UNCLASSIFIED The Analytics of Tough Choices Christine Fox, Director 12 April 2011.
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Transcript of UNCLASSIFIED The Analytics of Tough Choices Christine Fox, Director 12 April 2011.
UNCLASSIFIED
UNCLASSIFIED
The Analytics of Tough Choices
Christine Fox, Director
12 April 2011
UNCLASSIFIED
UNCLASSIFIED
O S D C A P E
Overview
• Historical view
• Future challenges– Acquisition professionals opportunities
– CAPE’s role and responsibilities
• Challenges for us all
2
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DoD Historical Data
3
19621965
19681971
19741977
19801983
19861989
19921995
19982001
20042007
20102013
20160
100
200
300
400
500
600
700
800
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
FY
11
$B
En
ds
tren
gth
(K)
-37%
-31%
-18%
-59%
-35%
-33%
-14%
-64%
• Recent drawdowns each saw topline reductions ~30%• Acquisition cut disproportionately in both
Topline O&M Procurement Endstrength
post-Vietnam1967-1975
post-Cold War1985-1998
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O S D C A P E
Post-Vietnam
• “Hollow force”– Readiness measures
bottomed out in late 1970s– Reduced public support,
adjustment to all volunteer force, and resulting lower recruit quality were contributing factors
• Some attempt to modernize rather than fully fund training, maintenance, and spares to pace the Soviet threat
Post-Cold War
• Problems with readiness occurred in mid-90s
• Major capital equipment procured below steady state replacement rates– Took advantage of Reagan
build-up
• Significant consolidation in the industrial base
4
Consequences of Previous Drawdowns
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O S D C A P E
Where we are today
• Systems need replacing
• Spectrum of threats– Large, conventional nation/state actors– Smaller but very dangerous terrorist cells.
• Historic deficits
• We’re still at war……….
5
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O S D C A P E
The Secretary is determined
• NOT to recreate the readiness problems that characterized previous downsizing
• To make sure the Department is healthy enough to protect against and deter the continuum of very real threats that we currently face
• To find efficiency savings to reduce Department overhead costs– Protect force structure and procurement
6
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O S D C A P E
Our challenges
• What’s good enough?
• What should we give up? When?
• How do we invest in S&T?
• How do we get better prices?
• How do we incentivize our workforce to participate in a Culture of Savings?
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What’s good enough?
• Risk– Requirements risk– Technology risk– Cost risk
• New initiatives to inform the risk debates– Front End Assessments
• Example: Long Range Strike Family of Systems– Considered the entire portfolio of conventional deep-strike capabilities
– Focused on proven technologies to ensure that we deliver on time and on budget
– WSARA• ICE/AOA at Milestone A
8
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O S D C A P E
What should we give up?
• Recent SECDEF decisions:– Truncate F-22 – Truncate C-17– Terminate Future Combat System– Terminate the Expeditionary Fighting Vehicle– JSF “extra engine” a veto issue– JSF STOVL on “probation”
• How do we incentivize the community to identify these opportunities? How do we learn to ignore sunk costs?
• CAPE’s role: – Provide an assessment of the complete range of options – Distinguish critically important capability from exquisite capability
9
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O S D C A P E
How do we invest in S&T?
• Science and Technology investment is a SECDEF and Administration priority
• Big payoffs—the “game changers”—come from these investments.
• We need “game changers” in– Technological advancement
• Cyber
– Savings• Energy
• How do we know where to invest? How do we protect our design workforce?– One of this year’s Front End Assessments
10
PMs play a lead role in identifying S&T “game changers”
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O S D C A P E
How do we get better prices?
• Teamwork key to successful programs:– Program managers; Acquisition executives; Industry; CAPE– Enables understanding of challenges, incentives, constraints– Critical to successfully working through difficult periods– Understanding leads to win-win solutions and better value for the Govt
• Example: Successful Development Program– Realistic cost estimate baselined at MS B– Realistic development schedule baselined at MS B– Experienced management team, continuity in key positions– Limited SDD phase capabilities to proven technologies
• CAPE analysis can enable strong programs and procurement savings
11
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O S D C A P E
Growth in PAUC Over 7-Year SDD Phase
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$225.6
2.7 4.8
150
175
200
225
250
275
300
Original PAUC (MS B 2004) CAPE estimate (MS C 2010)
Uni
t Cos
t (FY
04
$M)
MILCON (underestimatedhangar requirements)
SDD Cost Growth(late test A/C build)
Quantity change (7 additional A/C)
Critical Breach
Significant Breach
$233.1$230.4
Critical Breach
Significant Breach
$233.1$230.4
(4.8)
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O S D C A P E
Growth in PAUC for Critical N-M Breach
13
50
60
70
80
90
100
110
120
Uni
t C
ost
(BY
$M
)
PAUC
Spares
Support, Non-recurring and MILCON
Acquisition Strategy/Fee Arrangement
Weight Growth
Contractor Labor Rates and Overhead
Quantity Reduction and Profile Extension
SDD Cost Growth
Original PAUC (MS B)
Critical Breach
Significant Breach
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O S D C A P E
Multi-year Procurement Certifications
• CAPE is required in statute to assess savings from use of multi-year contracting strategy.
– Two programs evaluated to date: F/A-18 E/F and H-60– CAPE compares multi-year vs. annual strategies to assess savings– Certifications sent to Congress
• Multi-year contracting strategies can reduce costs by enabling more efficient use of contractor resources including:
– improved economic order quantities;– potential buyouts of parts and materials;– concurrent Foreign Military Sales;– acceleration of production; and– enhanced manufacturing flow.
• Assessments of savings are difficult: program historical costs typically reflect a single contracting strategy
CAPE Identified Opportunities for Savings in Both Cases 14
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O S D C A P E
Changing the Culture
• Program manager incentives– How do we best incentivize program ownership?
• What are the current disincentives?
– What are the disincentives to raising concerns about a program?• What would it take to incentivize this behavior?
• What tools do you need for effective program management?– Better cost visibility?– Better understanding of how different people assess risk and rewards?– More ability to question assumptions? – Ability to protect against requirements growth?– Other??
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You have the critical role in achieving acquisition success.
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O S D C A P E
Summary
• We are entering a period of tough budget pressures
• At the same time– We are still at war– We face a complex spectrum of threats– We need to recapitalize our force
16
You are on the front lines of the procurement challenges and opportunities.