Obtaining Greater Efficiency and Productivity in Defense Spending – The Carter Memo
The Nov 3rd, 2010 Ashton Carter memorandum directing initiatives within the Department of Defense to obtain greater efficiency and productivity in Defense spending presents an ongoing challenge to the services. How do PEOs and PMs reduce the costs of their programs without reducing capabilities? This presentation outlines processes to set affordability goals early in the acquisition life cycle and a strategy to help PMs focus on achieving “should cost” versus “will cost” estimates. There is an essential role for the professional cost estimator to help set affordability targets at Milestone A that will be treated as Key Performance Parameter (KPPs), and to participate in systems engineering tradeoff analysis in support of Milestone B decisions.
Knowing the difference between what a program will likely cost given the usual risks and inefficiencies and what it should cost gives the PM understanding of valuable trade space to work within. PMs must use will-cost baselines as a starting point and look for discrete, measurable initiatives to create savings against that will-cost. The Carter memo directs PMs to scrutinize every element of program cost, in short, execute to what the program should cost. Cost risk modeling outputs produce risk-adjusted estimates, corresponding statistical estimate distributions, and a credible project cost “S”-curve, which represents the cumulative distribution function for the range of project costs. Understanding and managing the WBS elements that comprise the S-curve can help control program costs. For example, PMs can focus on key cost drivers such as overhead costs, learning curves, schedule, SW code growth, weight growth, failures in testing, government costs, etc. If the PM manages these factors closely to cut down the associated risks, the program can be executed to the should cost level (or below the will cost/budgeted confidence level) of the S-curve.
The knowledge and skills of the professional cost estimator are essential in implementing this directive to realize the goals of obtaining greater efficiency and productivity in major defense programs.
Tom DuPré is a Department Manager at TASC Inc, Chantilly VA. TASC provides data-driven analysis to help acquisition and financial decisions makers identify and prioritize requirements, make choices among competing alternatives, and formulate/defend budget resources. He has over 25 years of Financial Management and Cost Estimating experience and is currently leading a team providing cost estimating and risk analysis support to the Department of Defense and the Intelligence Agencies. Prior to his military retirement and joining TASC in 2008, Colonel DuPré held a number of key assignments including Division Chief at the Air Force Cost Analysis Agency, Comptroller at two major Air Force installations and Chief of the Joint Strike Fighter Cost Estimating Team. As a Weapon System Cost Analyst at SAF/FMC in the Pentagon he supported the Air Force Cost Analysis Improvement Group (CAIG) review process and was directly responsible for all cost estimating support for Air Force Special Access Programs. He holds a BS degree from the US Air Force Academy and is a graduate of the first Masters Degree Program in Cost Analysis at AFIT. He is also a graduate of the Defense Systems Management College Advanced Program Management Course. He is a SCEA Certified Cost Analyst, and an American Society of Military Comptrollers Certified Defense Financial Manager (CDFM).
Kirsten Schulte is an operations research analyst at TASC Inc in Chantilly, VA. She holds a BA from the University of Virginia where she was a double major in Financial Mathematics and Economics. She started working in cost analysis with TASC immediately after graduation in May 2010. Prior to her full-time employment, Kirsten worked at the Quantico Naval Health Clinic and interned as a financial analyst for Northrop Grumman (TASC).