• Home
  • Resources
    • Find Resources by Topic Tags
    • Cybersecurity Policy Chart
    • CSIAC Reports
    • Webinars
    • Podcasts
    • Cybersecurity Digest
    • Standards & Reference Docs
    • Journals
    • Certifications
    • Acronym DB
    • Cybersecurity Related Websites
  • Services
    • Free Technical Inquiry
    • Core Analysis Task (CAT) Program
    • Subject Matter Expert (SME) Network
    • Training
    • Contact Us
  • Community
    • Upcoming Events
    • Cybersecurity
    • Modeling & Simulation
    • Knowledge Management
    • Software Engineering
  • About
    • About the CSIAC
    • The CSIAC Team
    • Subject Matter Expert (SME) Support
    • DTIC’s IAC Program
    • DTIC’s R&E Gateway
    • DTIC STI Program
    • FAQs
  • Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Login / Register

CSIAC

Cyber Security and Information Systems Information Analysis Center

  • Resources
    • Find Resources by Topic Tags
    • Cybersecurity Policy Chart
    • CSIAC Reports
    • Webinars
    • Podcasts
    • Cybersecurity Digest
    • Standards & Reference Docs
    • Journals
    • Certifications
    • Acronym DB
    • Cybersecurity Websites
  • Services
    • Free Technical Inquiry
    • Core Analysis Task (CAT) Program
    • Subject Matter Expert (SME) Network
    • Training
    • Contact
  • Community
    • Upcoming Events
    • Cybersecurity
    • Modeling & Simulation
    • Knowledge Management
    • Software Engineering
  • About
    • About the CSIAC
    • The CSIAC Team
    • Subject Matter Expert (SME) Support
    • DTIC’s IAC Program
    • DTIC’s R&E Gateway
    • DTIC STI Program
    • FAQs
  • Cybersecurity
  • Modeling & Simulation
  • Knowledge Management
  • Software Engineering
/ Journal Issues / Cost Estimation & Systems Acquisition / Parametric Modeling to Support System Acquisition

Parametric Modeling to Support System Acquisition

Published in Software Tech News
Volume: 15 Number: 1 - Cost Estimation & Systems Acquisition

Author: William Roetzheim
Posted: 03/14/2016 | Leave a Comment

Initial System Procurement

The objective of proposal analysis is to ensure that the final agreed-to price is fair and reasonable [FAR 15.404-1].  The FAR uses the phrase “fair and reasonable” throughout, although these are actually two separate but related items when applied to price analysis.

A proposal price analysis looks at the reasonableness of a vendor’s proposed price as a risk reduction measure.  A reasonable price is one where there is a high probability that the vendor can deliver the solution for that price.  An unreasonably low price is a problem for two primary reasons:

  • The vendor may not be willing or able to perform the necessary work at a loss, thereby resulting in a situation involving potential litigation, project cancellation, or major scope changes that are unfavorable to the government.  All of these options are extremely expensive for the government; and
  • The vendor may deliver the product at the price quoted by significantly reducing quality, thereby increasing government work both during the project and during the product lifecycle.  Again, this is an expensive option.

While there are unscrupulous vendors who will buy-in to a contract with a low-ball bid, hoping to use change requests to bring the project back into profitability; the more common reason for unreasonable pricing is that the vendor’s understanding of the project scope does not match the government’s understanding of project scope.  In that situation in particular, a price reasonable test of the vendor’s proposal is of benefit to both the government and the vendor.  Price reasonableness tests are generally pass-fail, and the vendor generally does not have an opportunity to modify their cost proposal if it fails the test.

Price fairness looks at the vendor’s proposed pricing relative to equivalent pricing for the same product offered by others in the industry.  In a situation where there are competing bids that are roughly in-line with each other, price fairness is assured through the competitive process.  In a situation where there is historic precedence for the quoted price (e.g., catalog price, similar procurements for the same goods and services in the past), then this historic information may be used to confirm price fairness.  Where price fairness becomes critical for the cost analyst is the situation where there is only one bid that is under consideration.  This might be because only one bid was submitted, or it might be that only one bid offered a solution that meets the technical or administrative requirements of the procurement.  In that situation, the approach to determining price fairness is to do a cost (vice price) analysis.

One approach to doing the cost analysis is to look at the vendor’s detailed build-up of costs (level-of-effort, direct salary, fringe rates, overhead, G&A, fee, etc.) and to assess each for reasonableness.  The direct salary can be validated using wage and labor charts or through competitive labor market surveys.  The fringe rates can be validated through those same surveys.  The overhead and G&A rates can be validated against competing companies of a similar size and competition6.  Fee can be validated against other similar contracts, based on risk and other factors affecting appropriate profit margins.  However, the validation of the vendor’s proposed level-of-effort is the difficult part.  This is where parametric modeling can offer assistance.  The vendor’s proposed solution is analyzed to identify suitable HLO counts and adjusting factors, and the models are then used to forecast effort based on productivity curves from similar historic projects.  The resultant modeled effort is then compared with the vendor’s proposed effort to determine if the effort is fair.

Unlike reasonableness, problems with price fairness are often handled through vendor negotiation and submission of a best and final offer.  The reason for this difference is as follows.  Cost is always one of the evaluation criteria.  If a vendor wins the competition with a low price, but then fails the price reasonableness test, and we allow the vendor to raise their price to reasonable levels, then we have given that vendor a competitive advantage over other companies who bid the correct price in the first place.  One of those companies should be awarded the contract instead of this vendor.  On the other hand, if a vendor wins the procurement but fails the fairness test, then their bid is the most attractive to the government of the submitted bids at their current, high price.  Lowering their price through negotiation is in the best interest of the government, but would not change the vendor’s relative ranking among the competition.

