Take the 2-minute tour ×
Project Management Stack Exchange is a question and answer site for project managers. It's 100% free, no registration required.

Some consider the BOE the most important part of an estimate. How do you know that, when you write one, you hit the necessary aspects that brings confidence to the reader that the estimate is sound?

What makes a quality Basis of Estimate? What gets included, what gets excluded?

share|improve this question
2  
Hi David. Could you be a bit more specific in your question, please? I think you refer to the method of documenting the critical aspects of a project cost estimate for the purpose of mitigating project cost risk. Is this what you mean? –  M0N4K0 Mar 16 '11 at 10:05
1  
There are a number of estimating methods, and the list is growing every year. Every one of them needs its own inputs. Please, specify which method are you asking about. Otherwise the question is too vague and is likely to be closed. –  yegor256 Mar 16 '11 at 11:19
1  
Also please specify what kind of projects are you managing. What are the type of clients. Are they services or products ? –  Nikhil Mar 16 '11 at 14:33
2  
I do not want it to be specific to the types of projects I work. I would like some opinions from a general standpoint. Some consider the BOE the most important part of an estimate. How do you know that, when you write one, you hit the necessary aspects that brings confidence to the reader that the estimate is sound? –  David Espina Mar 17 '11 at 0:23
2  
I disagree that elaboration of the question is needed. Within the world of government contracting at least the term BOE is well defined and compliance requirements most likely defined in the FARS. –  Adam Wuerl Mar 17 '11 at 1:33

2 Answers 2

A good Basis of Estimate (BoE) starts with a quality WBS, as is everything in project management. It's the documentation of how a time or cost estimate was produced for each lowest level (work package) of the WBS.

Minimally it should include

  • the method used for estimating,
  • assumptions taken,
  • who made the estimate,
  • specific cost figures used (eg internal hour rates or external consultants fees etc.),
  • possible risks involved (with the worst case estimate, see below)

In short, it should be the proof you made a reliable estimate for the project, based upon the information known at the time.

All work packages should be included; rolling up those cost figures (higher level WBS elements) together with management and contingecy reserves will be the project's Budget.

I've seen BoE documents of government agencies like NASA that have much higher requirements for their BoE (like probablity distribution for each WBS element) and require lots of additional documentation and multiple estimating techniques. But for my type of projects the above will do.

Regarding the method for estimating, there are ofcourse many possibilities. The ones I use most often are

  • Historical data: comparing the work packages with data from similar projects
  • Breaking down the Work Package into its tasks and estimating each task

Ideally you should work with estimate ranges, taking into account uncertainty and hence schedule risk. Some use PERT, but I stick with Most likely - Worst Case.

share|improve this answer

A Basis of Estimate (BOE) is one of several types of products required by formal government proposals. (Others include cost, price, and/or technical evaluations of subcontractor proposals, Priced Bills of Material (PBOM), Work Breakdown Structure (WBS), lists of required Government Furnished Equipment/Information/Support/Facilities/etc. (GFE/GFI/GFS/GFF), and others.)

Although the term may be used more broadly outside of the government sphere, within it, the purpose and required content of a BOE are not only standardized but codified in the Federal Acquisition Regulations (FAR) and Defense FAR (DFAR).

The most common type of BOE is a labor BOE, and its purpose is to justify the number of labor hours the bidder has proposed to complete a given scope of work. A labor BOE should not--as a rule--address costs or rates. It is only concerned with labor hours. Technical people review BOEs to ensure the hours are properly justified; finance people review labor hour rates and the conversion of hours to cost and price.

A BOE should contain the following information:

  • A description of the technical task for which hours are being estimated. Often this section will either reference or include descriptions from the Work Breakdown Structure (WBS) or Statement of Work (SOW).
  • A discussion of the estimating method(s). This section is typically just a couple of words as there are only a few stock answers that meet the compliance requirements. The logic of actually implementing this method to arrive an an estimate is discussed later.
    • The most common is analogy or similar to, where the work being proposed will be compared to identical or similar work that has been previously performed.
    • Bottoms up, where a subject matter expert (SME) in the relevant field provides their assessment of the effort required.
    • Cost estimating relationship (CER), which is an equation used to calculate hours based on a scale factor from another total. Most often, CERs are used for program management or functional, level-of-effort (LOE) support (e.g. configuration management).
  • Background
    • Source of actuals, which only applies to the analogy or similar to method. This section would describe the work that the proposed effort is being compared to. It will also cite the source of actuals (i.e. specific charge numbers that document how many hours were actually required to complete the historical task and enough meta data than an independent auditor with access to the historical database can verify the entries)
    • Relevant experience, which only applies to the bottoms-up method. This describes why the person making the estimate is qualified to do so, typically by summarizing the author's previous work in the field and justifying it's applicability.
    • Derivation of CER. Normally CERs are justified by deriving a percentage for the effort based on history. For example, a similar software development project consumed 11 percent of the total hours doing program management, thus our bid for PM will be 11 percent of the other bid hours.
  • Derivation. This section actually applies the estimating method to calculate a number of hours. It make take the actual hours for the analogous work and modify it by a complexity factor to account for differences in scope, by a scaling of the period of performance, or in another other way that is sensible and can be defended. A CER derivation would show the basis of hours that was being scaled from. A bottoms-up would discuss at as low a level of detail as possible how the logic behind the SME's estimate.
  • Labor spread. Typically a table showing how many hours will be expended each month.
  • Other meta data required to cost the hours. This can be things like the salary grade or experience level/mix of the people that will be performing the work, the geographic location where the work will be performed (important because labor and overhead rates vary by location for companies with multiple sites)

Typically BOEs are written at a given level of the WBS and taken together justify 100 percent of the prime contractor's labor hours. (Subcontractor labor is addressed in the aforementioned subcontractor proposals, technical evaluations and cost/price evaluations.)

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.