Current Issues in Air Force Acquisition Cost Analysis

1
Current Issues inAir Force Acquisition Cost
Analysis

• Richard Hartley
• Deputy Assistant Secretary of the Air Force
• (Cost and Economics)
• 28 May 2009

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2
Discussion Points

• Major Defense Acquisition Programs (MDAP) and
  Major Automated Information Systems (MAIS)
• MAJCOM and Base-level Cost, Economic and Business
  Case Analysis

3
MDAP MAIS Costing

• Performance
• Congressional Direction
• Recent Activity
• Initiatives
• Priorities

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PerformanceCost Growth Analysis
Historical Cost Growth for Completed SAR
Programs Actual vs. MS II Baseline, 1968-2006

• 15 Ongoing AF programs, avg 47 complete

• 7 Ongoing AF programs, begun this decade

Historical growth beyond 5 year point
5
A Different Look Dollarized Growth Trends by
Decade
12 programs
11 programs
13 programs
7 programs
6
Sources of Cost Growth
Contribution to Development of Cost Growth by
SAR Variance Category
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Observations

• Current trends not favorable
• Projected growth at completion gt2x prior
  generations
• Dollarized cost growth trends cause for concern
• Historically, most growth occurs prior to
  Milestone B 5 years point, recent programs
  displaying growth well beyond
• Cost Growth Statistics Are Lagging Indicators
• Start to measure at 5 years past Milestone B
• Todays stats reflect decisions of mid-90s,
  early 00s
• Recent Initiatives Help, But More Action
  Necessary

8
Congressional Direction

• FY05 HASC Strategic Forces Subcommittee
• FY06 National Defense Authorization Act (NDAA)
• FY07 NDAA HR 109-702
• Sec. 816 Major Automated Information System
  Programs
• Sec. 820 Government Performance of Critical
  Acquisition Functions
• Sec. 853 Program Manager Empowerment and
  Accountability
• FY08 NDAA, Sec. 852, DoD Acquisition Workforce
  Development Fund
• Weapons System Acquisition Reform Act of 2009
• House Report 2101 - Weapons Acquisition System
  Reform Through Enhancing Technical Knowledge and
  Oversight (WASTE TKO)

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WSARA of FY2009

• Creates Director of Cost Assessment Program
  Evaluation
• Direct report to SECDEF, moves OSD CAIG PAE
  under
• Creates Director, DTE under ATL creates
  Director, SE under ATL
• Tightens up provisions for allowing troubled
  programs to continue
• Specifies more things JROC must do to validate
  programs
• Requires Dir, Def Research and Engineering to
  annually assess tech maturity and integration
  risk on MDAPs
• Requires GAO to evaluate accuracy of OM cost
  estimates and actuals
• Requires DFAR to ID organizational conflicts of
  interest
• Cash awards for acquisition personnel

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Improving AF Cost Estimating
Fewer Cost Overruns
Better Decision Support
Process
People

• Policy / instructions / guidance
• Annual cost estimates / NACAs
• Metrics
• Standards / templates
• Product Center operating locations (OLs)
• Collaboration / transparency
• Data collection
• Methods development

• Staffing
• Pipeline, mid / high grades, COE
• Training, education, development
• DAU APDP (BCEFM), SCEA
• Body of Knowledge
• Certification
• Workforce assessment
• Job series

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Recent Activity

• AF Policy Directive (AFPD) 65-5
• Joint Strike Fighter Joint Estimate Team (JET)
• C-17 Sustainment Business Case Analysis (BCA)
• Contractor Logistics Support (CLS) Cost
  Reporting
• Source Selection Challenges Successes
• Cost of the Air Force Model Economics of
  Modernization
• Inflation, Overhead, Business Base Analysis

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Initiatives

• Workforce Development (e.g., BCEFM restructure)
• Standard Work Breakdown Structure (WBS) and
• Data Deliverables
• Cost Proposal Basis of Estimates
• Reliable Cost Risk Uncertainty Analysis
• Realistic Technical Schedule Assumptions
• Budget Risk Cost Estimating Performance Metrics

