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2 BUDGET ESTIMATING IN THE AIR FORCE JOHN F. HEISE Headquarters U.S. Air Force Logistics Command This paper on budget estimating is prepared from the perspective of one of the major commands in the Air Force, the Air Force Logistic Command (AFLC), and its subordinate bases. The base level is where it all begins. Budget prices can be adjusted at other levels in the organization, but if estimates do not have some degree of accuracy when first prepared, it is doubtful if accuracy will ever be obtained. Construction budget estimates are prepared for two major programs. The first is the Military Construction Program (MCP), which averages about $200 million annually in the AFLC. The MCP involves large dollar projects and requires the preparation of formal estimates. The second program is Base Operations and Maintenance (O&M) program, which includes facility and system maintenance and repair and minor construction projects. The O&M budget, which totals about $120 million annually in the AFLC, covers several hundred small projects that require budget estimates. MILITARY CONSTRUCTION PROGRAM When development of the MCP for a specific year is started, the Department of Defense indicates the total amount of funding that will be available. Since the amount is always limited, some requested projects always have to be omitted from the program. If the cost of high-priority projects is over estimated, some lower priority projects will be omitted from the program that could otherwise have been included. It is important, therefore, that project cost estimates not be too high. On the other hand, if the cost of a project is under
estimated, there may not be enough money to construct a high quality, usable, efficient facility. Thus, it is important that budget estimates be neither too high nor too low. Prices must correspond to Department of Defense (DoD) and Air Force (AF) pricing guidelines. If unit costs for a project vary too much from these standards, the cost variances must be completely justified; otherwise the project will be deleted or its budget considerably reduced. It is essential to understand what is to be built before beginning the budget estimating process. Developing design criteria, knowing what the function is, and understanding user requirements are of paramount importance. Once all these data are available, the estimating process can begin. The starting point is the DoD/AF pricing guide. Using this guide, the average unit cost of a facility similar to the one to be constructed is determined. This figure is then adjusted to reflect differences between the assumed facility and the actual facility. The result is a cost for the basic structure. It is then necessary to add the supporting utilities and site condition costs. The normal value for these costs is 15 percent of the building cost; if site conditions are unusual or an excessive amount of utilities are required, the 15 percent figure must be adjusted. A total project cost estimate is now available. The total cost then is analyzed on the basis of engineering experience to determine whether it seems reasonable based on what is needed. If the price appears to be too low or too high, other pricing guides and manuals (e.g., Means, Dodge, Richardson) are consulted. Past bid prices and local conditions also are considered. All reasons for the cost difference from DoD/AF pricing guides also are documented. Budget cost information obtained from the DoD/AF pricing guides works well on typical administration and operational type buildings. The cost data are very accurate for utility systems, runways, and roads. However, the data are not accurate for nonstandard facilities, and this can cause budget estimating problems. For example, use of pricing guide data for large industrial plants can result in budget estimates much lower than actual construction prices. If the estimate is not adjusted during budget preparation, both design features and scope will have to be reduced prior to construction.
An informal study has been conducted to determine how budget estimates for the AFLC MCP compare with actual bid prices. On average, the actual cost of the total program has been close to the budget estimate for the total program. About 70 percent of projects are within acceptable limits of cost estimating. Of the remainder, about half of the estimates were excessively high and half were excessively low. The 15 percent of the projects whose costs have been significantly under estimated cause serious problems; facilities are delayed, important mission functions are not effectively accomplished, and considerable effort is required to salvage these projects. [The 15 percent of the projects whose costs have been significantly over estimated present a much less serious problem.] BASE O&K PROGRAM As noted above, the AFLC Base O&M Program has an annual budget of approximately $120 million and includes about 400 projects. These projects generally involve fewer items than the MCP projects. Frequently projects such as roof repair, road resurfacing, and painting can be budgeted using only one or two unit costs. Bases have developed historical data on unit cost prices from actual bids, and it is these costs that are generally used. The readily available price manuals such as Means and Dodge effectively supplement locally developed unit prices. Unit prices used for budget purposes on the O&M program improve as a local data base expands. The track record on estimating O&M projects is quite similar to the record for the Military Construction Program. CONCLUSION In general, AF budget estimating procedures must be improved. Many excellent data are available but they frequently need to be modified to fit unique and local conditions. The experience of the estimator is of crucial importance and can mean the difference between good and bad estimates. Some cost figures still must be obtained by "educated guesses." Until improvements such as expanded data bases, parametric cost estimating, and other procedures are refined and made available to AF bases, problems will occur on an unacceptable percentage of construction budget estimates. 7
