MORS Special Meeting: Risk, Trade
Space, & Analytics for Acquisition
Stephen Bagby
Deputy Assistant Secretary of the Army
(Cost & Economics)
20 September 2011
Cost Awareness
Funding
Planning,
Programming,
Budgeting & Execution
(PPBES)
Acquisition
Requirements
Joint Capabilities
Integration &
Development
System
(JCIDS)
Defense
Acquisition
System
2
Requirements Process
• DOTMLPF Capability Gap Cost
Benefits Analysis (CBAs)
Joint Capabilities
Integration &
Development
System
(JCIDS)
• Analysis of Alternatives (AoA) –
Cost Estimates
• Initial Capability Document (ICD),
Capability Development
Document (CDD) & Capability
Procurement Document (CPD)
Cost Estimates
• Voting Member of the Army
Requirements Council (AROC)
Acquisition Process
• Weapon Systems Acquisition
Reform Act of 2009
 Service Cost Positions
Annual Review of ACAT1
Programs
Defense
Acquisition
System
 Earlier Costing at MSA
• Analysis of Alternatives (AoA)
Updates at MSB & MSC
• More Focus on Operating &
Support (O&S) Costing
• Affordability – By System W/ O&S, Should cost vs. Will cost
• Configuration Steering Board Annual Reviews
Funding Process
• POM Requires Cost Benefit
Analysis (CBA) $25 Million
Planning,
Programming,
Budgeting & Execution
(PPBES)
• POM Weapon System Reviews for
Approved Programs
• Cost Targets / Trades
• Portfolio Affordability
• Updated Cost Position to Support
President’s Budget
• GFEBS – Design Cost Controller
Acquisition Reform - Cost Analysis Effort
MS A
AoA (Lead or Oversight)
ICD Review
ICE/CCE for MDAPs
ICE /CCE for MAIS
EA for MAIS
MS B
AoA (updated as necessary)
CDD Review
CARD Review
ICE/CCE for MDAPs
ICE/CCE for MAIS
EA for MAIS
APB
MS C
AoA (updated as necessary)
CPD Review
CARD Review
ICE/CCE for MDAPs
ICE/CCE (for MAIS only if no
significant changes to the EA)
APB (updated, as necessary)
MS FRP/FDDR
CARD Review
ICE/CCE for MDAPs
ICE for MAIS
APB
PBL BCA
Annually
+70 Weapon System Reviews
Economic Viability for DBSMC Certification (MAIS only)
Portfolio Reviews
Configuration Steering Boards
As Required
2366A & B Certification for MS A & B
Cost Benefit Analysis (for New, Unfunded, or Expanded Requirements)
Setting and Rebaselining APBs (Nunn-McCurdy & ACAT Change)
6
Early Costing Pre-Milestone-A
Challenges
Data Availability and Suitability
Limited system definition and lack of design
maturity but desired capabilities are known
Lack of data traditionally used in cost analysis
such as quantities, schedules, and strategy
Solution
Army has developed a capability
analysis architecture
74 capability descriptors available
Capability architecture mapped to
recognized DoD capability structures:
o JCA = Joint Capability Areas
o FCB = Functional Capabilities Boards
7
Cost Risk and Uncertainty Analysis
Risk Reduction


Cost Risk Analysis will not reduce the risk inherent in a program; however
it helps PM to understand the nature of the risk involved, and the
uncertainty associated with the cost estimates
More frequent Cost Risk Analysis result in a more realistic assessment of
the cost and schedule and the development of effective risk mitigation plan
Risk analysis reduces the uncertainty between requirements and funding
Cost Analysis Required Skills and Knowledge
Supporting Skills and Knowledge
Cost Estimating
Planning and Scheduling
• Engineering Economics
• Terminology
• Computers
• Statistics and Probability
• Optimization
• Productivity Management
• Human Relations-Behavioral Science
• Organizational Structures
• Measurements
• Hardware and Software
• Contractor’s Costs
• Life Cycle Cost
• Planning Basics
• Scheduling Basics
• Schedule Control
Contract Management
• Contracting Arrangement
• Contract Administration
R&D, Production, O&S
Economic Analysis and Cost Benefit Analysis
• Budgeting and Cash Flow
• Break Even Analysis
• Value Engineering
Cost Control
• Work Breakdown Structure and Code of Accounts
• Earned Value (also Achieved and Accomplished Value)
• Key Cost Control Techniques
Cost Risk Analysts required skill are all of the above
9
Range vs. Point Estimates
+75%
Range estimate provides a degree of risk and uncertainty
Actual
-3% to +10%
Engineering
-5% to +15%
Parametric -10% to +20%
Analogy -15% to +30%
ROM -30% to +75%
Range of Risk & Uncertainty
Point estimate is most likely within range estimate
with higher potential for cost increase
Target Cost
Estimating Accuracy Trumpet
Technical and Program Maturity
-30%
A
Materiel
Solution
Analysis
B
Technology
Development
Pre-Systems Acquisition
C
Engineering and
Manufacturing Development
Systems Acquisition
Production &
Deployment
Operations &
Support
Sustainment
Comparative Analyses
Supporting Resource Informed Decision
AoA
Analysis of
Alternatives
• Major Acquisition Program at MS-A and MS-B Requirement Decision
• Includes Life Cycle Cost and Operational Effectiveness
EA Economic
Analysis
BCA
Business Case
Analysis
CBA Cost
Benefit
Analysis
• Major Information Systems at MS-A and MS-B
Requirement Decision
• Also for Military Construction Decision by
Army Corp of Engineers
• Major Program Performance Based Logistic
Contractor Logistic Support vs. Organic Support
Decision
• Synonymous with CBA for non-PBL analysis
• All New and Existing Initiatives Resourcing Decision over $10M
• Process Through CBA Review Board (CBA-RB)
Summary

Decisions Should be Resource Informed

Cost Effectiveness Supports an Army Enterprise
Resource Framework

Cost Benefit Analysis – Making the case for a
resource informed decision

Cost Benefit Analysis Provides another Tool to
Support the Military Decision Making Process

Training Programs will Develop Essential Staff Skills
12
Army Cost Benefit Analysis
Making the case for a resource informed decision :
Weighing the total expected costs against the total expected
benefits over the near, far, and lifecycle timeframes from an
Army enterprise perspective
Operational Value
Costs
Benefits
The value of Cost Benefit Analysis:
 Supplements professional experience and military judgment
with sound analytical techniques
 Ability to make better resourced-informed decisions
 Results in a strong “value proposition” – a clear statement that
the benefits more than justify the costs and required trade-offs
13