SOURCING STRATEGY BEST PRACTICES – BRINGING SPEND ANALYSIS TO THE DOD
DoD reliance on commercial outsourcing expanded dramatically over the past several years, growing 78 percent in the decade ending FY 2006.1 As outsourcing has grown, so too has appreciation for the potential of cost growth due to lax oversight of acquisition activities. DoD has issued a new mandate through DoD Instruction 5000.2, directing designated managers throughout all components to implement effective strategic sourcing procedures. These procedures explicitly include execution of periodic spend analyses.
Vital to any comprehensive strategic sourcing initiative, spend analysis derives from commercial best practices and is used to evaluate and categorize historical purchasing patterns to provide an organization with detailed knowledge of what is spent, with whom it is spent, and how it is spent. In the federal and DoD environments, information gleaned from the spend analysis is used to shape sourcing strategy in three major areas: identification of cost saving opportunities, identification of potential risks in current acquisition processes, and support of regulatory compliance.
The contributions of the cost analyst
A successful spend analysis will require a skilled cost analyst to provide the leadership and analysis, including a proven methodology derived from years of implementation across government and industry. Best practices dictate that spend analyses should be embedded into an organization’s operations as an iterative, repeatable, and reliable process. This paper will discuss a proven process for DoD, including basic tenants and potential pitfalls for each step.
Another important consideration is the scope and results of the analysis. Initial spend analyses center on identification and comparisons of vendors, customers (if the organization is procuring for outside agencies) and acquisition vehicles. Such comparisons will include not just spending levels, but the types of products and services purchased and their relative cost effectiveness. Results may include opportunities for consolidation of acquisitions, improvements to spending forecasts, and identification of the major drivers of spending. As spend analysis should be a recurring and integrated process, successive analyses should more efficiently and effectively improve sourcing strategies.
A case study
A case study from the Defense Information Systems Agency’s (DISA) PMO SATCOM offers insight to practical application of a methodology with compelling results and lessons learned. For DISA, a $2 Billion spend analysis replaced anecdotal debate with statistically driven acquisition strategy. DISA compared an incorrectly scorned contract to other more popular mechanisms and quantitatively proved solid economic performance, assessed vendor performance, and effectively predicted capacity and cost risks. Stakeholders, including GAO and Congress, accepted the results, leading to what the Director of DISA called one of the three greatest successes at DISA for that year.
For the last nine years, Chris Milo has supported DoD programs as a consultant in the areas of cost estimation, financial analysis, acquisition, statistical analysis and database design and management. From 1999 through 2002, Mr. Milo supported Tricare Management Activity in its efforts to measure usage and financial performance of various commercial health care plan contracts. Thereafter, Mr. Milo supported the Program Management Office, Defense Travel System (PMO DTS), an ACAT 1AM program currently within the Business Transformation Agency. He analyzed financial viability of several system implementation efforts, to include DTS adoption of a Service Oriented Architecture (SOA) and business intelligence capabilities. Mr. Milo developed and authored the 2007 DTS Acquisition Program Baseline (APB) and supporting cost analysis documentation. Mr. Milo was one of the primary analysts for the 2003 PMO-DTS Economic Analysis (EA) as pursuant to that system’s favorable Milestone C decision. Currently, he supports the Strategic Planning Team in the DISA PMO SATCOM, developing documentation for a major acquisition of future commercial satellite communications (COMSATCOM) services, as well as providing financial and statistical analyses of COMSATCOM expenditures in response to requests for information. In the fall of 2008, he performed a spend analysis on over $400M worth of DoD COMSATCOM expenditures.
Mr. Milo holds an MBA from Boston University and a CPA in the Commonwealth of Virginia.
Patrick W. Baranowsky II
Patrick Baranowsky, CCE/A, brings almost 20 years of technical and business analysis to his current role as Booz Allen’s manager of business and strategy consultation, primarily to Defense Information Systems Agency (DISA). For this, he oversees about $5 million of annual business, in part served by a team of technically savvy business analysts that he has helped develop. He currently is a senior advisor to DISA’s SATCOM program office and formally was recognized for his services by the agency’s director. Current functional initiatives include development of IT economic services for major enterprise initiatives and for CIO portfolio management. As a twelve year employee of Booz Allen, he also has extensive experience as a management consultant to the technology industry and as a telecommunications systems engineer to federal law enforcement. Before Booz Allen, he was a lead mobile satellite service manager at COMSAT, managing investment, engineering improvements, and coordinating operations. Before that, he led systems engineering activities at Westinghouse Electric for satellite systems, enterprise networks, and radar systems. Mr. Baranowsky has taken Executive MBA training from St. Gallans University, has a MSEE from The Johns Hopkins University, and has a BSEE from University of Maryland.