COST GROWTH DEFINITION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP74B00535R000100180028-5
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 20, 2016
• Document Release Date: July 19, 2006
• Sequence Number: 28
• Publication Date: November 26, 1968
• Content Type: MF

Approved For-ik6islAVilxffi6Yititi?EliCRiiWi'ilk0635R000100189028-5
1?40V 2 0
ViASFi:NGTON, D. C. 20301
-MEMORANDUM FOR Secretaries of the Military Departments
Director of Delen.. Research and Engineering
Assistant Secretary of Defense (Comptroller)
Assistant Secretary of Defense (ILL)
Assistant Secretary of Defense (SA)
Director, Defense Supply Agency
Director, Defense Contract Audit Agency
SUBJECT: Cost Growth Definition.
Attached is a definition of the term cost growt11 and the elements which
must be identified to explain cost growth. .It has been, prepared by a task
:force, mc...'n.tion.ed in my memorandum Of August 13, 1969, Subject: .Selected
? Acquisition Reports/Program. Status Reports, for universal use throughout
the Department of Defense in reports ana other communications.
? The term "cost overrun" has been used by many people both within the
Government and outside, to rezer to varying circumstances wherein some
amount of actual or esumated.expenditure exceeded some stated or other
estimated. amount. The variance of these circumstances cause the use. of
this term to create confusion in the minds of many 2X1d to cast improper
reflection on. the true status of events,
In itudying the problem in depth, the task force came to the realization that
the term 'cost _Q.Verr=1.11 as widely used suffered three fatal defects: .(1). it
had a very narrow technical meaning; (2) it was widely used in both Govern-
ment ar.:(1 by the public as having a very much wider and hence imprecise .
rn,eaning; (3) the set of circumstances embraced by the public use of the
-term were so wide and varied, that it was more practical to develop workable
definitions of new terms than to persist in trying to perfect the meaning of
"cost overrun.." Thus, ? the Committee started with a general and imprecise
term, "cost overrun," and discarded it as unworkable, and replaced it with
the term "cost growth," including a structured set of definitions related to it,
which are workable.
? On file OSD release instructions apply.
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I would like to have your views prior to taking further action to
incorporate this set of terms in those Directives, Instructions and
Reg,ulations which require reporting of cost growth. "When adopted,
the often misunderstood term "cost,overrun" will disappear irpm.use
within the Department.
Attachment
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C;ost G r OW th I
Cost Growth is a term related to the net change of an estimated or actual
amount over a base figure previously established. The base must be
relateable to a program, project or contract and be clearly identified
including source, approval authority, specific items included, specific
assumptions made, date and amount. The events causing "Cost Growth"
must then be explained by one or more of the following categories and the
.appropriate amount of each shown as "e.stirnated" or "actual. ":
1. System Performance Change - A change in the system performance
requirement. (e. g., speed, weight, reaction time, circular error probability,
safety features, payload, frequency propagation, range, scan, etc.).
Specific changes must be separately identified and quantified' as to amount.
Engineering2. Change. (Not Affecting Performance) - A change in configu-
ration identification directed by the Government which does not change
approved Performance requirements.
3. Quantity Change - A change in quantity to be procured at the original
price after making appropriate and consistent adjustments for cost-quantity
relationships (e.g., .improvement curves).
It
Contract Su port - A change in contract requirements to reflect
support items (e.g. , added spare parts, training, ancillia.ry equipment,
warranty provisions, etc.) which were contemplated initially but not ordered
or?priced on. contract initially.
5.. Schedule Change - A.change in an approved?delivery schedule, completion
date or intermediate milestone of development or production. Each change
must separately be identified as Government responsibility or contractor
responsibility and quantified as to amount.
6. Unpredictable Change - A change caused by Acts of God, work strikes,
Federal or State law changes or other unforeseeable matters not related to
any other category.
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? 7. Economic. Change - A change due to the operation of one or more
factors of the economy other than -that explained by Contractual Price
Adjustment. Economic change specifically identifiable to the provisions
of a co:::act ecaluation clause must be separately identified.
S. Estimating Change - A change in program cost due to refinements of
the base estimate. These include mathematical errors, omission of items,
different assumptions used in estimating, changing the year of the constant
dollars, etc. Specific estimating changes should be separately identified
and quantified as to amount.
9. Contractual 'Price Adjustment - A change due to the contractor's actual
or expected cost/schedule/performance being different than predict ed as
evidenced by contract target prices (FPI contracts), estimated cost and/or
foe (cost r.:irriburseable type contracts) or redeterminable prices (FPR
contracts) after considering offsetting fee or profit adjustments, but
excluding any of the changes previously mentioned. This also includes
any changes in contract amount due to earned incentives and bonus pay-
ments under CPAF :contracts. ?
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