Operations and Support (O&S) costs represent 70% or more of the Total Ownership Cost (TOC) for DoD acquisition programs. Unfortunately, these costs do not receive the same level of attention from program managers (PMs) since they are most often concerned with protecting their procurement and research development testing & evaluation (RDT&E) funding.
The theme at this year’s DoD Cost Analysis Symposium (DODCAS) was “Cost Analysis and the Downturn”–downturn, that is, in the DoD budget. While the defense budget is being cut, the cuts are not of the magnitude seen from 1988 to 2000 when we saw DoD spending decline $129.6 billion. Nonetheless, the national economic climate is such that fewer resources are available for defense.
As was highlighted in the Defense Acquisition Review Journal in a paper titled “Reduction of Total Ownership Cost” , PM’s have a significant role in supporting the reduction of TOC by reducing the life cycle costs of their systems. PMs can have the greatest effect on reducing TOC by employing Cost as an Independent Variable (CAIV) and establishing cost targets to achieve during the development stages of their programs. However, CAIV targets are rarely tracked and reported on by PMs and as a result programs get fielded and the only opportunity left is to have program staff, along with their cost analysts, scrutinize O&S costs to see where efficiencies in the supply chain and maintenance activities can be achieved.
O&S costs are too often roughly estimated and then all but forgotten about by PMs since operations & maintenance funding pays for the majority of O&S costs. More analytical rigor and and PM oversight of O&S costs can result in significant cost savings for DoD acquisition programs. A sage Estimation Heuristic is to “Estimate Early and Often”, which implies that despite emphasis on the front end of life cycles, estimates must be revisited and updated as more accurate information about the program is made available. This is certainly the case with O&S costs as actual reliability, availability and maintainability data comes in from the field that can be used to refine the O&S cost estimate, identify the true O&S cost drivers, through Pareto analysis, so that measures can be taken to reduce TOC of acquisition programs. Today’s austere budget environment demands this level of attention to that portion of program costs, which comprise the majority of most every program’s life cycle cost.
LEARN MORE in CBPA White Paper by Brad Ellis and Paul Gvoth