I’m studying and need help with a Business question to help me learn.
STUDENT 1 (Ricar): The Basis of estimate (BOE) is a document that identifies information that is used for estimations. The Basis of Estimate (BOE) is the credible document used to back up the cost estimation. When an estimation proposal, the BOE is used to support the estimation through data showing why the estimation is a certain amount. A BOE may include a Work Breakdown Structure (WBS), Statement of Work (SOW) and display methods used for calculations. I feel that a good BOE would contain good methodology that is related to the estimation and the facts need to back up the estimation in my opinion. The better the details the better the estimation.
Contract Proposals capture indirect cost and direct cost differently. Indirect cost is outside sources or cost that can occur form additional tings needed to get the job done. Human resources or employee benefits can be classified as indirect. “Indirect labor costs make the production of cost objects possible but aren’t assigned to a specific product” (Speilman, 2018).
Direct cost is more of labor and materials involved with the specific job. I look at this like cutting grass estimation that will include a lawnmower. These include material that are needed to get the job done.
The difference between cost and price is that price is the amount a consumer is willing to pay for a specific product or service. Cost is considered the amount paid before receiving the product or service, also cost is considered an expense that is needed to make the product or service happen.
I feel that subject matter experts in materials, products, and the employees who have hands on involvement within the product or service are important for inputs in contract proposals. I compare this to when I have worked on the flight line and we have to account for man hours and parts needed to do repair. I would attend meetings and higher-level supervision would as for cost estimations on man hours and parts cost. I would also come up with cost alternatives that could be a cheaper expense if the art can be fabricated locally. I do know that sometimes in government contracts involve outsourcing to obtain materials needed to make certain aircraft or weapon system parts needed to deliver a product or service.
Aia-Aerospace.org. (2020). JSCC BOE Guidebook. Retrieved from https://www.aia-aerospace.org/wp-content/uploads/2…
Spielman, E. (2018, April 20). Direct Costs vs. Indirect Costs: Understanding Each. Retrieved from businessnewsdaily.com: www.businessnewsdaily.com
STUDENT 2 (Kayla):
The basis of estimate (BOE) is when a proposal for work that has not been completed is being evaluated. Relevant historical data may be used in the BOE. Efficiency factors, work measurement, and time and motion studies can be considered when estimating direct labor hours. According to Contract Management Body of Knowledge (CMBOK), the BOE is the next step after the work breakdown structure (WBS). A good BOE consists of details of what work is to be completed, who will be doing the work, how much effort/ time will be needed, and the material needed to complete the task. A BOE is important because it gives details of how the estimate was calculated.
In a contractor proposal the costs are captured by direct and indirect costs. Direct cost can be easily traced such as labor hours, materials, and travel costs. Indirect costs are opposite of direct costs, also known as shared cost or overhead. Some examples of indirect cost are overtime, electricity, depreciation of tools used,
Indirect costs are not as easily traceable as direct costs.
The difference between cost and price is “the method and extent of pricing details in a function of the product or service being offered and the extent of competition” (2019). Price is when a requirement can be fulfilled by a product or service and a request for price is provided by the seller or contractor. Price is usually used in the commercial marketplace. Cost is when a buyer submits a request for proposal (RFP). RFP and cost are determined by the market value at the moment.
I think the contractor providing the proposal and the contracting officer has an input of the estimate that is provided. I have learned when an RFP is submitted there is always room for negotiation. I have not had much experience dealing with RFPs but I have been the one who has received a cost estimate. I did not request an RFP or cost estimate, but it is the company’s policy to provide the breakdown of all costs that will be on the contract.
National Contract Management Association. (2019). Contract management body of knowledge (Cmbok). Ashburn, VA.
STUDENT 3 (Caude): What is the basis of estimate (BOE)?
The basis of estimates can include a lot of different areas. Some contractors use their historic information to estimate current costs. Other contractors actually price current market cost to come up with their estimates. There are pros and cons for either. When using historic prices, the contractor can run the risk that they do not account for pricing changes in current market conditions. Clients usually don’t like changes because of the contractors oversight since these are obvious items.
What do you think makes up a good BOE? Why are they important?
A good basis of estimate is an all inclusive one. I used to review proposals and was able tell who had spent some time on this and who just “slapped” it together. If contractor A included equipment, nuts and bolt etc. and contractor B included less than half the items, I would assume that they missed something. I would have to clarify and the contractor either included nuts and bolts in their price or I would get the answer that oh you want those to? Well that usually brought their price higher. It always seemed they were trying to pull one and push a change order later to increase the price. A good basis of estimate is important because it doesn’t just give the best representation of what the overall cost would be, but I think it also makes a representation of the company and how much attention to detail their staff has.
How are cost captured in contractor proposals, i.e., indirect versus direct cost?
Cost are captured depending on how they are asked to submit their proposal. Of course, if they submit a lump sum cost all indirect, direct and expenses are included in that price. Some clients prefer to see a detailed cost breakout. It makes for a more transparent feel in the cost.
What is the difference between cost and price?
Cost of a product is what it costs for the manufacturer to produce. The price is the cost plus a markup (the manufacturer’s profit).
Who do you think has input/estimates of contractor proposals?
Proposals are usually prepared by designated estimators. They are closely involved in keeping up to date on current cost and will have the most correct information on what the company needs to get the job done. Of course, the contractors management team might have to sign off before proposals are usually submitted. Some companies have dollar thresholds. If the proposal is above a certain dollar amount a certain level of management has to approve it.
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