SMART Tutorial by techmaster

VIEWS: 460 PAGES: 69

									Prof. Morteza Anvari


                       1
                                     Cost Analysis Requirement


    MS 0              MS I                         MS II                                  MS III


O                            Program Definition                 Engineering &                                        Production,
         Concept
L                                    &                          Manufacturing                                         Fielding/
        Exploration
D                              Risk Reduction                    Development                                         Deployment
                                                                   (EMD)




                                                                                                                        Cost Estimates
                                                                                                                           Needed

    A                            B                                     C
        Concept        Component
                                       System                 System          Production         Rate Production &
        Exploration     Advanced
N                                    Integration              Demo         Readiness & LRIP        Deployment
                       Development
E                      Review                        Review                                                                   Support
                                                                                              Review
W    Concept & Technology              System Development&
                                                                                Production & Deployment
        Development                       Demonstration
             Pre-Systems                                   Systems Acquisition                                              Sustainment
             Acquisition                               (Engineering and Manufacturing
                                                     Development, Demonstration, LRIP &
                                                              Production)                                                                 2
             Cost Estimating Process



Definition Data Collect    Estimate     Review/         Final
Planning    Normalize     Formulation   Presentation   Document




        DOCUMENTATION



                                                           3
                         Cost Analysis Model
                                                                   Data/CERs
                 Develop Cost                                     LCC Estimates
                   Estimate                                        Cost Drivers
                  Structure
                   and WBS


Start    Establish              Prepare Cost
                                                   Test Total
          Ground                 Estimates                          Prepare
                                                    System
         Rules and                for Each                        Documentation
                                                   Estimate
        Assumptions               Element


                   Compile
                  Data Base/
                 CERs/Models                     Reasonableness
                                 Engineering
                                                   Sensitivity
                                   Analogy
                                                    Analysis
                                 Parametrics
                                                   Cost-Risk
                                Expert Opinion
                                                  Assessment

                                                                          4
                 Situation

• You have just been tasked to develop a cost
  estimate, that is, a professional opinion
  about the cost of an item, a service or a
  thing.
• Let’s discuss a process for organizing and
  developing this estimate.


                                                5
        Definition and Planning

• Influences the success of the estimate
• Understanding the requirements and how
  you approach the process will establish the
  guidelines and procedures for the estimate.
• Ask lots of questions…They help you
  understand the requirement.


                                                6
                   Questions

• Why is this cost estimate needed?
• What decisions are pending on the results of this
  estimate?
• Will the estimate be briefed and to whom?
• Will the results be incorporated into some
  document?
• What does the recipient expect to have included or
  excluded?
• What excursions or variations from the baseline
  are anticipated?
                                                   7
             Questions Continued
• What are the program and funding constraints
  especially if the program is a Joint Program?
• What are the time constraints for this estimate?
• What is the acquisition phase of the program?
• Is the program definition mature?
• Does technology exist today to design, develop, test
  and manufacture the system?
• What is the interrelationship with other systems?
• Are there previous contracts? How many? What type?
• How have the contractors performed to date?
                                                   8
    Definition and Planning
  Know Purpose of the Estimate
• Main purposes of estimates:
  – Budget Formulation
  – Comparative Studies
  – Source Selection




                                 9
        Purpose of Estimate
     Budget Formulation Estimates
•   Program Office Estimate (POE)
•   Component Cost Analysis (CCA)
•   Independent Cost Estimate (ICE)
•   What-if exercises
•   Rough Order of Magnitude (ROM)
•   Should Cost Estimates
•   CAIV

                                      10
          Purpose of Estimate
       Comparative Studies Estimates
• Making cost & benefit comparisons between
  alternatives
   – Economic Analysis (EA)
   – Analysis of Alternatives (AoA)
   – Force Structure
   – Trade-off Studies
   – Source Selection
   – Prioritization
                                              11
         Definition and Planning
           Defining the System
• Adequate description of the technical and program
  characteristics of the system
• What are the physical and performance
  characteristics?
• What are the development, production, and
  deployment schedules?
• How many systems are to be produced?
• How will the systems be supported: contract, in-
  house, two or three levels of maintenance?

