Cost Estimating Comparative Study The UK MoD Perspective

1. Cost as a Business Driver Cost Estimating ComparativeStudyThe 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

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

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

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

5. What We Do • 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 Cost as a Business Driver - ACostE EMC Learning Event

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

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

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

11. Price Proposal AuditsCost Engineering • Prime Cost Estimating. • Labour, Material & Expenses • Select samples (Pareto or stratified statistical). • Do independent estimates reflecting quantities and efficient methods. • Estimating techniques:- • Fully detailed Selective detail • Single line Broad appraisal • Time band Comparative • Parametric Cost as a Business Driver - ACostE EMC Learning Event

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

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

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

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

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