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

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

3. 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)

4. 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

5. 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)

6. 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)

7. 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

8. 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 *

9. 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

10. 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

11. 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)

12. 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

13. 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