The Forgotten Costs and Uncertainty Analysis within the DoD Acquisition Environment
Life Cycle Cost Track
Despite the best efforts of the Department of Defense (DoD) to capture all costs associated with the life cycle of acquisition programs, it continues to be an elusive. A primary reason for this shortcoming in cost estimating is the lack of time spent on estimating operations & sustainment (O&S) costs compared to the time and effort estimating research, development, and procurement costs. The implications for this imbalance are significant given the fact that 60 – 70 percent of an acquisition program’s life cycle cost is comprised of operations and support. These costs tend to be overlooked or marginalized because program managers are typically not responsible or concerned with operating and sustaining defense systems.
A common perception within the acquisition community is if one does not have to answer questions involving O&S costs then it is not considered as being applicable to a program’s costs. This perception is slowly changing due to decades of persistent cost growth across acquisition programs, which has resulted in a desire to apply greater rigor when estimating O&S costs.
Along with some non-acquisition areas (O&S and MILCON) of life cycle cost estimating, modeling cost uncertainty to account for risks has become a step that is all too often either forgotten or treated as an afterthought until the data collection and cost model have been “completed.” Cost estimating errors, such as failure to model cost uncertainty appropriately, often lead to under estimated cost models, which provide decision-makers a false sense of confidence. A Life Cycle Cost Estimate (LCCE) is just that, an estimate or a “best guess,” which is inherently uncertain, and therefore cost uncertainty must be modeled appropriately and thoroughly to capture the cost risk surrounding an acquisition program to aid in reducing the potential of cost overrun.
In an effort to produce more reliable and relevant LCCEs, this paper provides a compilation of references that include web sites, publications, and studies available within the DoD to assist cost estimators, project officers, and other subject matter experts in generating and understanding the total ownership cost of a program. Moreover, a high-level methodology and disciplined process is presented to streamline the collection of required data and information used to account for uncertainty within an LCCE during the initial stages of data collection, which serves to aid in improving the reliability and accuracy of the estimate.
Mr. Perez is currently part of Cask LLC’s Enterprise Strategies and Solutions team, specializing in cost estimating and analysis, business case analyses (BCAs), analyses of alternatives (AOAs), and portfolio analyses. He currently supports multiple life cycle cost estimating engagements for the Air Command and Control & Sensor Netting (AC2SN) Program Manager, in addition to business case analyses of DoD acquisition programs. Prior to working for Cask, Mr. Perez completed two successful tours as an enlisted Marine in the financial management field. Proceeding he began his analytical career as part of Northrup Grumman Mission Systems’ group in support of Marine Corps Systems Command programs in the area of financial management (planning, programming, budgeting, and execution of appropriated funds).
Mr. Perez has a Bachelor’s degree in Accounting from George Mason University and a MBA, with a focus on Finance and Accounting, from the Florida Institute of Technology.
Since joining Cask, Ms. Evans has concentrated on the development of Life Cycle Cost Estimates (LCCE) on many different Department of Defense programs regarding telecommunications, logistics, financial systems and Information Technology Systems. She performs Business Case Analyses (BCA), Analyses of Alternatives (AoA) and writing Cost Analysis Requirements Descriptions (CARD) for various Acquisition Category (ACAT) programs, while also having experience with Performance Based Logistics (PBL) through conducting a PBL BCA for the Marine Corps Enterprise IT (MCEITS) program office. Ms. Evans received her Bachelor’s degree in Economics with a minor in Mathematics and Statistics from Virginia Tech and has recently aided in the creation of an ICEAA chapter for Central Virginia where she currently holds the position of Secretary.