A Digital Model for Cost Estimating

MacroWikinomics has spurred countless ideas on doing business in radically new approaches in the Digital Age.  In reading the book  for the second time (actually listening via my Kindle while driving), the section on digital crowds helping under-resourced regulators avert another financial crisis, I thought of related applications to Government Cost Estimating.


The digital crowd can also offer significant help to regulators who make rules and enforce them.  If the financial system becomes more transparent, this can turn into a powerful network that links the digital crowd, the regulators, and the enforces.  Through these digital networks, they can pool intelligence in the same way the law enforcement and national security services do.  The same digital networks [could] help decipher some of the most complex financial assets out there.

The Open Models Company (OMC) has a platform for open, collaborative, peer-reviewed valuation of financial products based on the many principles articulated in this book.  Call it the Linux of financial modeling.  OMC’s business model is designed to evaluate both existing assets, such as the problematic mortgage-backed securities, as well as new offerings brought to market by investment banks.  Open Models would then use an independent network of community modelers and experts who would come up with a value and more importantly comment on the underlying assumptions.  The whole process would be documented in a wiki-style format and open to the community.  External experts would be compensated according to their contributions.  The flexibility of the community approach will attract thousands of contributors ranging from those looking to break into the industry to seasoned veterans who are looking for a better work-life balance.

As the DoD (and agencies across the Federal Government) struggle to conduct robust, accurate, and timely cost estimates of acquisition programs, a digital, collaborative model may serve as a promising new approach.

Let’s first look at the challenges of cost estimating today:

  • Labor intensive effort to develop and populate a cost model
  • Following a program office developing a cost estimate two independent cost estimates (ICEs) are conducted at the Service and OSD level. These ICE provide additional expertise while minimizing any biases or manipulation of the figures.
  • Limited cost estimating staffs throughout the government
  • Regular debates on assumptions, calculations, and conclusions
  • Limited leveraging of related cost estimates to improve fidelity, time, and accuracy
  • Limited expertise in cost estimating new software development including SOA and Agile
  • Lengthy process to develop, coordinate, and approve a cost estimate prior to a program advancing to the next phase of the acquisition lifecycle.
  • Cost estimates may not be regularly updated to integrate the many changing factors influencing a program (budget changes, Senior Leadership direction, Congressional influence, requirements definition refinement, changes to other programs that impact this one, contractor performance, and countless other factors).
How could Cost Estimating adopt Digital principles?
  • Focus on open, collaborative, peer-review model
  • Develop digital platforms to share cost data (actuals and estimates), cost models, tools, resources, expertise, and more
  • Expand the Defense Cost and Resource Center (DCARC) data repositories and tools
  • Strengthen communities of practice online to increase collaboration across Services, Agencies, and OSD
  • Identify collaboration opportunities to work with defense and commercial industry on improving cost estimates
  • Develop platforms and processes where draft cost models could be shared with the community to allow contributions and refinement of assumptions, reference data, calculations, and final estimates and conclusions (open peer reviews)
  • Develop processes, policies, and ultimately culture that prioritizes collaboration and open models by streamlining approval processes.
  • Identify successful digital cost estimates, build upon early successes, and publicize best practices, lessons learned, and early adopters to the DOD cost community.

There are some areas of cost estimating (such as evaluating cost proposals in a source selection) that would not lend itself to an open, collaborative model due to proprietary data, but the lion share should lend itself to increased collaboration.  Some limitations may be required where the Government would tip its hand in negotiations or contractors abusing an inflated estimate, but opening up the model to the crowd would reduce the errors in the estimate and improve fidelity.

I’ll be the first to admit that I’m not a cost estimating professional, but rather a program manager by trade.  There may be tools and processes out there that I’m not aware of.  If all you cost estimators out there know of other challenges, opportunities, or additional ideas for an open, collaborative model, please provide your comments below.


