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Implementation of Should Cost Initiatives_ Procedures and

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					February 15, 2011




Contains Kalman & Company, Inc., Proprietary Data
                  Purpose


This presentation details the structured approach
that the Joint Program Executive Office – Chemical
Biological Defense (JPEO-CBD) used to implement
Should Cost Management within their organization.




                                                     1
                Overview

Should Cost Guidance Timeline

Should Cost Implementation at JPEO-CBD

Should Cost Review Board

Should Cost Management

Next Steps

Questions?

                                          2
           Should-Cost Guidance Timeline
                                                                                 June 10, 2011
    June 28, 2010
                                      Sept 14, 2010                          Army Implementation of
Better Buying Power:                                                           Under Secretary of
Mandate for Restoring             Better Buying Power:                        Defense (Acquisition,            August 24, 2011
  Affordability and              Guidance for Obtaining                    Technology, and Logistics)
   Productivity in               Greater Efficiency and                     (USD(AT&L) Affordability           Should-Cost and
 Defense Spending                Productivity in Defense                           Initiatives                   Affordability
                                        Spending




   Jun    Jul   Aug     Sept    Oct   Nov    Dec       Jan   Feb    Mar        Apr    May     June    Jul   Aug    Sep     Oct   Nov     Dec
  2010   2010   2010    2010   2010   2010   2010     2011   2011   2011      2011    2011    2011   2011   2011   2011   2011   2011    2011


                                                                                                                     November 14, 2011
                                                                             April 22, 2011
                        November 3, 2010                                                                           Assistant Secretary of
                                                                                                                    the Army Acquisition,
                                                                      Joint Memorandum on
                Implementation Directive for Better                                                                     Logistics and
                                                                    Savings Related to “Should
                Buying Power – Obtaining Greater                                                                   Technology (ASA ALT)
                                                                              Cost”
                  Efficiency and Productivity in                                                                      Memorandum on
                                                                              -and-
                        Defense Spending                                                                           Management of Should
                                                                    Implementation of Will-Cost
                                                                                                                        Cost Margins
                                                                         and Should-Cost
                                                                           Management



                                                                                                                                          3
     Should Cost Implementation
            at JPEO-CBD

1. Staff Education

   2. Development of Should Cost
   Procedures and Guidelines


      3. Should Cost Review Board


          4. Should Cost Management

                                      4
    Phase 1
Staff Education




                  5
                    Staff Education
 JPEO-CBD HQ briefed each program office on OSD
 Should Cost guidance and the resulting JPEO-CBD
 guidance for implementation of Should Cost
  • Explained the purpose and scope of the guidance
  • Defined Should Cost management terminology
  • Identified the impact to their current acquisition process
  • Provided a timeline for internal (JPEO-CBD) and external (OSD)
    submission dates
  • Provided clarifications and how guidance applied to their specific
    programs
          Provided a forum to discuss interpretation of guidance
                                                                         6
         Phase 2
Development of Should Cost
  Procedures & Guidelines




                             7
     Development of Should Cost
      Procedures & Guidelines
 Developed a 6-step process for JPMs to follow
            •Leverage an approved Will Cost estimate as a baseline to
     Step 1  develop the Should Cost estimate


              •Identify discrete, measurable, realistic cost saving initiatives
     Step 2


              •Determine viability of potential Should Cost initiatives
     Step 3


              •Develop a Should Cost estimate
     Step 4


            •Submit Should Cost initiatives for JPEO-CBD verification and
     Step 5  MDA approval

              •Review and update at milestone reviews and annually
     Step 6

                                                                                  8
         Development of Should Cost
          Procedures & Guidelines
       •Leverage an approved Will Cost estimate as a baseline to
Step 1  develop the Should Cost estimate


         •Identify discrete, measurable, realistic cost saving initiatives
Step 2


         •Determine viability of potential Should Cost initiatives
Step 3


         •Develop a Should Cost estimate
Step 4


       •Submit Should Cost initiatives for JPEO-CBD verification and
Step 5  MDA approval

         •Review and update at milestone reviews and annually
Step 6



                                                                             9
     Step 1: Leverage an Approved Will
               Cost Estimate
 JPMs leverage their approved Will Cost Estimate as a
 baseline to develop the Should Cost estimate
 JPEO-CBD developed a Will Cost Estimate checklist that
 verifies the estimate for use as a viable baseline




  The Estimating Checklist provided a level of standardization across the
                           JPEO-CBD portfolio


                                                                        10
      Step 1: Leverage an Approved Will
             Cost Estimate, cont’d
 Examples of Will Cost Estimate Checklist items include:
Does the Cost Element Structure • A detailed CES can aid in identifying element
   (CES) include necessary        cost drivers that can identify viable Should-Cost
     elements within each         Initiatives
        appropriation?

