Feb 2013
Lesson 2.1: Financial Management: Cost Estimation
Budget Terms
Each of these terms has an official definition in budget execution.
TERM
DEFINITION
Budget Authority
"Budget Authority" is the authority granted by appropriations law to enter into obligations that will result in immediate or future outlays.
Commitment
A "commitment" is the administrative reservation of funds, usually by the local comptroller, in anticipation of a future obligation. A commitment is the response to a request for a spending action. It ensures that funds are available in the amount requested, in the correct fiscal year, and in the proper appropriation.
Obligation
An "obligation" is the legal reservation of funds to make a future payment of money.…show more content…
1. Analogy: Subjectively compares the new system with one or more existing similar system for which there is accurate cost and technical data.
Strengths
●
●
●
Quick
Inexpensive
Easy to change
Weaknesses
●
●
Subjective
Not as precise
2. Parametric: Sometimes known as the statistical method, this technique:
● Generates an estimate based on system performance or design characteristics.
● Uses a database of elements from similar systems.
● Differs from Analogy in that:
● Uses multiple systems.
● Makes statistical inferences about the cost estimating relationships (CER).
Strengths
●
●
●
Uses cost estimating relationships Easy to do "what-if drills"
Inexpensive
Weaknesses
●
●
Moderately subjective
Precision only as good as the data base
3. Engineering: "Bottom-up" method of cost analysis that is the most detailed of all the techniques and the most costly to implement. Each WBS element must be costed to build the cost estimate for the entire program.
Strengths
●
●
Very accurate in later stages of System
Development &
Demonstration
Limited subjectivity
Weaknesses
●
●
●
Very expensive
Very time-consuming
Difficult to do "what-if drills"
4
Feb 2013
4. Actual Costs: Extrapolation from actual costs that were contracted for or actually incurred on that same system during an earlier period.
Strengths
●
●
Little subjectivity
Very accurate
Weaknesses
●
●
Little applicability
Budget may
Lesson 2.1: Financial Management: Cost Estimation
Budget Terms
Each of these terms has an official definition in budget execution.
TERM
DEFINITION
Budget Authority
"Budget Authority" is the authority granted by appropriations law to enter into obligations that will result in immediate or future outlays.
Commitment
A "commitment" is the administrative reservation of funds, usually by the local comptroller, in anticipation of a future obligation. A commitment is the response to a request for a spending action. It ensures that funds are available in the amount requested, in the correct fiscal year, and in the proper appropriation.
Obligation
An "obligation" is the legal reservation of funds to make a future payment of money.…show more content…
1. Analogy: Subjectively compares the new system with one or more existing similar system for which there is accurate cost and technical data.
Strengths
●
●
●
Quick
Inexpensive
Easy to change
Weaknesses
●
●
Subjective
Not as precise
2. Parametric: Sometimes known as the statistical method, this technique:
● Generates an estimate based on system performance or design characteristics.
● Uses a database of elements from similar systems.
● Differs from Analogy in that:
● Uses multiple systems.
● Makes statistical inferences about the cost estimating relationships (CER).
Strengths
●
●
●
Uses cost estimating relationships Easy to do "what-if drills"
Inexpensive
Weaknesses
●
●
Moderately subjective
Precision only as good as the data base
3. Engineering: "Bottom-up" method of cost analysis that is the most detailed of all the techniques and the most costly to implement. Each WBS element must be costed to build the cost estimate for the entire program.
Strengths
●
●
Very accurate in later stages of System
Development &
Demonstration
Limited subjectivity
Weaknesses
●
●
●
Very expensive
Very time-consuming
Difficult to do "what-if drills"
4
Feb 2013
4. Actual Costs: Extrapolation from actual costs that were contracted for or actually incurred on that same system during an earlier period.
Strengths
●
●
Little subjectivity
Very accurate
Weaknesses
●
●
Little applicability
Budget may
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