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Cost Estimation/Affordability

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Each page in this pathway presents a wealth of curated knowledge from acquisition policies, guides, templates, training, reports, websites, case studies, and other resources. It also provides a framework for functional experts and practitioners across DoD to contribute to the collective knowledge base. This site aggregates official DoD policies, guides, references, and more.

DoD and Service policy is indicated by a BLUE vertical line.

Directly quoted material is preceeded with a link to the Reference Source.

Reference Source: DAG CH 2-2.1 Life-Cycle Cost Estimating

Independent and sound cost estimates are vital for effective acquisition decision-making and oversight. Cost estimates also support efficient and effective resource allocation decisions throughout the Planning, Programming, Budgeting, and Execution process. Life-cycle cost estimates cover the entire life cycle of the program and include the development, production, operations and support (including both sustainment and disposal) phases, regardless of funding source.

How to Conduct a Cost Estimate

Conduct of a cost estimate is a multistep process involving planning, gathering data, conducting the estimate, risk and uncertainty analysis, and presenting the estimate. Depending on the program and data available, the methodology for the conduct of the estimate may vary. The BCF 131 presentations set forth guidance for each stage of the estimating process.

Independent Cost Estimates (ICE)

Reference Source: DoDI 5000.73, Section 3.1.a

Pursuant to Sections 3221 – 3227 of Title 10, United States Code (U.S.C.) , the Office of Cost Assessment (CA) within CAPE conducts or approves ICEs and cost analyses for all major defense acquisition programs (MDAPs) and major subprograms:

At the discretion of DCAPE or upon the request of the Secretary of the Military Department concerned, CA conducts, approves, or delegates ICEs for the remainder of the life-cycle of the program for sustainment reviews required by Section 4323 of Title 10, U.S.C.


Reference Source: DoDI 5000.73, Section 3.2

Content of ICE.

The ICE is a full life-cycle cost estimate of a program and includes:

  • All costs of development, procurement, military construction, operations and support, disposal, and trained manpower to operate, maintain, and support the program or subprogram upon full operational deployment, without regard to funding source or management control.
  • At Milestone A, identification and sensitivity analysis of key cost drivers that may affect life-cycle costs.

Consideration of ICE at Milestone Reviews.

The MDA may not approve entering a milestone phase of an MDAP or major subprogram unless an ICE, conducted or approved by DCAPE, has been considered by the MDA.

Cost Estimates Not Used for Contract Negotiation.

Pursuant to Section 3226 of Title 10, U.S.C., the cost estimates developed under Paragraph 3.1.a.(1) for baseline descriptions and other program purposes may not be used for contract negotiations or the obligation of funds.

Reference Source: Based on DAG CH 2-2.1.4 (Operating Support) content, Jul 2020

DoDI 5000.73 (Encl. 2, para 2.d.(6)) provides that post-initial operational capability (IOC) DoD Components must continue to track operating and support (O&S) costs and update O&S cost estimates yearly throughout a program’s life cycle to determine whether preliminary information and assumptions remain relevant and accurate and to identify and record reasons for variances.

O&S cost estimates are independently reviewed at post-IOC reviews. Each O&S cost estimate must be compared to earlier estimates and the program’s O&S affordability caps, and, as appropriate, used to update the life-cycle affordability analysis provided to the MDA and requirements validation authority. This comparison must identify the reasons for significant changes and categorize those reasons into external and internal ones.

CAPE provides guidance on O&S cost estimating in its Operating and Support Cost Estimating Guidebook.

Investment Management

Reference Source: DODI 5000.85 Section 3C.3.c

MDAP Goal Development Procedures. 

The following procedures are applicable to all MDAPs initiated after October 1, 2017, without regard to what milestone initiates the program.

  • Immediately following completion of the AoA and the final out brief to the Study Advisory Group, the MDA will provide the Joint Staff, the USD(A&S), the Under Secretary of Defense for Research and Engineering, and the DCAPE, a complete options matrix (Figure 3), and the access necessary to complete independent analysis in their area of responsibility. The analysis will address the AoA results and consider the aggregated risk regarding technical feasibility, cost, schedule, and affordability. The analytical results will be submitted to the MDA within 30 days of the AoA out brief to support a goal establishment meeting (GEM) and the MDA’s goal decision.
  • Within 30 days of the AoA out brief, the MDA will co-chair a GEM with the component Vice Chief of Staff or the Vice Chief of Naval Operations (or for ACAT ID programs, the Vice Chairman of the Joint Chiefs of Staff). The GEM will be supported by the organizations mentioned above and will discuss the analysis and the recommended cost, fielding, and performance goals.
  • The MDA will consider the advice provided by the OSD and Joint Staff, approve the goals for cost, schedule, and performance, and document the decision in a program goals approval memorandum, similar to that portrayed in Figure 4. The MDA must approve the goals before funds are obligated for technology development, systems development, or production. The initial goals will inform MDAP initiation.
  • The MDA is responsible for monitoring the goals. If the estimated procurement unit cost for the program is higher than the program cost target, or if the estimated date for IOC for the baseline description for the program exceeds the fielding target, the MDA will re-assess the program and, if justified, increase the program cost target or increase the fielding target prior to the next milestone or production decision in consultation with the OSD advisors identified in Paragraph 3C.3.c.(1)(a). The new goals must be approved before the program can proceed through a milestone event.
Figure 3. Options Matrix