10 Great Quotes from Macrowikinomics

Macrowikinomics is less of a business book and more of a blueprint for a moment to redefine industries, government, and society. It serves as my inspiration for this blog and my efforts to transform the Pentagon. Here are 10 great quotes from Macrowikinomics:


  1. The Web provides a platform for networking human minds.
  2. Transition from Industrial age thinking and hierarchical organizational designs to a new set of bottom-up institutions that are being built on principles such as openness, collaboration, and the sharing of data and intellectual property.
  3. Some are focused on tinkering with old models rather than moving to something new and viable.
  4. Mass collaboration provides an attractive alternative to the hierarchical, command-and-control management systems that are failing many of our key institutions.
  5. Young digital natives everywhere are questioning the historic traditions of venerable institutions such as the university, the newspaper, the medical establishment, and the entire apparatus of representatives government.
  6. Organizations can succeed and even thrive in this new environment by embracing the five principles of wikinomics: collaboration, openness, sharing, integrity, and interdependence.
  7. New forms of bottom-up collaboration now rival the hierarchical organization in its capacity to create information-based products and services and, in some cases, to solve the critical challenges facing the world. Whether analyzing the human genome or designing a smart energy grid.
  8. A doctor successfully dealing with a patient one-on-one in a small treatment room has no way to record the process of diagnosis and treatment in a manner that would be educational to others. But this is something the system should be capable of doing. Rather than handwritten data housed silently in filing cabinets, the data should be captured in a way that could tell us quickly if a treatment is exceptionally beneficial or conversely, is doing harm. Such information could be used to teach new doctors, or enable researchers to investigate new approaches to medicine. If patients were collaborating among themselves, sharing experiences and learning from one another on a mass scale, this would create an almost infinitely large database that could feed science and the advancement of medicine.
  9. Smart companies increasingly collaborate globally to get things done
  10. When you say “collaboration”, the average 45 year old thinks they know what you’re talking about – teams sitting down, having a nice conversation with nice objectives and a nice attitude. That’s what collaboration means to most people. But for Google and many other companies and organization, collaboration is now a profoundly new approach to orchestrating capability to innovative, create goods and services, and solve problems. Social networking is becoming social production, where self-organizing groups of peers can design and produce everything from software to motorcycles.
This book should be atop your summer reading list.
Visit the Macrowikinomics site for more about the book, blog, and authors.

Nilofer Merchant: The New How

Nilofer Merchant has done some brilliant work on how to effectively develop and implement strategies collaboratively.  Her book, The New How should be required reading for anyone embarking on a major initiative, particularly acquisition reforms.  Her blog is filled with countless nuggets of valuable lessons and has been part of my core RSS feed.

100 Day Plan for Integration and Collaboration

Five years ago the Intel Community underwent a series of initiatives to transform their enterprise and create a culture of collaboration.  The Pentagon would be wise to develop similar plans to modernize the defense enterprise.

In 2007, then DNI Michael McConnell created a series of initiatives designed to build the foundation for increased cooperation and reform of the Intelligence Community. His plan, dubbed “100 Day Plan for Integration and Collaboration” focused on efforts to enable the IC to act as a unified enterprise in a collaborative manner. It focused on six enterprise integration priorities:

  1. Create a Culture of Collaboration
  2. Foster Collection and Analytic Transformation
  3. Build Acquisition Excellence and Technology Leadership
  4. Modernize Business Practices
  5. Accelerate Information Sharing
  6. Clarify and Align DNI’s Authorities

The 100 Day Plan was meant to “jump start” a series of initiatives based on a deliberate planning process with specific deadlines and measures to ensure that needed reforms were implemented. The 500 Day Plan, which started in August 2007, was designed to accelerate and sustain this momentum with an expanded set of initiatives and broader IC participation.

If anyone can offer insight into the effectiveness of these initiatives, sharing lessons learned and best practices I would love to learn more about them.

Source: Wikipedia