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Acquisition Cost Estimating Update 28 Feb 08

Air Armament Center. Acquisition Cost Estimating Update 28 Feb 08. War-winning Capabilities…On Time, On Cost. Ken Kennedy, AAC/FMC Kristy Golden, AFCAA/FMAE. DISTRIBUTION STATEMENT A : Approved for public release; distribution is unlimited. 1. Outline. Estimating Trends

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Acquisition Cost Estimating Update 28 Feb 08

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  1. Air Armament Center Acquisition Cost Estimating Update28 Feb 08 War-winning Capabilities…On Time, On Cost Ken Kennedy, AAC/FMC Kristy Golden, AFCAA/FMAE DISTRIBUTION STATEMENT A: Approved for public release; distribution is unlimited. 1

  2. Outline • Estimating Trends • Leadership Concern • Congressional Reaction • Root Cause Analysis • 2007/2008 Initiatives • AAC Cost Demand • AFCAA Standup • Industry Help • Summary

  3. Estimating Trends GAO-07-406SP Defense AcquisitionsAssessments of Selected Weapon Programs GAO assessed 62 weapon systems with a total investment of over $950 billion, some two-thirds of the $1.5 trillion DOD plans for weapons acquisition “Fully mature technologies were present in 16 % of the systems at development start” - the point at which best practices indicate mature levels should be present. Programs that began development with immature technologies (84%) experienced a 32.3 percent cost increase, whereas Those that began withmature technologies (16%) increased just 2.6 percent.” 3

  4. Leadership Concern Sue Payton: Jane's Defence [sic] Weekly, 07/17/2007 Reduce pressure on budget by improving methods for calculating the overall cost of acquisition programme [sic] Stop taking contractors' one-off cost estimates at face value Develop own methods for calculating the true, long-term cost of a weapon system Tendency to highlight the basic price tag of a weapon system and play down the much bigger 'lifecycle cost Wait until a preliminary design review has been completed, rather than trying to guess a weapon's price before the final requirements are defined Push contractors to build more prototypes … important insight into future development costs 4

  5. Congressional Reaction Nunn-McCurdy Breach Thresholds 2006 Defense Appropriations Act (Public Law No: 109-148) Requires Increased emphasis on Accurate TRL assessments Quantification of risk and uncertainty Optimal decisions within trade space constraints Better cost and schedule forecasts Budgeting to Independent Cost Estimates 5

  6. High Med Low Med High Root Cause Range of Missile Program Cost Outcomes AOA Risk Reduction SDD LRIP FRP We are too optimistic about risk/uncertainty Risk/Uncertainty Cost risk levels Extremely High Extremely High Low High Med-High Med Med-Low Low High Med-High Med Med-Low 1 2 3 4 5 6 7 8 9 TRL Level Risk is retired as a program progresses and technology matures

  7. 2007/2008 Initiatives • Better Risk ID and Modeling • Continued Sufficiency Reviews • New Source Selection Focus • More Contract Risk Sharing

  8. Better Risk ID and Modeling • Integrate Probability of Consequence Screening (P/CS) “risk cube” and Probability of Program Success (PoPS) assessment into cost estimating process • Existing infrastructure tools • Realistic and consistent approach • Results in a “time now” WBS risk rating • Use Monte Carlo simulation with WBS correlation to define total program cost • Present decision maker with better picture of uncertainty based on knowledge today

  9. Continued Sufficiency Reviews • Cost “gray beard” review • Reinforce estimating best practices • Verify data sources and methodology • Suggest alternate benchmarks • Request appropriate SME inputs • Independent technical assessment • Independent schedule assessment

  10. New Source Selection Focus • Cost risk # 1 evaluation priority • High, medium, or low rating based on percent difference between proposed contractor cost and government estimate of offeror’s approach • Requires clear communication • Full data source ID and extract for element basis of estimates (BOEs) • Full data source adjustment justification in element BOEs • Full discussion of risk and uncertainty in element BOEs

  11. More Contract Risk Sharing • Solicitation and proposal • Request WBS element uncertainty/risk and $ magnitude as part of each narrative basis of estimate worksheet • Request sum of element risk $ to be included as a separate proposal line • Evaluation • Description of element uncertainty used to model risk for independent estimate • Execution • Proposal risk line becomes earned value MR • SOO requirement for discussion before use

  12. Air Force Cost Analysis Agency (AFCAA) Standup

  13. Organization Headquarters • Deputy Assistant Secretary (Cost & Economics), AFCAA • Policy and functional oversight • Major program milestone decisions -- Independent Cost Estimates (ICE) for delegated programs (required by law); Component Cost Analysis (CCA); AF CAIG service cost position (SCP) • Headquarters/functional support (analysis, review, etc.) THE ASSISTANT SECRETARY OF THE AIR FORCE (Financial Management & Comptroller) DEPUTY ASSISTANT SECRETARY (Budget) DEPUTY ASSISTANT SECRETARY (Cost & Economics) DEPUTY ASSISTANT SECRETARY (Plans, Systems & Analysis)

