Affordability Analysis: The Role of Process, Cost and ROI Modeling In Improved Program Performance

Methods and Models II Track



Affordability analysis as part of decision making may be the biggest edge of the decade for both commercial organizations and DoD / government organizations. Affordability has been addressed in the past but never to the level it is today.

In an IT context companies struggle to increase profits and often view IT as a necessary evil: one that consumes resources rather than contributes to the bottom line. However, IT can be a significant contributor when IT decisions are made after modeling affordability in multiple dimensions.

In a DoD context affordability as “should cost” and “will cost” are the bywords of the times: attempting to replace past cost / performance failure due to inflexible user requirements or over-specified contractor requirements with realistic trades of cost, schedule, and other key performance parameters (KPPs).

New developments and upgrades / new buys can benefit from affordability analysis. A complete affordability analysis estimates the risk adjusted Total Cost of Ownership, return on investment, consistency with long-range strategy, against risk and key technical and performance parameters.
In affordability analysis tools are important and repeatable process is essential to success. Hence the 10 affordability process will be covered. Those steps are:

Step 1. Establish inviolate Key Performance Parameters
Step 2. Identify Affordability Goals & Figures of merit Development, life cycle, payback, ROI, NPV, kill ratio, budget constraints, etc)
Step 3. Gather Requirements, Features, performance
Step 4. Define baseline alternatives
Step 5. Perform technical Design Analysis for each alternative
Step 6. Perform cost / schedule analysis of each alternative
Step 7. Assess benefits based on figures of merit
Step 8. Perform Probabilistic Risk Analysis
Step 9. Assess Alternatives & Select optimal Alternative
Step 10. Document analysis and lessons learned

Each step will be covered and the modeling steps themselves will be emphasized.


Dan Galorath
Galorath Incorporated
Mr. Galorath has been involved with engineering, estimating and analysis for 40 years. Under his leadership Galorath Incorporated, the developed SEER cost, schedule, risk applications, methods, and training for 1) software, 2) hardware, electronics & systems, 3) Information Technology, and 4) Manufacturing. Dan is the primary author of the book “Software Sizing, Estimation, and Risk Management: When Performance Is Measured Performance Improves.” His widely read blog, Dan Galorath on estimating, covers estimation, planning, measurement, control and risk analysis. Dan has been awarded lifetime achievement awards from both the International Society of Parametric analysis ( ISPA) and the Society of Cost Estimating and Analysis (SCEA.)