The third area where IGCE is used is during the life of a project, and that will be the topic of our next discussion.

Pages: Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7

Previous Article:
« History is the Key to Estimation Success
Next Article:
Outcome-Based Acquisition »

Author

William Roetzheim
William Roetzheim
Mr. Roetzheim (PMP, RMP, MBA, CRISC, CISA, IFPUG) is founder and CEO of Level 4 Ventures, Inc., an SDVOSB that offers independent cost analysis, risk management, and project oversight services for large IT projects. He has written 27 published books, over 100 articles, and three columns. He is a frequent lecturer and instructor at multiple technology conferences and two California universities. He can be reached at William@level4ventures.com.

Reader Interactions

Leave a Comment Cancel

You must be logged in to post a comment.

sidebar

Blog Sidebar

Featured Content

Data Privacy Day - Jan 28

Data Privacy Day is January 28th

You can help create a global community that respects privacy, safeguards data, and enables trust. You can help teach others about privacy at home, at work, and in your community.

Learn How

Featured Subject Matter Expert (SME): Daksha Bhasker

A dynamic CSIAC SME, Senior Principal Cybersecurity Architect, Daksha Bhasker has 20 years of experience in the telecommunications services provider industry. She has worked in systems security design and architecture in production environments of carriers, often leading multidisciplinary teams for cybersecurity integration, from conception to delivery of complex technical solutions. As a CSIAC SME, Daksha's contributions include several published CSIAC Journal articles and a webinar presentation on the sophiscated architectures that phone carriers use to stop robocalls.

View SME's Contributed Content

The DoD Cybersecurity Policy Chart

The DoD Cybersecurity Policy Chart

This chart captures the tremendous breadth of applicable policies, some of which many cybersecurity professionals may not even be aware, in a helpful organizational scheme.

View the Policy Chart

CSIAC Report - Smart Cities, Smart Bases and Secure Cloud Architecture for Resiliency by Design

Integration of Smart City Technologies to create Smart Bases for DoD will require due diligence with respect to the security of the data produced by Internet of Things (IOT) and Industrial Internet of Things (IIOT). This will increase more so with the rollout of 5G and increased automation "at the edge". Commercially, data will be moving to the cloud first, and then stored for process improvement analysis by end-users. As such, implementation of Secure Cloud Architectures is a must. This report provides some use cases and a description of a risk based approach to cloud data security. Clear understanding, adaptation, and implementation of a secure cloud framework will provide the military the means to make progress in becoming a smart military.

Read the Report

CSIAC Journal - Data-Centric Environment: Rise of Internet-Based Modern Warfare “iWar”

CSIAC Journal Cover Volume 7 Number 4

This journal addresses a collection of modern security concerns that range from social media attacks and internet-connected devices to a hypothetical defense strategy for private sector entities.

Read the Journal

CSIAC Journal M&S Special Edition - M&S Applied Across Broad Spectrum Defense and Federal Endeavors

CSIAC Journal Cover Volume 7 Number 3

This Special Edition of the CSIAC Journal highlights a broad array of modeling and simulation contributions – whether in training, testing, experimentation, research, engineering, or other endeavors.

Read the Journal

CSIAC Journal - Resilient Industrial Control Systems (ICS) & Cyber Physical Systems (CPS)

CSIAC Journal Cover Volume 7 Number 2

This edition of the CSIAC Journal focuses on the topic of cybersecurity of Cyber-Physical Systems (CPS), particularly those that make up Critical Infrastructure (CI).

Read the Journal

Recent Video Podcasts

  • Privacy Impact Assessment: The Foundation for Managing Privacy Risk Series: The CSIAC Podcast
  • Agile Condor: Supercomputing at the Edge for Intelligent Analytics Series: CSIAC Webinars
  • Securing the Supply Chain: A Hybrid Approach to Effective SCRM Policies and Procedures Series: The CSIAC Podcast
  • DoD Vulnerability Disclosure Program (VDP) Series: CSIAC Webinars
  • 5 Best Practices for a Secure Infrastructure Series: The CSIAC Podcast
View all Podcasts

Upcoming Events

Wed 27

Enterprise Data Governance Online 2021

January 27 @ 08:00 - 13:30 EST
Organizer: DATAVERSITY
Thu 28

Data Privacy Day

January 28
Jan 28

Data Privacy Day

January 28, 2022
View all Events

Footer

CSIAC Products & Services

  • Free Technical Inquiry
  • Core Analysis Tasks (CATs)
  • Resources
  • Events Calendar
  • Frequently Asked Questions
  • Product Feedback Form

About CSIAC

The CSIAC is a DoD-sponsored Center of Excellence in the fields of Cybersecurity, Software Engineering, Modeling & Simulation, and Knowledge Management & Information Sharing.Learn More

Contact Us

Phone:800-214-7921
Email:info@csiac.org
Address:   266 Genesee St.
Utica, NY 13502
Send us a Message
US Department of Defense Logo USD(R&E) Logo DTIC Logo DoD IACs Logo

Copyright 2012-2021, Quanterion Solutions Incorporated

Sitemap | Privacy Policy | Terms of Use | Accessibility Information
Accessibility / Section 508 | FOIA | Link Disclaimer | No Fear Act | Policy Memoranda | Privacy, Security & Copyright | Recovery Act | USA.Gov

This website uses cookies to provide our services and to improve your experience. By using this site, you consent to the use of our cookies. To read more about the use of our site, please click "Read More". Otherwise, click "Dismiss" to hide this notice. Dismiss Read More
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.