Agencies weak on estimating IT costs, GAO finds

A life-cycle cost estimate is an exhaustive accounting of all resources and associated costs for developing and running a program, an important part in making good spending decisions. However, the Government Accountability Office says many agencies have weak policies on gathering complete estimates for their programs.

As a result, federal officials will have a hard time making decisions about their IT programs because cost-estimate policies don’t mirror best practices, GAO reported July 27.

The government plans to spend at least $75 billion on IT investments in fiscal 2012. The size of this investment highlights the importance of reliably estimating the costs of IT acquisitions, GAO wrote.

GAO reviewed eight agencies’ cost estimate policies. Six of them had a clear requirement for programs to develop the estimates. But most agencies’ policies lacked requirements for training employees on estimating costs, a standard structure for defining work products, and a central, independent cost-estimating team.

GAO said the weaknesses are there because of cost estimation isn’t a priority.

“Until agencies address weaknesses in their policies, it will be difficult for them to make effective use of program cost estimates for informed decision making, realistic budget formation, and meaningful progress measurement,” GAO wrote.

Going more indepth, GAO reviewed documentation supporting cost estimates for 16 major investments at these eight agencies—representing about $51.5 billion of the planned IT spending for fiscal 2012.

All of the programs had developed cost estimates, and officials were using them to support their program and budget decisions. However, all but one of the estimates were not fully reliable.

That means they did not fully reflect all four characteristics GAO identified in its cost-estimating guide: comprehensive, well-documented, accurate, and credible, according GAO’s report.

GAO recommended that agencies modify their cost-estimating policies, making them consistent with the best practices in its guide. GAO also said agencies should update future cost estimates of the acquisition programs it reviewed.

In its program reviews, the Navy's Consolidated Afloat Networks and Enterprise Services program fully implemented key practices for developing a comprehensive cost estimate, GAO reported. The program is designed to consolidate and standardize existing Navy network infrastructures and services.

The program’s cost estimate was based on its current parameters, such as the acquisition strategy. The various elements in the estimate equaled the amount of spending for each cost category within the program. Officials didn’t count costs more than once. Lastly, officials documented rules that influence costs, such as schedule, labor rates and inflation indexes.

The other programs weren’t complete. Ten of the 12 programs did not include the full costs for all life-cycle phases and other important aspects of the program, such as costs expected to be incurred by organizations outside of the acquiring program. In addition, 10 of the 12 programs did not provide evidence that their cost estimates completely defined the program.

These trends boost the chances of overspending, missed deadlines and performance problems, GAO wrote.

“Until important cost-estimating practices are fully implemented, the likelihood that these programs will have to revise their current cost estimates upward is increased,” GAO wrote.