To develop a Cost-Benefit Analysis (CBA) Model it is critical to compare the total costs and benefits accrued from the social and environmental services provided. In both objectives, the term “social and environmental” has a sense of place. Before a comprehensive cost and benefit model can be explained, it is important understand definitions.

Cost: is a component of price. Cost is a monetary measure of the expenditure for capital and
labor required to complete contract performance.

Direct Cost: are those costs that are directly charged to activities or services that are
necessary to specific performance and required for and easily traced to a particular project.
The costs for these activities are usually charged to projects on an item-by-item basis e.g.,
salaries and fringe benefits for project staff, travel, supplies, etc.

Indirect Cost: are costs for activities or services that benefit more than one project. Their
precise benefits to a specific project are often difficult or impossible to trace. For example, it
may be difficult to determine precisely how the activities of the Director of an organization
benefit a specific project. General and Administrative (G&A) expenses and Overhead
expenses are indirect costs.

The Independent Government Cost Estimate (IGCE), commonly referred to as the USAID
Budget, is the U.S. Government’s estimate of costs that a contractor/recipient may incur in
performing services and/or providing supplies to achieve the Government’s objectives. It serves
as the basis for reserving funds during acquisition planning; it provides the basis for comparing
costs or prices proposed by offerors/applicants; and it serves as an objective basis for
determining price reasonableness in cases in which one Offeror/Applicant responds to a
solicitation.

An IGCE is not the lowest or the highest possible estimated cost/price for performance; it is the
Governments projection of the cost of the program. Upon receipt of application/proposals there
may be a significant difference between the IGCE and proposed costs by the Applicant/Offeror.

A well-constructed and supported IGCE serves as the basis for budgeting and reserving funds for
future requirements. It provides a base-line for comparing costs or prices proposed by
Applicants/Offerors and it is an objective basis for determining price reasonableness in cases in
which only one Applicant/Offeror responds to a solicitation. IGCE’s demonstrate that due
diligence was executed to reasonably estimate the cost of performance. Also, a comprehensive
IGCE leads to more accurate projections of the government’s budget requirements for its
program.

The extent and depth of the preparation of the IGCE is determined by:

  • Availability of price/cost data and assumptions
  • Estimator’s skills
  • Time constraints
  • Type of item/program/service purchased
  • Type of contractual/assistance action
  • Agency/department policy and procedures

EQUIP follows the seven easy steps recommended by USAID to develop a bottom-up cost estimate:

  1. Isolate All Program/Project Required Tasks or Task by Deliverables for the
    activity/project.
  2. Identify the Resources Required to Complete All Tasks
  3. Ascertain Dependencies/Reliance’s among Tasks within the activity/project
  4. Estimate Costs for All Tasks (labor, travel, supplies/commodities, subcontractor, other
    direct costs, etc)
  5. Determine When Tasks should be completed
  6. Check to ensure you have included all task and their projected costs for an activity.
  7. Roll up the costs to an aggregate amount to establish you program estimate.