1. DAU Acquisition Training Symposium April 3, 2018
Operating and Support (O&S) Cost Management over the Life Cycle - some Practical Concepts
O&S Cost Management warrants dedicated attention, both during the acquisition and sustainment phases, especially in the challenging resource environment the DoD will likely face for the foreseeable future. This session discusses how successful O&S Cost Management is a collaborative effort between all relevant stakeholders, including program management, requirements, financial management, engineering, contracts, cost estimating, and logistics personnel. This collaborative effort will more effectively assess and effect trades among cost, schedule, and performance to better
meet the Warfighter's needs.
DAU Acquisition Training Symposium
April 3, 2018
Ms. Betsy Lederer
DAU
Ms. Molly Mertz
ODASD(MR)

2. Operating & Support Costs
R&D Cost
Procurement Cost
Disposal Cost
Life Cycle Cost
Acquisition Cost
O&S Cost
Figure not to scale
Total Ownership Cost
Cost of DoD doing business
O&S Cost consists of sustainment costs incurred from the initial system deployment through the end of system operations.
Includes all costs of operating, maintaining, and supporting a fielded system. Specifically, this consists of the costs (organic and contractor) of personnel, equipment, supplies, software, and services associated with operating, modifying, maintaining, supplying, and otherwise supporting a system in the DoD inventory.
WHAT are O&S costs? 2

3. O&S Cost Management is a team sport!
O&S Cost Stakeholders
Program Office PM
PSM
BFM
Cost Estimator
Design Team/Engineers
Testers
DoD Level
Comptroller
Planners and Programmers
USD(A&S)
Warfighter
CAPE $$
O&S Costs
Service Level
PEOs
Planners and Programmers
Resource Sponsors
Warfighter
Cost Estimators
External to DoD
Congress
Taxpayer
Industry
WHO needs to consider O&S Costs?
O&S Cost Management is a team sport! 3

4. Life Cycle Costs
WHY do we need to care about O&S costs? They are typically the largest portion of the lifecycle and the hardest phase to make meaningful changes during.
Optimizing the system for O&S Costs during the RDT&E phase allows the greatest ROI. 4

5. Sustainment Planning includes efforts and decisions to develop support elements and reduce risk
Milestone
Materiel Development
Developmental RFP Release
Full-Rate Production
Increasing Plan Detail A B C
Solution Analysis
Technology Maturation & Risk Reduction
Engineering Manufacturing & Development
Production & Deployment
Operations & Support
Sustainment Requirements
Product Support Strategy*
Maintenance
Supply
Intellectual Property(IP)
Manpower
Arrangements
Schedule
O&S Affordability
Cost
Funding
Should Cost
Management
Analysis
Define > Decompose > Allocate
Test Data > Performance Validation
Performance Metrics
Reliability Growth Progress
Core Applicability
Workload
Source of Repair
Standup
Options for Repair Data, Manufacturing Specs
Data Delivery
O/I/D Maintenance and Supply Estimate
Support options (AoA)
Supportability Analysis & Design Specs, IP Options
Interim Support
Performance-Based
Design/Support Trades (Reviews)
Sustainment integrated with Test & Eval Events
Contracting Actions
Commercial/Organic Transitions
Goal
Cap
O&S Contribution to Life Cycle Cost Estimate > Sustainment Implications of ICE/SCP Variances
Pareto Cost Drivers > Identify Should Cost Initiatives > Schedule/Execute Initiatives
PSM Designated
Product Support Organization Staffed
Product Support IPT Established > Integrated with External Stakeholders
WHEN do we need to consider O&S Costs? Throughout the lifecycle. The discussion of and consideration for O&S costs cannot wait until we reach the O&S phase.
*other product support elements may include: Training, Support Equipment, Sustaining Engineering, Facilities, Design Interface, Packaging, Handling, Storage, Transportation
Product Support Planning and O&S Cost Management occur across the life cycle.

6. O&S Cost and Readiness Drivers
WHERE do we manage O&S costs? In the cost driving elements and the levers that can affect those drivers.

7. AT&L Product Support Guidance
DoDI , Change 2
February 2017
Overarching acquisition direction
What needs to be done for planning product support?
How do I plan for product support? What do I need to consider?
Defense Acquisition Guidebook
February 2017
Acquisition guidance
Chapter 4, specific to Life Cycle Logistics
Where do I document my planning efforts?
Life Cycle Sustainment Plan Outline
January 2017
Documentation of sustainment planning
Additional Guidance documents to supplement Product Support Planning:
HOW do we plan for sustainment and manage O&S costs?
PPP Guidebook
Partnership development
(October 2016)
BCA Guidebook
COA analysis process
(February 2014)
O&S Cost Mgt. Guidebook
Cost guidance
(February 2016)
PBL Guidebook
Performance Based Strategy & Arrangements
(April 2016)
PSM Guidebook
Product Support mgmt
and reference
(April 2016)
(I)LA Guidebook
Logistics Readiness Assessment
(July 2011)
RAM-C Guidebook
Design for Supportability
(June 2009)
MIL- HDBK-502A
Supportability Analysis Process
(March 2013)

