Revisiting reliability of estimates at completion for department of defense contracts
| Date | 02 September 2019 |
| Published date | 02 September 2019 |
| DOI | https://doi.org/10.1108/JOPP-02-2018-0006 |
| Pages | 186-200 |
| Author | Deborah B. Kim,Edward D. White,Jonathan D. Ritschel,Chad A. Millette |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public finance/economics,Taxation/public revenue |
Revisiting reliability of estimates
at completion for department of
defense contracts
Deborah B. Kim and Edward D. White
Department of Mathematics and Statistics,
Air Force Institute of Technology, Ohio, USA
Jonathan D. Ritschel
Department of Systems Engineering and Management,
Air Force Institute of Technology, Ohio, USA, and
Chad A. Millette
School of Systems and Logistics, Air Force Institute of Technology,
Ohio, USA
Abstract
Purpose –Within earnedvalue management, the cost performanceindex (CPI) and the criticalratio (CR) are
used to generate the estimates at completion (EACs).According to the research in the 1990s, estimating the
final contract’s cost at completion (CAC) u sing EAC
CR
is a quicker predictor of the actual final cost versus
using EAC
CPI
. This paper aims to investigatewhether this trend stillsholds for modern department of defense
contracts.
Design/methodology/approach –Accessing the Cost Assessment Data Enterprise (CADE) database,
451 contracts consisting of 863 contract line item numbers (CLINs) were initially retrieved and analyzed in
three stages. The first replicated the workconducted in 1990s. The second stage entailed calculating 95 per
cent confidence intervals andhypothesis tests regarding percentage accuracy of EACs for a contract’sfinal
CAC. Lastly, regression analysis was conducted to characterize major, moderate and minor influencers on
EAC reliability.
Findings –For modern contracts, EAC
CR
aligns more with EAC
CPI
and no longer demonstrates early
accuracy of a contract’sfinal CAC. Contract percentage completion strongly reduced the per cent error of
estimatingCAC, while cost-plus-fixed-fee contracts and thosewith no work breakdown structure greater than
Level 2 negativelyaffected accuracy.
Social implications –To militateagainst optimism of early assessment of a contract’s true cost.
Originality/value –This paper provides empirical evidencethat EAC
CR
behaves more like EAC
CPI
with
respect to modern contracts, suggestingthat today’s contracts have relatively high SPI. Therefore,caution is
warrantedfor program managers when estimating the CACfrom contract initiation up to and slightly beyond
the mid-pointof completion.
Keywords Earned value management, Estimate at completion (EAC), Per cent complete,
EAC stability
Paper type Research paper
Background
Earned value management (EVM) is an amalgamation of business practices that
provides a structured method to measure and to analyze performance. Proper
interpretation and application of EVM measures serve as a monitoring tool for project
JOPP
19,3
186
Received24 February 2018
Revised3 June 2018
5 July2018
Accepted1 August 2018
Journalof Public Procurement
Vol.19 No. 3, 2019
pp. 186-200
© Emerald Publishing Limited
1535-0118
DOI 10.1108/JOPP-02-2018-0006
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