Published on March 4, 2008
O&S Cost AnalysisPerspectives from the Office, Secretary of Defense: Walt Cooper Operations Research Analyst OSD PA&E/CAIG July 2005 O&S Cost Analysis Perspectives from the Office, Secretary of Defense Topics: Topics About OSD PA&E and the Cost Analysis Improvement Group (CAIG) The “Big Picture” 2001 Quadrennial Defense Review New fiscal realities Recent management initiatives About O&S cost analysis VAMOSC Sample CAIG analyses Expectations and the cost analyst’s responsibilities Slide3: acquisition matters Office of the Secretary of Defense (with Defense Agencies) as of July 2003 USD (Personnel & Readiness) USD (Policy) ASD (Special Ops/ Low Intensity Conflict & Homeland Defense Policy) ASD (Health Affairs) ASD (Reserve Affairs) Secretary of Defense Deputy Secretary of Defense ASD (Legis Affairs) Inspector General ASD (Public Affairs) ATSD (Intel Oversight) Dir, Admin & Mgmt General Council ASD (International Security Affairs) ASD (Force Mgmt Policy) USD (Acquisition Technology & Logistics) DUSD (Acq & Tech) Dir, Def Research & Engineering Defense Commissary Agency Director, Operational Test & Evaluation USD (Comptroller) Director, Program Analysis & Evaluation Defense Contract Audit Agency Defense Advanced Research Proj Agency ASD (International Security Policy) Defense Security Cooperation Agency PDUSD (Policy) Defense Finance & Accounting Service Defense Threat Reduction Agency ASD(Networks & Information Integration) Defense Contract Management Agency DUSD (Logistics & Materiel Readiness) Defense Logistics Agency Missile Defense Agency USD( Intelligence) OSD PA&E Missions: OSD PA&E Missions Analyze and evaluate plans, programs, and budgets in relation to U.S. defense objectives, projected threats, allied contributions, estimated costs, and resource constraints. Provide leadership in developing and promoting improved analytical tools and methods for analyzing national security planning and the allocation of resources. Ensure that the costs of DoD programs, including classified programs, are presented accurately and completely. Assess effects of DoD spending on the U.S. economy, and evaluate alternative policies to ensure that DoD programs can be implemented efficiently. Independent analytical advice to the Secretary of Defense. Slide5: D, PA&E Theater Assessments & Planning Resource Analysis General Purpose Programs Force and Infrastructure Cost Analysis Weapon Systems Cost Analysis Economics & Manpower Analysis Operations Analysis & Procurement Planning Strategic & Space Programs Programming & Fiscal Economics Resource Analysis Deputate and CAIG Tasks CAIG Tasks DAB reviews, to include O&S cost analysis Special studies, e.g., spectrum reallocation On-going efforts – Contractor cost reporting – Cost growth analyses – VAMOSC2 PA&E Tasks Administer Program Review Cost Support to PA&E Selected projects – O&M program balance – FYDP1 Improvement – TRICARE modeling – Agency Performance Plans 1 FYDP = Future Years Defense Program. 2 VAMOSC = Visibility and Management of Operating and Support Costs. CAIG’s Role in O&S Cost Analysis: CAIG’s Role in O&S Cost Analysis Independent preparation of O&S cost estimates in support of milestone decision reviews and budget/program analyses Oversight of VAMOSC program Establish policy Promote standardization of cost element structures across the Components Promote use of VAMOSC data to predict future costs The “Big Picture”: The “Big Picture” 2001 Quadrennial Defense Review New fiscal realities Recent management initiatives Slide8: CY 1 Four Years of the 2-year PPBE Process CY 2 CY 3 CY 4 QDR Program/Budget/Execution Review Program/Budget/Execution Review Program/Budget/Execution Review Program/Budget/Execution Review New Admin. <Off Year DPG> <On Year DPG> <On Year DPG> <Off Year DPG> POM/BES Submissions POM/BES Submissions QDR Modify Budget Submission (Previous Admin) Budget Submission (Year 1) Budget Submission (Year 2) Budget Submission (Year 3) Budget Execution (Previous Admin) Budget Execution (Year 1) Budget Execution (Year 2) Budget Execution (Year 3) 2001 QDR Transformation Initiatives: 2001 QDR Transformation Initiatives Protect bases of operation here and abroad and defeat CBRN weapons Assure information systems Project and sustain forces in distant anti-access and area-denial environments Deny enemy sanctuary through persistent surveillance, tracking and rapid engagement Enhance space systems Leverage information technology to develop interoperable C4ISR “What we should see in the future is a shift… from capital-intensive weapon systems to labor.” VADM (Ret) Arthur Cebrowski, Office of Force Transformation. Slide10: DoD Budget Trends and Projections* * As of FY 2006 President’s Budget FYDP, February 2005. Fiscal Projections: Fiscal Projections Curtailed growth in DoD budgets in response to Administration’s commitment to reduce the deficit Changing composition More for personnel, e.g., veterans’ benefits, health care Less for weapon systems Shift in resources to the Army Increased pressure on O&M accounts to free resources for C4ISR*, intelligence and space programs * C4ISR = Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance. Recent Management Initiatives: Recent Management Initiatives Increased interest at senior levels in operating costs Defense Logistics Board 2005 QDR study of supply chain Improved visibility into supply chain costs and performance Build foundation for continuous performance management and accelerate