Estimates of the Impact of Inflation on the Costs of Proposed Programs Should be Available to Committees of the Congress
Abstract
The General Accounting Office (GAO) examined the practices followed by selected Government agencies in providing for inflation in cost estimates for major long-term programs. The Congress and the public are concerned about the tremendous cost growth of many Government programs. Agencies have attributed the growth to many factors, including inflation. "Inflation" is defined here as a persistent and appreciable rise in the general level or average of prices for both labor and material. Agencies request congressional authorization and funds for a program on the basis of need and anticipated cost. The Congress and agency management need realistic cost estimates, including estimates for inflation, to have the best available estimate of total program cost and to aid effective program selection, evaluation, and cost control during the acquisition process. In our report (B-163058, July 24, 1972) on the theory and practice of cost estimating for major acquisitions, we developed criteria for realistically estimating program costs. The criteria included clearly identifying the task, determining the availability of valid data, providing for program uncertainties (risks), and recognizing inflation. Generally, agencies estimate their long-term program costs on the basis of current prices. If they include inflation in these estimates, they normally apply percentages, which represent the expected price trends, to the current cost base. If basic program estimates are unrealistic, the estimate for inflation-will be affected. Rapidly rising prices in recent years have had a significant impact on program costs. Omitting estimates for inflation has resulted in understatements of estimated program costs and has been cited as a major reason for cost growth.
Document Details
- Document Type
- Technical Report
- Publication Date
- Dec 14, 1972
- Accession Number
- AD1119378
Entities
People
- Elmer B. Staats
Organizations
- United States Government Accountability Office