                                      • Costs associated with a high APUC could be
Is the Average Procurement Unit         sources of potential Should Cost Initiatives
      Cost (APUC) defined?


                                      • Shifts in procurement, fielding, or refresh may
   Does the estimate provide            yield potential Should-Cost initiatives
detailed quantities by fiscal year?


                                      • Every program can review adjustments in
Are sustainment costs detailed?         sustainment methods to reduce costs


                                                                                          11
         Development of Should Cost
          Procedures & Guidelines

       •Leverage an approved Will Cost estimate as a baseline to
Step 1  develop the Should Cost estimate


         •Identify discrete, measurable, realistic cost saving initiatives
Step 2


         •Determine viability of potential Should Cost initiatives
Step 3


         •Develop a Should Cost estimate
Step 4


       •Submit Should Cost initiatives for JPEO-CBD verification and
Step 5  MDA approval

         •Review and update at milestone reviews and annually
Step 6


                                                                             12
Step 2: Identify Discrete, Measurable,
        Realistic Cost Savings
Recommended that JPMs should utilize Integrated
Product Teams (IPTs) to initiate identification of
Should-Cost initiatives and review:
 Program Cost Drivers
      –   Program Office Staffing and Overhead
      –   Schedule Considerations
      –   Requirements/Quantity Stabilization
 Unit Cost Drivers
      –   Development
      –   Procurement
      –   Operating & Support


                  Contains Kalman & Company, Inc., Proprietary Data
                                                                      13
    Step 2: Identify Discrete, Measurable,
       Realistic Cost Savings, cont’d
More approaches to identifying Should Cost initiatives:
Scrutinize every element of program cost
   –   Identify cost drivers for each cost element
   –   Look for savings in repetitive activities
   –   Challenge supplier learning curves
   –   Examine overhead and indirect costs
                         Should
                          Cost
   –                     contractor on cost savings
       Incentivize yourInitiative
                     Categories
 Categorize Should Cost initiatives as:
   – Near-Term vs. Long-Term
   – Program-Driven vs. Service-Driven vs. Externally-Driven




                           Contains Kalman & Company, Inc., Proprietary Data
                                                                               14
         Development of Should Cost
          Procedures & Guidelines

       •Leverage an approved Will Cost estimate as a baseline to
Step 1  develop the Should Cost estimate


         •Identify discrete, measurable, realistic cost saving initiatives
Step 2


         •Determine viability of potential Should Cost initiatives
Step 3


         •Develop a Should Cost estimate
Step 4


       •Submit Should Cost initiatives for JPEO-CBD verification and
Step 5  MDA approval

         •Review and update at milestone reviews and annually
Step 6


                                                                             15
Step 3: Determine Viability of Potential
        Should Cost Initiatives
IPTs must determine viability of potential Should Cost
Initiatives:
 Viable initiatives include those that are:
   − Realistic,
   − Achievable, and
   − Provide acceptable risk to the program




                       Contains Kalman & Company, Inc., Proprietary Data
                                                                           16
         Development of Should Cost
          Procedures & Guidelines

       •Leverage an approved Will Cost estimate as a baseline to
Step 1  develop the Should Cost estimate


         •Identify discrete, measurable, realistic cost saving initiatives
Step 2


         •Determine viability of potential Should Cost initiatives
Step 3


         •Develop a Should Cost estimate
Step 4


       •Submit Should Cost initiatives for JPEO-CBD verification and
Step 5  MDA approval

         •Review and update at milestone reviews and annually
Step 6


                                                                             17
Step 4: Develop a Should Cost Estimate

  Use the Will-Cost estimate as the base and apply
  discrete, measurable items and/or specific initiatives for
  savings against that base
   − Determine life-cycle cost impact of each initiative
   − Cross-walk each Should-Cost initiative to the CES
   − Identify and/or modify any additional assumptions and cost
     methodologies
   − Modify cost model to incorporate Should Cost initiatives
   − Present risk-adjusted cost savings against the program’s
     approved Will-Cost estimate




