INSIGHT

Quality Cost Data: Key to Making Better

Management Decisions
By Kevin Cincotta, ICF International
Cost estimating may not be as exciting as the new baseball season or the competition on “American
Idol.” For anyone in management, though, cost estimating is absolutely vital if somewhat less
entertaining. If you work in program management, procurement, or finance, you rely on high-quality
cost estimates every day. Why? Because these estimates provide the foundation for informed
decision making.
Managers must be able to distinguish between two important but very different and often confused
types of cost estimates: lifecycle cost estimates (LCCEs) and independent government cost
estimates (IGCEs).
Lifecycle cost estimates take a comprehensive view of a program. They include all costs, whether
incurred by the government or the contractor, including labor, materials, facilities, hardware, software
and integration costs, and sometimes even imputed costs. Lifecycle cost estimates can be for 30 years
or more. For high-dollar programs, many government agencies require LCCEs at various acquisition
milestones. For example, on very large programs, the U.S. Defense Department requires LCCEs at three
milestones before projects can proceed. Because of their scope and duration, LCCEs are treated as living
documents that should be updated annually.
When auditing an agency to ensure that cost-estimating best practices are followed, the Government
Accountability Office (GAO) generally looks for LCCE best practices. The GAO Cost Estimating and
Assessment Guide states, “A life-cycle cost estimate provides an exhaustive and structured accounting
of all resources and associated cost elements required to develop, produce, deploy, and sustain a
particular program….An LCCE encompasses all past (or sunk), present, and future costs for every aspect
of the program, regardless of funding source.”
When a program manager is responsible for an LCCE, statements such as “We don’t pay for that,” “Don’t
include it,” or “That comes out of a different bucket of money” will generally lead us astray. “All costs,
regardless of funding source” means that, for example, the costs to train staff members on a new
enterprise resource planning system are generally included, even if they come from a separate training
budget. The costs of facilities used by the program are generally included, even if they come from a
separate facilities budget. Most importantly, operating and support costs must be included. Cost
estimators often focus only on acquisition-related contracts relevant to a program, but approximately
70 percent of major program costs are incurred in the operations and support phase.
Independent government cost estimates, while less commonly performed by cost estimators, are
perhaps more useful to program and project managers. They are specific to one project (or contract)
and typically are created in the context of source selection. They are not lifecycle oriented—they are
limited by the scope and timeframe of the project or contract at hand. They include only those costs
funded by the project or contract. In the context of source selection, they provide an independent cost
baseline against which competing vendor proposals can be evaluated. An important consideration is
that vendor cost proposals generally are not compared with each other. Instead, each proposal should
be (independently) compared with and evaluated against the baseline requirements. In the context of
cost estimating, the IGCE provides such a baseline.
Many program managers request LCCEs when they really need IGCEs. They need an independent
estimate of how much a particular project, effort, or contract will cost. They want to use that estimate as
the basis for the project budget.

1 icfi.com © 2015 ICF International, Inc.

icfi.com To help decision makers determine which cost estimate they need, the table below compares
©2015 ICF International, Inc.
and contrasts the two types. Of course, many programs can and so make appropriate use of
both. Both estimates, in the end, give us a number, but we must understand what is in
the number.
Any views or opinions expressed
in this insight are solely those of
the author(s) and do not LCCE or IGCE? What is IN the number?
necessarily represent those of ICF
International. This insight is
provided for informational ATTRIBUTE LCCE IGCE
purposes only and the contents
are subject to change without
notice. No contractual obligations
Orientation Program Project
are formed directly or indirectly by
this document. ICF MAKES NO Number of contract(s) Zero to several thousand One
WARRANTIES, EXPRESS, IMPLIED,
OR STATUTORY, AS TO THE
INFORMATION IN THIS DOCUMENT.
Includes government costs? Yes No

No part of this document may be

Includes sunk costs? Yes No
reproduced or transmitted in any
form, or by any means (electronic,
mechanical, or otherwise), for any Includes imputed and Sometimes No
purpose without prior written opportunity costs?
permission.
ICF and ICF INTERNATIONAL Includes contractor costs? Yes Yes
are registered trademarks of ICF
International and/or its affiliates. Is sensitive to contract type? No Yes
Other names may be trademarks
of their respective owners.
Informs source selection? No Yes

About ICF International Is required at various acquisition Yes No

ICF International (NASDAQ:ICFI) milestones?
provides professional services and
technology solutions that deliver
Typical timeframe 30+ Years 5 Years
beneficial impact in areas critical
to the world’s future. ICF is fluent
in the language of change, Program Office or Source
whether driven by markets, Who performs? Independent Cost- Selection Team
technology, or policy. Since 1969, Estimating Organization
we have combined a passion for
our work with deep industry
expertise to tackle our clients’ About the Author
most important challenges. We
partner with clients around the Kevin Cincotta is technical director and cost estimating and analysis practice lead for ICF
globe—advising, executing, International. A Certified Cost Estimator/Analyst and Project Management Professional,
innovating—to help them define he also is chapter, regional, and international training coordinator for the International Cost
and achieve success. Our more Estimating and Analysis Association.
than 5,000 employees serve
government and commercial
clients from more than 70 offices
worldwide. ICF’s website is www. For more information contact:
icfi.com.
Kevin Cincotta | kevin.cincotta@icfi.com | +1.703.934.3648

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