Time Phasing Development and Production

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Time Phasing Development and Production

• Chapter 16

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Time Phasing Development

• Say you are estimating the cost of the next Navy
  long-range, carrier-based bomber.
• Your development program is projected to last 8
  years, and the production run is expected to
  occur over 12 years.
• Your development CERs have provided you with the
  total development cost.
• Now, for programming and budgeting purposes, you
  must identify your resource requirements by
  fiscal year. How will you allocate the
  development costs over the eight years?

Note Whenever dollars are being spread across
two or more fiscal years, the calculations must
be performed in base year or constant year
dollars.
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Incremental Funding

• While PRODUCTION can be said to be product
  oriented in its funding approach, DEVELOPMENT is
  more process oriented.
• This means cost has to be tied to the process of
  development which includes system requirements
  review, preliminary design review, critical
  design review, software coding, system tests,
  etc.
• Incremental Funding is the process of breaking a
  development effort down into fiscal year
  increments and funding one increment at a time.

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Fiscal Spread Procedures

• Assume we want to estimate the Engineering and
  Manufacturing Development (EMD) cost for the
  Automated Information Management System (AIMS).
• Using CERs, analogies, etc., we have come up with
  a point estimate representing the cost of the
  system.
• This may be exactly what is needed to allow the
  decision maker to select an alternative, but in
  order to be useful as a management tool it is
  necessary to spread the cost across the
  applicable fiscal years of the effort.
• We will look at various techniques for the fiscal
  year spreading of incremental costs.
• We begin with the WBS indicated on the next page.
  The estimate was arrived at using CERs and cost
  factors.

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Work Breakdown Structure
2000 2001 2002 2003 2004
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Fiscal Spread by Program Schedule

• This technique involves the following process of
  developing schedules and milestones
• Determine the milestones.
• Time phase milestones based on the program
  schedule.
• Estimate percent of total cost required to
  complete each milestone.
• Allocate cost to appropriate fiscal year(s).

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Step 1 - Determine Milestones

• Select those milestones which are most
  quantifiable.
• In our example we will use

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Step 2 - Time Phase Milestones
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Step 2 - Time Phase Milestones
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Step 3 - Estimate Cost Percentages
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Step 4 - Allocate Costs by Fiscal Year
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Results of Fiscal Spread Procedure

• Since this method is tied to the program schedule
  it can be fairly easily defended.
• However, if the program is not yet developed to
  any level of detail, then the analyst must either
  pursue development of the schedule or look for
  another methodology.

13
Time Phasing Production

• Until now we have focused on time-phasing an
  estimate in the development stage. The next step
  is to address spreading the production estimate
  over time.
• The production CERs yield a T1 for recurring
  hardware. In addition, you have factors for
  data, support equipment, training and other
  non-recurring costs. If production spans 12
  years, where in the 12 year production schedule
  do you allocate costs for data or support
  equipment?

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Outlay Profile Method

• The outlay profile method can be used to fiscally
  spread a cost estimate for a production program.
• In a production program where multiple lots are
  being produced over multiple years, this has the
  effect of converting a cost estimate into a
  budget estimate.
• Consider a missile production program which
  produces 1000 air-to-air missiles over five
  years.
• Historically, it takes six years to spend all of
  the funds obligated in a missile production
  contract. So, for a five year production run,
  the program office can plan on providing funding
  for 11 years. See example, next page.

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Outlay Profile Method
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Outlay Profile Method