                                                  12
                                              Defining the System
                                           Integrated System Schedule
                                 1993               1994                   1995                       1996             TODAY        1997             1998                 1999                    2000
      ACTIVITY                 J A S O ND J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
                               LLTI PEO IPR         LRIP DECISION                                   MRRB                   MILESTONE III
PROGRAM REVIEWS
ENGINEERING &
MANUFACTURING                                              TECH SUPPORT
DEVELOPMENT
LETHALITY
ENHANCEMENT
 LITE I / WARHEAD / LOW                                                                                                                           DEVELOPM ENT
 COST BST
                                                                               QL           UE
                                                                                     FT T          LUT
TEST & EVALUATION                   IOTE                                            QUAL           (3)(6)


 LIVE FIRE TEST                                                                          LFT (A)               LFT                                            II, III, FLIGHT
                                                                                            (26)             (B,C) (8,4)                      I
 LOG DEMO II                                                                                                                 LD
                                                                                                                              II
 PROD VER TEST                                                                               PVT
                                                                                       (25 MS L + 10 CLU)

ENHANCED                                                                                                                                                                               LEGEND
                                                                                                                   MSL CLU
PRODUCIBILITY                                                                                                      (28)       (9)                                       QL      -   QUICK LOOK
PROGRAM                                                                                                                                                                 FTT     -   FIELD TACTICAL TRAINER
                                              CA                                                                                                                        UE      -   USER EVALUATION
LOW RATE INITIAL                                                                                                                                                        LUT     -   LIMITED USER TEST
PRODUCTION                                                                                                                                                              CA      -   CONTRACT AWARD
 FY94   MSLS - 698                                                                                                                                                      MRRB    -   MATERIEL RELEASE
                                             LLTI               LEAD TIME                   PRODUCTION
        CLUs -   55                                                                                                                                                                 REVIEW BOARD
 FY95   MSLS - 872
                                                                                    LEAD TIME                             PRODUCTION
        CLUs -   97                     CA           CA
 FY96   MSLS - 1015                                                                                             LEAD TIME                  PRODUCTION
        CLUs - 108                                                   CA
MULTIYEAR I & II                                                                               CA
(3 YR CONTRACT)
                ARMY   USM C
                                                                                                                                           LEAD TIME                            PRODUCTION
 FY97   M SLS - 1020    141
        CLUs - 206       48
 FY98   M SLS - 1080    194                                                                                                    CA                                                     CA M YII
        CLUs - 270      140
 FY99   M SLS - 3316    741
                                                                                                                     RANGER    82nd                      82nd
        CLUs - 423      133                                                                          FUE                                                                  FUE
                                                                                                                      COMPL FIELDING                   COMPLETE
FIELDING                                                                                               USA                   BEGINS                                          USMC
                                                                                              HANDOFF FT. HOOD NTC
AWE                                                                                                                                                                                          13
         Defining the System
    Work Breakdown Structure (WBS)
• WBS definition
   – product-oriented breakdown of hardware,
     software, services, data and facilities that define
     the system.
• WBS breaks a total job down into manageable
  pieces & portrays the way work is to be done.
• WBS displays a company’s reporting structure.
• Program managers may cite MIL-HDBK-881 “for
  guidance only” in contract solicitations.

                                                      14
WBS




      15
          Defining the System
      Cost Element Structure (CES)
1.0 Research Development Test & Evaluation
  (RDT&E)
2.0 Production
3.0 Construction (CON)
4.0 Pay and Allowances
5.0 Operating and Maintenance Army (O&M)

                                         16
                Defining the System
       COST ELEMENT STRUCTURE – 1.0 RDT&E
CES# ELEMENT:             FY00C$M      TY$M
1.01    DEV. ENG.         $ 39.039M   $38.260M
1.02    PEP                  0.408      0.386
1.03    DEV. TOOL.           0.457      0.450
1.04    PROTO MFG.        110.421     107.724
1.05    SEPM                78.266     76.363
1.06    SYS T&E             11.112     10.927
1.07    TRAINING             1.989      1.954
1.08    DATA                 3.439      3.413
1.09    SUPP EQUIP.          4.897      4.758
1.10    DEV. FACILITIES      0.0        0.0
1.11    OTHER                0.968      0.928


                                                 17
              Defining the System
COST ELEMENT STRUCTURE – 2.0 PROCUREMENT
CES#   ELEMENT:             FY00C$M         TY$M
2.01   NON REC PROD.      $ 16.110M    $      16.583M
2.02   REC. PROD           1,169.348       1,312.377
2.03   ENG. CHG                0.0              0.0
2.04   SEPM                  116.637         132.258
2.05   SYS T&E                12.564           14.437
2.06   TRAINING               28.880            31.499
2.07   DATA                    2.073             2.300
2.08   SUPP. EQUIP.          146.460          158.304
2.09   OPER./SITE/ACT.         0.0               0.0
2.10   FIELDING               89.525           101.635
2.11   TRAIN. AMMO/MSLS       59.001             79.482
2.12   WAR RESV.               0.0                0.0
2.13   MODS                  236.619            280.729
2.14   OTHER                  51.739             64.129
                                                          18
                Defining the System
       COST ELEMENT STRUCTURE – 3.0 CON
CES#   ELEMENT:                    FY00C$M   TY$M
3.01   DEVELOP. CONSTRUCTION
3.02   PRODUCT. CONSTRUCTION
3.03   OPERATION/SITE ACTIVATION
3.04   OTHER N