8. LCSP Outline v2.0 The LCSP Section 7 provides a foundation to plan
ASD(L&MR) Memo to the Components signed on January 19, 2017
Revisions to the LCSP Outline v1.0:
Reflect new statute/policy
Clarify guidance; incorporate lessons learned
Expand the Funding section
Stress the tailorability of the document
Introduce “Critical Thinking Questions”
Reference appropriate DAG sections (future)
Review and Approval process unchanged from DoDI
Plan is to make the LCSP outline stable (ie, update infrequently), while the DAG will evolve to capture new content, best practices, lessons learned, etc. (12-18 month content review).
The LCSP Section 7 provides a foundation to plan
for managing O&S Costs of a system

9. LCSP Section 7 Sub-Sections
LCSP Section 7 – Cost and Funding
LCSP Section 7 Sub-Sections
O&S Cost Estimates
O&S Cost Drivers
O&S Should Cost Initiatives
Affordability Constraint
O&S
Budgets
Understand
these…
…to develop these…
…to achieve this…
…to fund adequately
Understanding the O&S cost estimate ensures all necessary requirements are included.
The tracking of the cost estimate over time allows understanding of technical and programmatic data and assumption changes.
Once the cost estimate is understood, then it can be broken down into parts to understand what elements affect the cost the most.
Knowing what is driving the cost estimate allows you to invest in the areas that will provide the "biggest bang for the buck". No sense in spending $ in an area that won't provide a good return on investment.
Cost estimates and should cost initiative expected savings can be compared against established affordability constraints to determine program affordability.
All of this culminates in creating reasonable budget requests that will meet the necessary requirements. 9

10. Understanding the O&S Cost Estimate
Understanding what is included in the O&S cost estimate and how it has changed over time is critical to managing and controlling O&S costs.
Notional Example

11. O&S Cost Driver Analysis
2.0 Unit Level
Operations
-element
O&S Cost Element or sub
External Factors
Non
Design Factors (Program Controlled)
LEGEND
Design Factors
2.0
Unit Operations
O&S Cost KSA
1.0
Unit Level Manpower
3.0 Maintenance
4.0
Sustaining Support
5.0
Continuing Sys Improve
6.0
Indirect Support
1.2 Unit Level Maintenance
1.1 Operations …
Annual Mx Manpower Demand
Maintenance Ratio (MMH/OH)
OPTEMPO (Op Hrs/Yr)
System Reliability
Mean Time to Repair
Maintenance Plan/Strategy
System service life
Mx Manpower Labor Rate
The most important part of controlling costs is to understand the system’s cost drivers.
The methods shown here are ways to determine the system’s cost drivers:
Decomposition of the system
Tornado plots (sensitivity)
Pareto analysis
Any analysis must discriminate between drivers that are controlled by the program office/Service and those that are not
Notional Example
Notional Example
Notional Example 11

12. O&S Affordability Notional Example
Cost estimating and affordability are not synonymous
The cost estimate indicates how much funding the system being sustained needs to perform the mission
Affordability looks at how much funding is available in the budget to support the mission
If the budget available is less than the budget required:
Funds may be re-prioritized from another system/portfolio
Readiness may degrade
Should Cost initiatives may improve cost requirements
Resource Sponsors and Service leadership must prioritize
Notional Example 12

13. O&S Should Cost
Should Cost Initiatives are one way to meet affordability constraints
If a program is meeting affordability constraints that doesn’t mean that Should Cost principles don’t apply
Should Cost Initiatives can be difficult in for O&S since it may be many years before the ROI is seen
Developing meaningful should cost initiatives for O&S cost relies on understanding the O&S cost estimate and the drivers of that estimate
Should Cost Initiatives = doing smart things to reduce the cost of a program/system 13

14. Cost and Software Data Reporting
DoDI , Enclosure 1, Table 7
CSDRs provide details on contract costs, which provides insight for future negotiations and cost estimates
CSDR required on all Sustainment contracts over $50M (TY$), and for all Programs over $100M
Per 2017 NDAA, ACAT I restrictions no longer apply
FFP waives EVM reporting, but does not waive CSDR reporting
Only a waiver signed by Deputy Director, OSD CAPE releases contract from reporting
Reports should capture total contract value, with no CLINS or Delivery Orders omitted
Sustainment-specific special instructions appear in Remarks section of the CSDR Plan 14

15. O&S Budgeting Notional Example
The O&S Phase is comprised of multiple appropriations
Programs should understanding what type of money is required and who controls that money
Programs must be able to articulate impacts of reduced funding
What work will not be completed?
What are the impacts to readiness/availability?
Notional Example 15

16. Summary
Understanding the components of the cost estimate and the elements that are driving the cost is important to managing the cost
Readiness and availability of the system to do its mission suffer when O&S costs are not managed
Should Cost Initiatives for O&S may be difficult to approve because of the long ROI, but that doesn’t mean they aren’t worthwhile
O&S Cost management is a team sport and not just the responsibility of the PSM and cost estimator 16

17. Questions?