  14. Principal Economic & Financial Advisor Mr. Hosey Economics & Business Mgmt (SAF/FMCE) Mr. Connair Deputy Assistant Secretary(Cost & Economics) SAF/FMC Deputy Assistant Secretary for Cost & Economics (SAF/FMC) Executive Director (AFCAA/FM) Mr Hartley, SES* Associate Deputy Assistant Secretary for Cost & Economics Ms Woods, SES AFCAA Technical Director Mr. Jordan A/C & Weapons Division (AFCAA/FMA) Mr. McVicker Space Programs Division (AFCAA/FMS) Mr. Seeman Info Tech Division (AFCAA/FMI) Mr. Moul Force Analysis Division (AFCAA/FMF) Lt Col Hurley Resources Division (AFCAA/FMR) Ms. Cann Integration Division (AFCAA/FMC) Col DuPre ASC/AAC OL AFSCP/ SMC OL ESC OL *The Deputy Assistant Secretary holds two titles as SAF/FMC and AFCAA/FM

  15. AFCAA Eglin OL

  16. Operating Locations Hanscom AFB MA AFCAA - DC Wright-Patterson AFB OH Peterson AFB CO Los Angeles AFB CA Eglin AFB FL

  17. Air Force Concern There is a Cost Growth Problem. Cost Estimating is a Significant, but not Lone, Contributing Factor. However, it is a factor we can manage! • Current AF-wide policy does not consistently require adequate, objective cost analysis or review • Limited to infrequent milestone reviews • Inconsistent leadership value placed on cost analysis (contrast DAB to AFIPT) • Cost resources down 60% since 1992 -- approximately 400 positions! • Staffs hit hardest, no career path/pipeline, compare poorly with Army, Navy, others • Little “functional” governance • Inexperienced analysts “isolated” in programs with little functional support -- fractured estimating methods, databases, models -- inconsistent data/estimate quality, analyst qualifications

  18. Acquisition Cost Capability Initiative Improve Air Force Cost Estimating • Better cost estimating processes • Policy and standards • Re-writing AFPD 65-5 and accompanying AFIs and AFMANs • Building standards and templates • Performance metrics • Collaboration • Encourage team efforts • Establish operating locations at Product Centers and MAJCOMs • Transparency • Share data / research / methods • Repopulate personnel pipeline • Upgrade education, training, and certification programs • Provide Cost Estimators with the tools to succeed

  19. Current Status • Policy AFD 65-5 • The acquiring organization shall build program cost estimates* • Annually • Milestone decisions • Nunn-McCurdy Cost Breaches • Source Selections • POM initiatives, disconnects, and offsets • Headquarters shall provide non-advocate cost / risk assessments to decision makers • Collaboratively develop and execute training, data collection/methods and model development programs • Headquarters shall review cost, economic, or business case analyses to be presented to SECAF, USECAF, CSAF, VCSAF • Personnel • Hired 20+ positions • Operating Locations • Completed beddown agreements at Peterson AFB, Wright-Patterson AFB, Eglin AFB, Hanscom AFB, and LA AFB • Working Host Tenet Support Agreement at each location • Training and Certification • Partnered with SCEA and DAU to improve certification program • Developed Training OI for new analysts * Led by government employees * SAF/FMC defined standards and procedures

  20. AFCAA OL Mission Shorten “Kill Chain” (Cost Budget) • AFCAA-OL will function as the liaison with the Center • Work collaboratively with the program office estimators • Non Advocate Cost Assessments (NACAs) • Independent Cost Estimates (ICEs)

  21. How the AFCAA-OLs will Help • Collaborative program cost estimates • Build cost models • Cost estimating relationships • Risk analysis • Data / research / methods • Potential roles • Team lead • Team member • Sufficiency reviewer • Consultant • Researcher • Facilitator between Program Office and DCARC (OSD CAIG)

  22. Industry Help • Don’t over promise capability with unrealistic resources • Define and quantify uncertainty for your proposed concept • Provide true risk now versus what it could be in a future year • Identify the right level of MR to neutralize problems before they overwhelm the program

  23. Summary • Cost estimating community needs to provide more realistic resource projections for Congress and DoD • Additional AFCAA resources are in place now with more FMC positions coming to help programs • New initiatives are in work to improve estimate quality, quantify uncertainty, and fund appropriate risk efforts

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