MORS Special Meeting: Risk, Trade Space, & Analytics for Acquisition Stephen Bagby Deputy Assistant Secretary of the Army (Cost & Economics) 20 September 2011

Cost Awareness Funding Requirements Acquisition Planning, Programming, Joint Capabilities Integration & Development System (JCIDS) Defense Acquisition System Planning, Programming, Budgeting & Execution (PPBES) Requirements Acquisition 2

Requirements Process Joint Capabilities Integration & DOTMLPF Capability Gap Cost Benefits Analysis (CBAs) Analysis of Alternatives (AoA) – Cost Estimates Initial Capability Document (ICD), Capability Development Document (CDD) & Capability Procurement Document (CPD) Cost Estimates Voting Member of the Army Requirements Council (AROC) Joint Capabilities Integration & Development System (JCIDS)

Acquisition Process Defense Acquisition System Weapon Systems Acquisition Reform Act of 2009 Service Cost Positions Annual Review of ACAT1 Programs Earlier Costing at MSA Analysis of Alternatives (AoA) Updates at MSB & MSC More Focus on Operating & Support (O&S) Costing Defense Acquisition System Affordability – By System W/ O&S, Should cost vs. Will cost Configuration Steering Board Annual Reviews

Funding Process Planning, Programming, Budgeting & Execution (PPBES) POM Requires Cost Benefit Analysis (CBA) $25 Million POM Weapon System Reviews for Approved Programs Cost Targets / Trades Portfolio Affordability Updated Cost Position to Support President’s Budget GFEBS – Design Cost Controller Planning, Programming, Budgeting & Execution (PPBES)

Acquisition Reform - Cost Analysis Effort MS A AoA (Lead or Oversight) ICD Review ICE/CCE for MDAPs ICE /CCE for MAIS EA for MAIS MS B AoA (updated as necessary) CDD Review CARD Review ICE/CCE for MDAPs ICE/CCE for MAIS EA for MAIS APB MS C AoA (updated as necessary) CPD Review CARD Review ICE/CCE for MDAPs ICE/CCE (for MAIS only if no significant changes to the EA) APB (updated, as necessary) MS FRP/FDDR CARD Review ICE/CCE for MDAPs ICE for MAIS APB PBL BCA ACAT Acquisition Category AoA Analysis of Alternatives APB Acquisition Program Baseline BCA Business Cost Analysis CBA Cost Benefit Analysis CCE Component Cost Estimate CDD Capability Development Document CDR Critical Design Review CPD Capabilitys Production Document DBSMC Defense Business Systems Management Committee FDDR Fully Deployment Decision Review FOC Fully Operational Capability FRP Full Rate Production ICD Initial Capabilities Document ICE Independent Cost Estimate IOC Initial Operational Capability EA Economic Analysis EV Economic Viability PBL Performance Based Logistics PDR Preliminary Design Review Annually +70 Weapon System Reviews Economic Viability for DBSMC Certification (MAIS only) Portfolio Reviews Configuration Steering Boards As Required 2366A & B Certification for MS A & B Cost Benefit Analysis (for New, Unfunded, or Expanded Requirements) Setting and Rebaselining APBs (Nunn-McCurdy & ACAT Change)

Early Costing Pre-Milestone-A Challenges Data Availability and Suitability Limited system definition and lack of design maturity but desired capabilities are known Lack of data traditionally used in cost analysis such as quantities, schedules, and strategy Solution Army has developed a capability analysis architecture 74 capability descriptors available Capability architecture mapped to recognized DoD capability structures: JCA = Joint Capability Areas FCB = Functional Capabilities Boards

Cost Risk and Uncertainty Analysis * 07/16/96 Cost Risk and Uncertainty Analysis Risk Reduction Cost Risk Analysis will not reduce the risk inherent in a program; however it helps PM to understand the nature of the risk involved, and the uncertainty associated with the cost estimates More frequent Cost Risk Analysis result in a more realistic assessment of the cost and schedule and the development of effective risk mitigation plan Risk analysis reduces the uncertainty between requirements and funding *

Cost Analysis Required Skills and Knowledge Supporting Skills and Knowledge • Engineering Economics • Terminology • Computers • Statistics and Probability • Optimization • Productivity Management • Human Relations-Behavioral Science • Organizational Structures • Measurements Cost Estimating • Hardware and Software • Contractor’s Costs Life Cycle Cost R&D, Production, O&S Planning and Scheduling • Planning Basics • Scheduling Basics • Schedule Control Economic Analysis and Cost Benefit Analysis • Budgeting and Cash Flow • Break Even Analysis Value Engineering Cost Control • Work Breakdown Structure and Code of Accounts • Earned Value (also Achieved and Accomplished Value) • Key Cost Control Techniques Contract Management • Contracting Arrangement • Contract Administration Cost Risk Analysts required skill are all of the above

Range vs. Point Estimates Range of Risk & Uncertainty Estimating Accuracy Trumpet Technical and Program Maturity ROM -30% to +75% Parametric -10% to +20% Analogy -15% to +30% Engineering -5% to +15% -3% to +10% Actual Target Cost Point estimate is most likely within range estimate with higher potential for cost increase Range estimate provides a degree of risk and uncertainty Upper bound Lower bound +75% -30% B A Materiel Solution Analysis Systems Acquisition Sustainment Technology Development Production & Deployment Operations & Support Engineering and Manufacturing Development C Pre-Systems Acquisition

Comparative Analyses Supporting Resource Informed Decision AoA Analysis of Alternatives Major Acquisition Program at MS-A and MS-B Requirement Decision Includes Life Cycle Cost and Operational Effectiveness EA Economic Analysis Major Information Systems at MS-A and MS-B Requirement Decision Also for Military Construction Decision by Army Corp of Engineers Major Program Performance Based Logistic Contractor Logistic Support vs. Organic Support Decision Synonymous with CBA for non-PBL analysis BCA Business Case Analysis CBA Cost Benefit Analysis All New and Existing Initiatives Resourcing Decision over $10M Process Through CBA Review Board (CBA-RB)

Summary Decisions Should be Resource Informed Cost Effectiveness Supports an Army Enterprise Resource Framework Cost Benefit Analysis – Making the case for a resource informed decision Cost Benefit Analysis Provides another Tool to Support the Military Decision Making Process Training Programs will Develop Essential Staff Skills

Army Cost Benefit Analysis Making the case for a resource informed decision : Weighing the total expected costs against the total expected benefits over the near, far, and lifecycle timeframes from an Army enterprise perspective Operational Value Costs Benefits BCA is not a budget, business plan, acquisition strategy, balance sheet. The value of Cost Benefit Analysis: Supplements professional experience and military judgment with sound analytical techniques Ability to make better resourced-informed decisions Results in a strong “value proposition” – a clear statement that the benefits more than justify the costs and required trade-offs