                                                    19
               Defining the System
          COST ELEMENT STRUCTURE – 4.0
                 Pay & Allowances
CES#   ELEMENT:                FY00C$M   TY$M
4.01   CREW
4.02   MAINTENANCE
4.03   SYSTEM SPECIFIC SUPPORT
4.04   SEPM
4.05   REPLACEMENT PERSONNEL
4.06   OTHER




                                                20
               Defining the System
         COST ELEMENT STRUCTURE – 5.0
          Operating & Maintenance (O&M)
CES#   ELEMENT:                FY00C$M   TY$M
5.01   FIELD MAINT., CIV LABOR
5.02   SYS. SPECIFIC BASE OPS
5.03   REPLENISHMENT DLRs
5.04   REPLEN. CONSUMMABLES
5.05   POL
5.06   END ITEM MAINTENANCE
5.07   TRANSPORTATION
5.08   SOFTWARE
5.09   SEPM
5.10   TRAINING
5.11   OTHER


                                                21
              Defining the System
     Cost Analysis Requirements Description
                    (CARD)
• Source of a system’s description
• Describes important features
• Is provided to other groups preparing cost
  estimates
• Helps ensure all groups are costing out the same
  “program.”
• Prepared by program office; approved by
  DoD Component Program Executive Officer

                                                     22
            Defining the System
Cost Analysis Requirements Description
          (CARD) Continued
 1.0 System Overview
 1.1 System Characterization
     1.1.1 System Description
     1.1.2 System Funcitonal Relationships
     1.1.3 System Configuration
     1.1.4 Government Furnished Equipment/Information
 1.2 System Characteristics
     1.2.1 Technical/Physical Description
           1.2.1.1 Subsystem Description
           1.2.1.2 Functional and Performance Description
     1.2.2 Software Description
1.3 System Quality Factors
     1.3.1 Reliability
     1.3.2 Maintainability
     1.3.3 Availability
     1.3.4 Portability and Transportability
     1.3.5 Additional Quality Factors
 1.4 Embedded Security
 1.5 Predecessor/Reference System
 2.0 Risk
                                                            23
                  Defining the System
                   CARD Continued
 3.0 System Operational Concept
     3.1 Organizational Structure
     3.2 Basing and Deployment Description
     3.3 Security
     3.4 Logistics
 4.0 Quantity Requirements
 5.0 System Manpower Requirements
 6.0 System Activity Rates
 7.0 System Milestone Schedule
 8.0 Acquisition Plan or Strategy
 9.0 System Development Plan
10.0 Element Facilities Requirements
11.0 Track to Prior Card
12.0 Contractor Cost Data Reporting Plan

                                             24
        Definition and Planning
       Ground Rules & Assumptions
• State the conditions which must take place
  in order for the estimate to be valid

• Ground rules and assumptions must be
  documented since changes in these areas
  provide an audit trail for changes in the cost
  estimate.


                                               25
      Data Collection and Analysis

• Collection and analysis represent a significant
  amount of the overall estimating task in terms of
  time. The analysis will include decisions on what
  programs to include in the data set to whether to
  truncate lot data on a program for which you are
  calculating a learning curve.
• Document data in your analysis, and any
  assumptions you make

                                                  26
         Data Collection and Analysis

• The direction we take in collecting historical data will
  be determined by our choice of estimating
  methodologies.
• This step may also dictate a change in estimating
  approach due to the availability or non-availability of
  certain data.
• Data collection is not limited to cost data. We must
  also collect technical and program data if we want the
  total picture of the historical systems. This will help us
  ensure the comparability of the systems that we are
  collecting data on with the system we are estimating.

