Template

• Cost Report Template • Generic CBS Framework

• Capability Investment Database (CID)

– Project documentation

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• Establish the cost estimate’s baseline conditions

– Cost boundary: conditions that constrain the scope of the estimate – Ground rules: constraints that have been directed to the cost

analyst to use

– Assumptions: developed by the cost analyst in order to address any information gaps to produce the estimate

• Cost boundaries will depend on the purpose of the cost estimate and requirements of key stakeholders

• Boundaries and assumptions should be well defined, documented, and agreed upon with stakeholders

Boundaries, GR&As - Objectives

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• Cost Report Template

– Includes Input Sheet Template

• GAO Chapter 9: Ground Rules and Assumptions • CEBoK Module 3: Parametrics

– Cost drivers

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• Build and populate the cost model with the cost estimate and information necessary to support stakeholders in

their decision-making process

• Align the model to the determined purpose, scope, boundaries, ground rules and assumptions

• Document and build the cost model in alignment with best practice spreadsheet modelling standards

Incorporate the characteristics of high

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• Cost Model Template & User Guide

• Generic CBS Framework • Cost Report Template

• Best Practice Spreadsheet Modelling Standards

• Focus on those noted within the Cost Model Template User Guide

• DND’s Economic Model, Foreign Exchange Forecasts, etc. • DND’s Cost Factors Manual

• CEBoK

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• Baseline estimate has been reviewed for quality assurance and updated as necessary

• Risk and sensitivity analysis supports CFO Attestation Assertion #2

– Significant risks having a bearing on the financial requirements, the sensitivity of the financial requirements to changes in key

assumptions, and the related risk-mitigation strategies have been disclosed.

• The risk-adjusted estimate and determination of contingency is documented

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• Cost Risk Framework

• D Cost S Spreadsheet Testing SOP • Cost Report Template

• CEBoK Module 9: Risk

• GAO Chapter 14: Cost Risk & Uncertainty • Capability Investment Database (CID)

– Project documentation pertaining to risk such as the Project Complexity and Risk Assessment (PCRA)

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• Third-party independent review of the cost estimate by an organization external to D Cost S, as required by decision-makers

• Potentially more-to-come from TBS Costing Centre of Expertise

Not applicable to all projects

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• Example Independent Review Reports:

• Next Generation Fighter Capability: Independent Review of

Life Cycle Cost (27 Nov 2012)

• Independent Review: 2013 Department of National Defence

Annual Update on the Next Generation Fighter Capability Life Cycle Costs (5 Aug 2013)

• Independent Review: 2014 Department of National Defence

Annual Update on the Next Generation Fighter Capability Life Cycle Costs (24 Nov 2014)

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• The cost estimate results are communicated to decision makers

• The Cost Report identifies key issues related to the costs in a factual and easy to understand manner that are relevant to the decision(s) being sought

• The Cost Report and Cost Model form the completed cost estimate and contain the characteristics of a

high quality cost estimate

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• Cost Report Template

• Guideline on Chief Financial Officer Attestation for Cabinet Submissions

• Corporate Submissions

• TBS Detailed Guidance for [Submission] Writers • Source of Funds Terminology

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Conclusion

• Costing has evolved in Canada

• Significant amount of resources available

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Figure

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References

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