Cost analysis should be performed in those situations where price analysis does not yield a fair and reasonable price and where cost data are required in accordance with prime contract clauses.
What required cost analysis?
You must use cost analysis to evaluate the reasonableness of cost elements when cost or pricing data are required. Optional Cost Analysis (FAR 15.404-1(a)(4)). You may also use cost analysis to evaluate information other than cost or pricing data to determine cost reasonableness or cost realism.
Why would you conduct a price analysis?
Price analysis should be used to verify that the overall price offered is fair and reasonable. (5) The contracting officer may request the advice and assistance of other experts to ensure that an appropriate analysis is performed.
How do you perform a cost analysis?
Follow these six steps to help you perform a successful cost-based analysis.
- Step 1: Understand the cost of maintaining the status quo.
- Step 2: Identify costs.
- Step 3: Identify benefits.
- Step 4: Assign a monetary value to the costs and benefits.
- Step 5: Create a timeline for expected costs and revenue.
How do you perform a price analysis?
You need to figure out the price at which you can maximize your profit.
- Document your cost structure.
- Capture your main competitors’ prices.
- Estimate how sensitive your market is to price fluctuations.
- Calculate the price and volume that will maximize profit.
- Recommend a price.
What is fair and reasonable price?
A determination that a price is fair and reasonable is really a conclusion that the proposed price is fair to both parties, considering the quality, delivery and other factors. The basis for reaching the conclusion is found in the facts and information considered and analyzed by the buyer.
When do you need a price and cost analysis?
The form and degree of analysis, however, are dependent on the particular subcontract or purchase, and the pricing situation. Determination of price reasonableness through price or cost analysis is required even though the procurement is source directed by the contracting officer of the sponsoring agency.
How are cost analysis techniques used in construction?
Cost analysis techniques are used to break down a contractor’s cost or pricing data so as to verify and evaluate each component. Some of the cost elements examined for necessity and reasonableness are materials costs, labor costs, equipment and overhead.
How to do a cost analysis for an organization?
Differentiate the programs you offer. How you delineate your programs will determine how you allocate costs for the purpose of cost analysis. If your organization runs very distinct programs, divisions may be obvious. For overlapping programs or programs that share resources, determine how to separate them.
How is probable cost used in cost analysis?
The probable cost shall be used for purposes of evaluation to determine the best value. The probable cost is determined by adjusting each offeror’s proposed cost, and fee when appropriate, to reflect any additions or reductions in cost elements to realistic levels based on the results of the cost realism analysis.