                                                        27
       Data Collection and Analysis
     Most Difficult Task in Cost Estimating

• Data Sources
  – Data Types: Cost/Resource, Technical, Program
  – Categories: Primary, Secondary
• Data Problems
  – Wrong Format – Matching up – Definition
  – Temporal Factors - comparability
• Normalization
• Data Location
                                                    28
                   Tools for
        Total Ownership Cost Estimating

               Life Cycle Cost Management Tools
APPN      ACEIT PRICE SEER ACDB AMCOS OSMIS SBC/ISR CO$TAT


RDT&E      X     X     X    X     X                   X



PROC       X     X     X    X     X                   X



MILCON     X     X                X           X       X



MILPERS    X     X                X           X       X



O&M        X     X     X          X     X     X       X




                                                             29
        Definition and Planning
     Select the Estimating Approach
• Techniques available
  – Analogy
  – Parametric
  – Engineering
  – Extrapolation
  – Expert Opinion
  Select the technique that is most applicable
    to a specific WBS element
                                             30
Definition and Planning
  Estimating Methods
• Analogy
   – Basic Comparison
   – Factors
• Parametric
   – Regression Analysis
• Engineering
   – Detailed
• Expert Opinion
   – Committee
   – Delphi                31
                         Life Cycle Cost Estimates
     Concept         Technology            System Development             Production &                 Operations
    Refinement       Development             & Demonstration              Deployment                   & Support


                                                                                                                         Disposal
                 A                     B                        C                          D




                                         Cost Estimating Model

       x   Parametric        x     Parametric           x   Parametric              x    Parametric           0     Parametric
       y   Engineering       y     Engineering          y   Engineering             y    Engineering          y     Engineering
       0   Actuals           0     Actuals              z   Actuals                 z    Actuals              z     Actuals




•   Cost estimates based on confidence intervals
•   Parametric analysis based on similar systems and similar attributes (regression)
•   Engineering data based on reliability projections used for bottoms-up estimate
•   Actual system costs used to extrapolate future system costs
•   Cost estimate revised every two years after production
•   Weights associated with non-actuals decrease as system matures
•   MS B is a true hard stop for systems

                                                                                                                           32
          Cost Estimating Methods
               Analogy Method

• Based on direct comparison with historical
  information of similar existing activities,
  systems, or components.
• Compares new system with one or more
  existing similar systems where there is
  accurate cost and technical data.
• Analyst must show validity of comparison.

                                                33
          Cost Estimating Methods
               Analogy Method
• Based on known costs of a similar program
• Adjustments for complexity, technical, physical
• Strengths
   – Based on representative experience
   – Less time consuming than others
   – Can be used as a check on other techniques
• Weaknesses
   – Small sample size
   – Heavy reliance on judgment
   – Sometimes difficult to identify analogy and
     associated costs
                                                    34
   Analogy Estimating with Factors
     Cost(New) = Cost(Old) x Adjustment Factor


Element    Old Sys1 Old Sys2 Old Sys3       New Sys

Airframe   $500/lb   $250/lb    $750/lb     1.25*S1

Engine     2M/Unit 3M/Unit 5M/Unit          .8*S3

Avionics   $3K/lb    $2K/lb     $4K/lb      1.0*S2

Payload    6M/Unit 8M/Unit 7M/Unit          .65*S1
                                                     35
         Cost Estimating Methods
            Parametric Method
• Known as Statistical Method or Top Down
  Method
• Relates cost to physical attributes or performance
  characteristics
• Uses database of elements from similar systems
• Uses multiple systems
• Most beneficial in earlier stages of the system or
  project life cycle

                                                       36
    Cost Estimating Methods
       Parametric Method
• Statistical relationships between cost and
  physical or performance parameters of
  past systems.
• Strengths
  – Captures major portion of cost
  – Quick what if type estimates
• Weaknesses
  – Less detailed
  – Getting accurate data

                                           37
           Cost Estimating Methods
              Parametric Method
                (Extrapolation)
• Use historical values to establish a trend for the
  future.
• Example problem: Given the actual productivity
  and labor rates in the given table. How much will it
  take to complete a 3-year software development project
  of 10K lines of code, if 50% is completed in the second
  year and 25% is completed in first and third years?