near-term improvements Evaluate DoD performance against commercial practices Improve supply chain support to the warfighter Defense Science Board update of 1996 Summer Study on infrastructure Total Life Cycle Systems Management (TLCSM) Performance Based Logistics Oversight of acquisition program sustainment costs (DAES-S)* * Defense Acquisition Executive System -- Sustainment Performance Based Logistics: Performance Based Logistics Acquisition of support as an integrated package through long-term support arrangements Focus on achievement of performance outcomes Pilot programs Sentinel Radar System TOW Improved Target Acquisition System ALQ-99 Tactical Radar Jamming System Po Expeditionary Fighting Vehicle B-2 Joint Strike Fighter Business case analyses required to support implementation Visibility into actual contractor costs an issue * Directed in Management Initiative Decision 917, October 18, 2004. Oversight of Acquisition Program Sustainment Costs: Oversight of Acquisition Program Sustainment Costs New mechanism established for oversight of acquisition programs in sustainment Initial programs reviewed Air Force B-2 Spirit Army Patriot Advanced Capability (PAC) III Fire Control Army Abrams Tank Navy T-45 trainer 18 program performance and system indicators, e.g., Operational availability Mission reliability Total operating cost per unit usage Planned and achieved return on investment for Reduced Total Ownership Costs (RTOC) Full funding status Modifications and upgrades Human system integration About O&S Cost Analysis: About O&S Cost Analysis VAMOSC – the source of O&S actuals Two examples of CAIG analyses of MDAP O&S estimates Expectations and O&S cost analysts’ responsibilities VAMOSC: VAMOSC In 1974 OSD tasked departments to develop an information system for collection of actual O&S costs for weapon systems Services established VAMOSC databases Army: OSMIS (Operating & Support Management Information System) Navy: Naval VAMOSC and USMC VAMOSC Air Force: AFTOC (Air Force Total Ownership Cost) Primary source of data for preparing O&S estimates VAMOSC Systems: VAMOSC Systems Army Future Combat Systems (FCS): Manned Systems Unmanned Air Vehicles Class I ARV-A (L) Small (Manpackable) UGV Non-Line of Sight Cannon Non-Line of Sight Mortar Medical Treatment and Evacuation Recon and Surveillance Vehicle Infantry Carrier Vehicle Mounted Combat System MULE: (Countermine) MULE: (Transport) Class II Class III Class IV Armed Robotic Vehicle ARV RSTA ARV Aslt FCS Recovery and Maintenance Vehicle Unmanned Ground Vehicles Unattended Ground Sensors NLOS LS Unattended Munitions Intelligent Munitions System Command and Control Vehicle Army Future Combat Systems (FCS) Illustrative CAIG analysis… Background: Background Milestone B (entry into System Development and Demonstration) in May 2003 Army to field 15 FCS units of action, starting in FY 2014 O&S issues: dramatic reductions in manpower and operating costs Army projects FCS unit will consist of 2,500 soldiers… similar units have 3,500 soldiers Army assuming that operational availability (Ao) of new platforms will be an order-of-magnitude improvement over current systems New training strategies will reduce operating tempos CAIG Conclusions: CAIG Conclusions Manpower reductions not likely Conducted comparative analysis with other brigade-size units Concluded that an additional 1,000 soldiers would be required Conducted sensitivity analysis to indicate cost implications Only modest improvements in Ao likely High concentration of electronics Complexity of systems on platforms Used higher values in sensitivity analysis New training strategy may not yield sufficient readiness Slide21: Future Aircraft Carrier (CVN-21) Illustrative CAIG analysis… Background: Background Milestone B (entry into System Development and Demonstration) in April 2004 Navy plans to acquire and deploy 12 CVN-21 class carriers Major O&S issue: Navy projecting that ship’s company can be reduced by at least 600 sailors CAIG Conclusions: CAIG Conclusions Significant reductions in ship’s company will be difficult to achieve Special meeting with senior Naval officers with carrier backgrounds Site visit to USS Theodore Roosevelt for in-depth discussions with line officers, enlisted crew members Research into previous studies of crew size reduction Conducted sensitivity analyses to illustrate effects on O&S costs Expectations: Expectations Fewer new platforms, more new ISR systems Greater reliance on software Major requirements looming for software maintenance… How good are our tools? Greater reliance on contractor logistics support (CLS) and PBL Visibility into contractor costs an issue Continued pressure to reduce O&S costs Longer service lives How effective are our tools for estimating these costs? Review and Analyze the CARD*: Review and Analyze the CARD* * Described in detail in DoD Manual 5000.4, “Cost Analysis Guidance and Procedures,” December 1992. Other Activities: Other Activities Become an expert in the use of VAMOSC systems Attend the DoD Cost Analysis Symposium www.ra.pae.osd/adodcas Build a library of tools and literature www.gao.gov www.cbo.gov “The Cost Analyst’s Companion,” by Dr. David A. Lee Got out there! “You cannot cost what you cannot see!” No substitute for on-site, hands-on contact with the hardware Discussions with military and civilian personnel most familiar with the item * Described in detail in DoD Manual 50004., “Cost Analysis Guidance and Procedures,” December 1992.