                                                                  18
     Development of Should Cost
      Procedures & Guidelines

       •Leverage an approved Will Cost estimate as a baseline to
Step 1  develop the Should Cost estimate


         •Identify discrete, measurable, realistic cost saving initiatives
Step 2


         •Determine viability of potential Should Cost initiatives
Step 3


         •Develop a Should Cost estimate
Step 4


       •Submit Should Cost initiatives for JPEO-CBD verification and
Step 5  MDA approval

         •Review and update at milestone reviews and annually
Step 6


                                                                             19
 Step 5: Submit Should Cost Initiatives
for JPEO Verification and MDA Approval
The following items should be included as supporting
evidence for each Should Cost initiative submitted:
 Narrative description and expected outcome for each initiative
 Estimate savings in Then Year (TY) dollars for each initiative by Fiscal
    Year (FY) and appropriation impacted
   State savings for each initiative as percentage of the Will Cost estimate
   List Stakeholders’ roles and responsibilities to facilitate success
   Identify key assumptions
   Include programmatic/technical risk, concerns, or issues and
    associated impact statements
   Identify help required by Senior Leaders to implement initiatives
   Identify key milestones to measure success of initiatives

                                                                          20
         Development of Should Cost
          Procedures & Guidelines

       •Leverage an approved Will Cost estimate as a baseline to
Step 1  develop the Should Cost estimate


         •Identify discrete, measurable, realistic cost saving initiatives
Step 2


         •Determine viability of potential Should Cost initiatives
Step 3


         •Develop a Should Cost estimate
Step 4


       •Submit Should Cost initiatives for JPEO-CBD verification and
Step 5  MDA approval

         •Review and update at milestone reviews and annually
Step 6


                                                                             21
Step 6: Review and Update at Milestone
         Reviews and Annually
 Should-Cost estimates will be reviewed and updated
 annually unless they have been submitted for a
 Milestone review within the previous 12 months
  Programmatic changes affecting the Should-Cost estimate can
   include but are not limited to:
    − Changes in the Will-Cost estimate
    − Changes in program schedule
    − Changes in program requirements
    − Changes in design of end items
    − Changes in testing strategy
    − Changes in acquisition strategy
    − Changes in sustainment strategy
 Progress towards Should Cost will be tracked and reported throughout the year
                                                                            22
        Phase 3
Should Cost Review Board




                           23
            Should Cost Review Board
JPEO-CBD established an integrated Should Cost
Review Board that included JPEO staff with JPM
participation
 Initiatives were reviewed to determine whether they were viable:
   − Appropriate for the acquisition phase of the program
   − Considered achievable with acceptable risk
   − Significant upfront investment not required
   − Reported savings not captured as part of other efficiencies
   − Includes correct calculation of savings
 The board reviewed 26 Joint Programs:
   − 66 initiatives reviewed       49 approved
   − Sent approved initiatives to MDA for approval
 Tracking system established to monitor Should Cost approval status


                                                                       24
        Phase 4
Should Cost Management




                         25
         Should Cost Management

Should-Cost management will be a continuous effort to
achieve savings throughout the life-cycle of a program
 Should-Cost estimates and initiatives shall be
  incorporated within the JPMs programmatic
  documentation
 Existing and additional initiatives shall be identified as
  appropriate as an on-going effort to reduce program
  costs
 As a result of Army implementation guidance,
 Should-Cost savings will be tracked for margin
 management at JPEO-CBD

                                                               26
                        Next Steps

 Visit JPMs for one-on-one briefings to share Should Cost
  lessons learned, efficiencies, and best practices
 Develop and share enterprise-wide initiatives
 Keys to JPEO-CBD’s success of the Should Cost
  process:
  − Leveraging cross-functional participation
  − Educating staff
  − Development of Estimating Checklist
  − Using a tracking tool to measure progress




                       Contains Kalman & Company, Inc., Proprietary Data
                                                                           27
Questions?




Contains Kalman & Company, Inc., Proprietary Data
                                                    28

				
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