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Cross Functional Initiatives

• Acquisition Improvement Plan (AIP)
• Section 852 Workforce Development Fund (WDF) and
  Key Leadership Positions (KLPs)
• Joint Independent Program Review and Assessment
  (JiPRA), Integrated Master Schedule (IMS)
  Assessment
• Risk Identification Integration and -Ilities
  (RI3)
• Develop Sustain Warfighting Systems (DSWS)
• Technology, Manufacturing, and Software Readiness
  Assessments

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Priorities

• AFPD 65-5
• Workforce Development (incl. APDP course
  development, position coding, and job series)
• Standard WBS and Data Deliverables
• Cost Proposals
• Risk Analysis and Confidence Level Policy
• Data, Methods

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MAJCOM and Base-levelCost, Economic, and BCA

• The Center of Expertise (CoE) provides expert,
  on-demand, specialized financial analysis for
  decision support to Air Force Installations and
  Major Commands.
• Accomplishments
• Projects 07 57 08 - 102
• All MAJCOMS 44 installations
• Training, analytical tools, models
• Teach cost analysis, BCA conduct webinars
• Then EAs/BCAs Now CPI fin analysis, joint
  basing, NAF, A-76, economic impact studies, AFCS
  support (POM initiatives)
• Staff 19 - 5/08, 28 5/09, 43 projected EOY
• gt 200 projects projected for FY09

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Closing

• Cost Estimator Has Fiduciary Responsibility to be
  Honest Broker
• Cost Estimating is Forecasting Use Knowledge of
  Past to Predict Future Historical Data
• Challenge Technical and Schedule Assumptions
  They Drive Your Product

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Questions
ONE TEAM, ONE FIGHT
Working together to improve cost analysis
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Initiatives(continued)

• Standards, Guidelines, and Templates
• Joint Space Cost Council, Cost Integrated
  Product Team, and Data Collection
• Earned Value Management and Bus-FM
• Inflation Indicies

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Recent Experiences

• Defense Cost and Resource Center (DCARC)
• DOD 5000 Update

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Improving AF Cost Estimating
Fewer Cost Overruns
Better Decision Support
Process
People

• Policy / instructions / guidance
• Annual cost estimates / NACAs
• Metrics
• Standards / templates
• Product Center operating locations (OLs)
• Collaboration / transparency
• Data collection
• Methods development

• Staffing
• Pipeline, mid / high grades, COE
• Training, education, development
• DAU APDP (BCEFM), SCEA
• Body of Knowledge
• Certification
• Workforce assessment
• Job series

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Objective

• Determine the Annual Cost of the Air Force
• Consider Operating Cost AND Capital Assets
  Expended
• Annualized re-capitalization requirements based
  on asset utilization
• Based on GAAP-like depreciation, replacement
  vice book value, design life, flying hour,
  functional useful life
• Annual RDTE and Procurement rqmts based on
  assets depreciated
• Model features
• Future vice current force (e.g., F-35 vs. F-16
  replacement value)
• Assets beyond original design life accumulated
  depreciation
• Peace versus war
• Usage based versus time based
• Drill down capability (costs per wing, squadron,
  aircraft, etc.)
• What if capability (i.e. cost of additional
  squadrons)

What does it really cost to run the AF?
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How Much Did We Spend in FY07? Comparison to
Budget
TheBudget
What ShouldIt Cost?
160.00
127B
140.00
122B
4
MILCON Depreciation
7
120.00
15
Dollars In Billions
41
Modernization (Procurement RDTE)
100.00
24
4
80.00
60.00
OS Costs (same as before)
40.00
77
77
20.00

-
FY08 Blue AF actual with GWOT
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Accumulated Depreciation Hours-Based Remaining
Life
231B
122B