Original Date: 08/20/2001
Revision Date: 12/14/2006
Best Practice : Cost Estimate Process
The Cost Estimate Process provides guidance to the Technical Operations staff for preparing Technical Operations cost estimates. The process addresses cost estimate types, documentation, reviews, approvals, and is intended to complement the Cost Estimate Manual.
Previously at Lockheed Martin Naval Electronics & Surveillance Systems-Surface Systems (NE&SS-SS), cost estimating involved three engineering organizations. The overall process of each organization lacked standardization, ranging from ad hoc to fully documented processes. When the company reorganized these groups into one Technical Operations Division under a single vice president, the organization identified the opportunity to standardize the Cost Estimate Process. As such, Lockheed Martin NE&SS-SS developed a standard process that is fully cognizant of the company’s cost estimates, completion status, resource commitments, and level of confidence in each estimate.
Based on standard input and requirements from customers, a cost estimate is categorized as one of four types: Budgetary, Rough Order of Magnitude, Not to Exceed, or Proposal. Each type has its own significant risks, strategic importance, or unique requirements. The Cost Estimate Process involves three phases. The phase, Planning, involves establishing a technical baseline; preparing an internal estimate request; identifying the Technical and Financial Operations Leads; gaining agreement on the estimate type; and holding a kick-off meeting with the cost estimate team to review all pertinent data. Afterwards, the Technical Operations Lead logs in the cost estimate. The next phase, Functional Estimating, involves development of the cost estimate by the Technical Operations Lead and the Responsible Individuals. The First Level Manager and the initial Center Director then review basis of the estimate, and the data is entered into the Proposal Support System to obtain cost accumulation and verification. The final phase, Management Review, involves the Responsible Individuals reviewing the cost estimate with their Center Directors and obtaining a sign-off. The Technical Operations Lead then prepares a cost estimate review package for review by the Staff Directors. If required, the Technical Operations Vice President may also review the estimate. Once the estimate is approved, the Technical Operations Lead submits the documentation to the Technical Operations Cost Estimate Administrator for entry into the Proposal Database. The estimate is also archived for future reference and use on similar products, thereby providing the company with more consistent estimates.
Since implementing the Cost Estimate Process, Lockheed Martin NE&SS-SS reduced its cost estimate generation and review effort while delivering a more robust cost estimate. The entire company has buy-in of the cost estimate and is cognizant of the cost estimates that are in-process or pending acceptance by customers. Management can also predict staffing requirements based on all the estimates. The Cost Estimate Process provides the company with a better understanding of the cost estimate, hence a higher probability of mission success.
For more information see the
Point of Contact for this survey.