1. 1 Cost Estimating Comparative Study The UK MoD Perspective Defence Procurement Agency (DPA) U.K. Ministry of Defence (MoD) Pricing & Forecasting Group Cost as a Business Driver -ACostE EMC Learning Event Defence Procurement Agency (DPA) U.K. Ministry of Defence (MoD) Pricing & Forecasting Group Cost as a Business Driver -ACostE EMC Learning Event Cost as a Business Driver

2. Cost as a Business Driver - ACostE EMC Learning Event 2 Tim Brogan Cost Engineer PFG Birmingham

3. Cost as a Business Driver - ACostE EMC Learning Event 3 Who We Are: l Professionally qualified multi-disciplined Task-Force l Knowledge of UK Defence Industry l Contract Pricing Audit l Acquisition Cost Forecasts & Models l Consultancy l Risk Assessment l Help & Advice to obtain Value for Money Who We Are: l Professionally qualified multi-disciplined Task-Force l Knowledge of UK Defence Industry l Contract Pricing Audit l Acquisition Cost Forecasts & Models l Consultancy l Risk Assessment l Help & Advice to obtain Value for Money

4. Cost as a Business Driver - ACostE EMC Learning Event 4 Where We Work n Officers based throughout the country from Rosyth in the North to Devonport in the South n Offices at major defence contractors n Birmingham Office covers the Midlands n Officers based throughout the country from Rosyth in the North to Devonport in the South n Offices at major defence contractors n Birmingham Office covers the Midlands

5. Cost as a Business Driver - ACostE EMC Learning Event 5 What We Do n Pricing Services: –Independent, risk based assessment of non-competitive quotations –Assessment of contractors charging rates and financial viability –Post costing investigations and verification of costs –Support to and, where delegated, negotiation of contract price –Support and development of pricing/costing policies –Consulting for Cost Engineering and Accounting issues –Cost Forecasting Services –Asset Accounting Centre –Risk Analysis team –EVM n Pricing Services: –Independent, risk based assessment of non-competitive quotations –Assessment of contractors charging rates and financial viability –Post costing investigations and verification of costs –Support to and, where delegated, negotiation of contract price –Support and development of pricing/costing policies –Consulting for Cost Engineering and Accounting issues –Cost Forecasting Services –Asset Accounting Centre –Risk Analysis team –EVM

6. Cost as a Business Driver - ACostE EMC Learning Event 6 Our Main Customers MoD Commercial Officers l MoD Integrated Project Teams (IPTs) l Overseas Governments (Reciprocal MOU) l Multi-National Co-operative Projects l NATO Agencies l Other U.K. Govt Departments MoD Commercial Officers l MoD Integrated Project Teams (IPTs) l Overseas Governments (Reciprocal MOU) l Multi-National Co-operative Projects l NATO Agencies l Other U.K. Govt Departments

7. Cost as a Business Driver - ACostE EMC Learning Event 7 Pricing: Business Rules n Any non competitive contract above £1M/$0.5M. n UK Review Board for Government Contracts - n Standard UK Govt Contract Conditions. n Contract / Request For Proposal (RFP) Conditions. n UK Standard Accounting Practices. n MoUs. n US Federal Acquisition Regulations. n NATO Contract Audit Guidelines.

8. Cost as a Business Driver - ACostE EMC Learning Event 8 Pricing: Process Customer Request PFG/ Customer Agreement Carry out our investigation Produce report providing our recommendations and/or our agreements

9. Cost as a Business Driver - ACostE EMC Learning Event 9 PFG Pricing Team Direct Materials Sub - Contract Direct Labour Other Direct charges Prime cost Factory Overhead Factory cost G&A expenses Production cost Total Contract Cost Profit Contract Price Direct costs Cost Engineer Indirect costs Accountant Commercial Officer / PFG

10. Cost as a Business Driver - ACostE EMC Learning Event 10 The QMAC Questionnaire on the Method of Allocation of Costs Cost Allocation Needed by the Cost Engineer in order to: Needed by the Cost Engineer in order to:  Identify those elements that need to be estimated. (i.e.... - The DIRECT Charges)  And those that have already been included in the Overheads. (i.e.. - The INDIRECT Charges) NO DOUBLE RECOVERY Cost Allocation Needed by the Cost Engineer in order to: Needed by the Cost Engineer in order to:  Identify those elements that need to be estimated. (i.e.... - The DIRECT Charges)  And those that have already been included in the Overheads. (i.e.. - The INDIRECT Charges) NO DOUBLE RECOVERY

11. Cost as a Business Driver - ACostE EMC Learning Event 11 Price Proposal Audits Cost Engineering n Prime Cost Estimating. –Labour, Material & Expenses n Select samples (Pareto or stratified statistical). n Do independent estimates reflecting quantities and efficient methods. n Estimating techniques:- n Fully detailedSelective detail n Single lineBroad appraisal n Time bandComparative n Parametric n Prime Cost Estimating. –Labour, Material & Expenses n Select samples (Pareto or stratified statistical). n Do independent estimates reflecting quantities and efficient methods. n Estimating techniques:- n Fully detailedSelective detail n Single lineBroad appraisal n Time bandComparative n Parametric

12. Cost as a Business Driver - ACostE EMC Learning Event 12 Typical Cost Engineering Process n Estimating n Industry Experience n Apply allowances/learning n Apply Direct labour rate (if applicable) n Combine with charging rates to give cost/price estimates. –Recovery base, technical review of indirect –capacity/manning evaluation n Conduct pricing-risk analysis. n Provide rationale for price-negotiations. n Report to Customer and/or conduct negotiation. n Estimating n Industry Experience n Apply allowances/learning n Apply Direct labour rate (if applicable) n Combine with charging rates to give cost/price estimates. –Recovery base, technical review of indirect –capacity/manning evaluation n Conduct pricing-risk analysis. n Provide rationale for price-negotiations. n Report to Customer and/or conduct negotiation.

13. Cost as a Business Driver - ACostE EMC Learning Event 13 Cost Engineer Typical Experience and Activities n Estimating n Production Methods and Systems n Development Phase Estimating n Project Management n Costing Systems n Risk Analysis n Estimating n Production Methods and Systems n Development Phase Estimating n Project Management n Costing Systems n Risk Analysis

14. Cost as a Business Driver - ACostE EMC Learning Event 14 Cost Engineer Tools and Databases n Cost Engineer n Learner n Predict n Database n Excel n Sampler n Synthetics n Risk Modelling n Cost Engineer n Learner n Predict n Database n Excel n Sampler n Synthetics n Risk Modelling n Cost Forecaster n Price H & S n OSCAM n Crystal Ball n Optimism Bias

15. Cost as a Business Driver - ACostE EMC Learning Event 15 GOLDEN RULE It is the mark of the instructed mind to rest satisfied with a degree of accuracy and not to seek exact precision Aristotle

16. 16 PFG Prepared Costing for Warrior AFV Wiring Harness Cost as a Business Driver - ACostE EMC Learning Event

17. 17 Cost as a Business Driver - ACostE EMC Learning Event

18. 18

19. Cost as a Business Driver - ACostE EMC Learning Event 19

20. Cost as a Business Driver - ACostE EMC Learning Event 20

21. Cost as a Business Driver - ACostE EMC Learning Event 21

22. Cost as a Business Driver - ACostE EMC Learning Event 22

23. Cost as a Business Driver - ACostE EMC Learning Event 23

24. Cost as a Business Driver - ACostE EMC Learning Event 24

25. Cost as a Business Driver - ACostE EMC Learning Event 25

26. 26 Thank you for listening. Any Questions? Cost as a Business Driver - ACostE EMC Learning Event