2012-MGM10

How does a $20B Program Become a $30B Program?  Lessons Learned in Production Cost Management

Management Track

MGM10_Presentation_LessonsLearnedinProdCostMgmt_Sheamer

Abstract:

How does a $100M ship become a $200M ship or a $75M fighter jet turn into a $125M fighter jet? As we have seen recently with several high profile acquisition programs, systems integrators and cost estimators continue to struggle when estimating the production costs of development systems. This presentation focuses on production-related cost drivers and why contract incentive-fee structures are often part of the problem, then details steps for better management of these production costs.

In a typical weapons system production scenario, work falls behind schedule, incomplete tasks are deferred to later production stages, and management uses various strategies to attempt to recover lost schedule. Typical management strategies include using overtime for extended periods of time, increasing staffing levels beyond the original plan, and deferring work to later production stages. Each one of these strategies leads to inefficiencies that compromise productivity and quality, resulting in higher production costs.

Contract incentive-fee structures often compound the by incentivizing schedule or achievement of milestones without considering the impacts on cost and quality. Incentives that are focused on near-term schedule progress often lead to decisions that drive higher costs throughout the production cycle. We will discuss alternative incentive fee models that incentivize cost control throughout the production lifecycle.

This presentation will also explore a set of often overlooked metrics that program managers can use to evaluate cost and schedule trade-offs. The metrics and approaches exhibited in this presentation will provide program managers with an overall framework to manage and control production costs.

Author(s):

Steve Sheamer
Herren Associates
Steve Sheamer is an engineering consultant with over ten years of experience developing solutions to facilitate cost estimating, manpower analysis, operations research and production management. His production experience includes consumer products, semiconductors, high-tech equipment, and defense weapons systems. Mr. Sheamer is currently a Senior Associate with Herren Associates where he focuses on reducing costs for Federal sector clients. Prior to joining Herren in 2008, Mr. Sheamer worked at Lockheed Martin, Advanced Micro Devices, Applied Materials, and Izzy Design (furniture) where he applied operations research techniques including queuing theory, discrete event simulation, and statistical analysis to optimize resources and reduce manufacturing cycle times. Mr. Sheamer has both a master’s and bachelor’s degree in industrial engineering from Texas A&M University. He is a Society of Cost Estimating and Analysis (SCEA) Certified Cost Estimator/Analyst (CCEA), a Lean Six Sigma Green Belt, and holds a graduate certificate in Earned Value Management.

Allen Gaudelli
Herren Associates
Allen Gaudelli is a technical consultant with experience in cost estimation and tool development. Specifically, he has developed: a standardized costing tool that provide acquisition and maintenance cost projections, a labor estimating tool that calculates indirect labor estimates during the production phase of ship hulls, a computer simulation model that analyzes changes in a medical evaluation process of wounded service members, and a business case analysis tool that investigates investment in efficient technologies. These tools and models are used to enable informed decisions for the Navys Enterprise Resource Planning (ERP) program, the Navys Littoral Combat Ship (LCS) production management team, the Armys Medical Command, and the Navys Electric Ships Office (ESO) respectively.
Mr. Gaudelli is currently a Junior Consultant with Herren Associates. Prior to joining Herren in 2011, Mr. Gaudelli was a masters student at The Pennsylvania State University. His thesis in industrial engineering and operations research used simulation modeling to analyze the feasibility of multiple scenarios for the emergency department at Williamsport Regional Medical Center. Also, as an undergraduate, he was a research assistant for a study that analyzed the design of technical visual aids. Mr. Gaudelli has served as an industrial engineering intern where he used analytics to forecast manpower requirements and provide recommendations for labor saving opportunities.