Figure 3. Options Matrix


Figure 4. Sample Program Cost, Fielding, and Performance Goals Memorandum

Figure 4. Sample Program Cost, Fielding, and Performance Goals Memorandum

Cost Baseline Control and Use of “Should Cost” Management.

For MDAPs, it is DoD policy to budget to the DCAPE ICE unless an alternative estimate is specifically approved by the MDA. PMs will also develop a “should cost” estimate as a management tool to control and reduce cost. PMs should not allow the ICE to become a selffulfilling prophecy. (a) “Should cost” is a management tool designed to proactively target cost reduction and drive productivity improvement into programs. “Should cost”  management challenges managers to identify and achieve savings below budgeted most-likely costs.


“Should cost” analysis can be used during contract negotiations, particularly for sole source procurements, and throughout program execution including sustainment. PMs are to proactively seek out and eliminate low-value-added or unnecessary elements of program cost, to motivate better cost performance wherever possible, and to reward those that succeed in achieving those goals. “Should cost” estimates used in contract negotiations will be based on the government’s reasonable expectation of successful contractor performance, consistent with the contractor’s previous experience and other relevant data. Realized “should cost” savings will be retained at the lowest organizational level possible and applied to priority needs. “Should cost” applies to programs in all ACATs, in all phases of the product’s life cycle, and to all elements of program cost.


Program management will develop, own, track, and report against “should cost” targets. Estimates and results will be provided at milestone reviews and at specified decision points. PMs will report progress against “should cost” goals via OSD- or DoD Component specified procedures.


Earned Value Management (EVM). 

EVM is one of DoD’s and industry’s most powerful program planning and management tools. It is normally used in conjunction with cost plus and fixed-price incentive contracts with discrete work scope. The purpose of EVM is to ensure sound planning and resourcing of all tasks required for contract performance. It promotes an environment where contract execution data is shared between project personnel and government oversight staff and in which emerging problems are identified, pinpointed, and acted upon as early as possible. EVM provides a disciplined, structured, objective, and quantitative method to integrate technical work scope, cost, and schedule objectives into a single cohesive contract baseline plan called a performance measurement baseline for tracking contract performance. Tables accessible at summarize EVM applicability and reporting requirements.


Reference Source: DAG CH 2-2.2 Cost and Software Data Reporting

Systematic and institutionalized cost data collection by each DoD Component is important to support credible cost estimates of current and future programs. The cost data collection systems subject to CAPE oversight are the Cost and Software Data Reporting system and the Visibility and Management of Operating and Support Costs system. CAPE also provides technical oversight to the central repository for earned value management (EVM) data.

Cost reporting for all contracts over $50 million for MDAP programs and may be required for special interest contracts or those requested by the Services or CAPE. When it is determined that cost reporting is required for a contract, the cost working group integrated product team (CWIPT) meets to develop an appropriate cost reporting plan. Figure 1 sets forth the CWIPT participants and each participant’s role.

Figure 1: CWIPT Participants and RolesFigure 1: CWIPT Participants and Roles

The CWIPT follows the timeline found in DoDM 5000.04 (Encl. 2, Fig 1) when developing the cost reporting plan.

The CWIPT remains active with the validation of cost reports as the reports are submitted. The timeline found in DoDM 5000.04 (Encl. 2, Fig 2) is followed for the submission and validation of cost reports.

Additional forms, templates, requirements, and contact information for cost and data reporting are set forth on the Cost Assessment Data Enterprise (CADE) website, CADE provides the users in the cost community with single-point access to the complete range of authoritative acquisition, cost, EVM, and technical data. Access to CADE is made available to government analysts throughout the cost and acquisition communities.

ACAT II and III Programs

Reference Source: CH 2–2.1.3 Acquisition Category II and III Programs

Cost estimates for ACAT II and III programs are conducted in accordance with each Service’s policy. While OSD does not play an active role in the preparation of these estimates, the guidelines set forth in CH 2–3.3. and CH 2–3.4. should be followed to the greatest degree possible.