                                                     38
        Cost Estimating Methods
          Engineering Method
• Known as bottom up method
• Requires extensive knowledge of system
  characteristics
• Divide into segments; estimate costs for each
  segment
• Combine segments plus integration cost
• Uses a combination of cost estimating methods
• Detailed knowledge of new technologies may not
  be available.
                                                   39
    Cost Estimating Methods
      Engineering Method

• Strengths
  – Detailed
     • Best when long stable production process
• Weaknesses
  – Requires a lot of time
  – Cost
  – Cannot be used until system well defined

                                                  40
       Cost Estimating Methods
        Expert Opinion Method

• Subjective judgment of an experienced
  individual or group
• Use if time does not permit a more thorough
  analysis
• Document source(s) of opinion of experts
• List attributes of the source(s)
     Example: Delphi Technique
                                            41
       Cost Estimating Methods
        Expert Opinion Method
• Consulting with one or more experts who
  use their knowledge and experience to
  arrive at an estimate
• Group techniques include
  – Consensus (Committee)
  – Delphi
• Strengths and weaknesses

                                            42
          Expert Opinion Method
             Delphi Technique
• Query expert opinion from group
• Seek information from each expert
• Summarize the results
• Send report to each expert
• Gather second opinion after each individual
  reviews report
• Summarize results
• Iterative process continues until the experts reach
  a consensus, or near-consensus.
                                                   43
             Expert Opinion Method Example
               Hours                % of Total   %*rate
Labor type              Hourly Rate
               Needed               Hrs

Senior
Engineer
               1000     $13         10.5         $1.37

Design
Engineer
               3000     $11         31.6         $3.48

Tool & Die     500      $11         5.3          $.58
Machinist
               5000     $9          52.6         $4.73

Totals         9500                              $10.16

                                                          44
Learning Curve Theory



As the quantity of a product produced
doubles, the man-hours- per-unit
expended to produce the product
decreases at a fixed rate or constant
percentage (usually 10% to 15%).




                                        45
                Learning Curve Theory
                Factors Contributing to Efficiency


• Job familiarization by both production workers and supervisory
personnel.
• Changes in product design which do not materially affect the product,
but result in increased ease and speed of production.
• Changes in tooling, machinery, and equipment which simplify or
speed up the production process.
• Improved production planning and scheduling, and improvements in
production techniques and operational methods.
• Improvements in shop organization, engineering coordination and
liaison.
• Improvements in the handling and flow of materials, and in the
materials and parts supply systems

                                                                46
            Learning Curve Theory
The table is based on the assumption that the first unit required 100
person-hours to produce. The table indicates a constant rate of
reduction of 20% for each doubling of the unit number; the value of
the second and each succeeding item in the table is 80% of the value
of the preceding item.
                       TABLE FOR FIGURES
                          F-1-1 and F-1-2
                Unit No.      Unit Person-hours
                1                         100.00
                2                          80.00
                4                          64.00
                8                          51.20
                16                         40.96
                32                         32.77
                64                         26.21               47
Learning Curve Theory
80% Unit Curve on Arithmetic Paper




                                     48
   Learning Curve Theory

 1000
Unit
Cost
(LOG)

  100
                                        90%
                                        85%
                                        80%

   10
                                        70%




    1
        1   10         100            1000    10000
             Production Unit Number
                      (LOG)


                                                      49
       Learning Curve Theory
                Uses
– Evaluating contract production costs.
– Assessing impact of production interruptions,
  product changes and production rate change.
– Rate of improvement experienced by a particular
  contractor on a prior product may be indicative of
  rate of improvement expected on new product of
  similar size, complexity, and construction.
– Improvement curve pattern experienced in the
  production of past item can be extended to calculate
  costs of future items.



                                                     50
        Estimate Formulation
• We have defined our tasks, planned the estimate,
  assigned cost responsibilities, and performed data
  collection and analysis.
• Here we apply our estimating methodologies and
  tools: develop the factors, analogies, CERs, and
  learning curves.
• We will aggregate the various cost elements into
  development, production, and O&S estimates,
  fiscally spread the costs, and apply inflation.
                                                   51
               Cost Estimating Methods
          Laying Out the Estimating Approach
Aircraft System – sum of level II elements (cross-check with analogy)
Air Vehicle – sum of level III elements
    Airframe – CERs
    Air Vehicle Software – Expert Opinion
    Propulsion – CERs
    Avionics – Analogy
    Armament – Catalog Price
System Eng/Program Mgt – Factor of Air Vehicle
System Test & Evaluation – Factor of Air Vehicle
Training – Factor of Air Vehicle
Data – Factor of Air Vehicle
Peculiar Support Equipment – Factor of Air Vehicle
Initial Spares – Factor of Air Vehicle


                                                                        52
        Review and Presentation

• We want to ensure that the estimate is
  reasonable, realistic, and complete.
• Reasonableness addresses areas such as:
  using appropriate and acceptable
  methodologies; presenting methodologies
  systematically; the use of relevant data; and
  ensuring that assumptions are valid and
  clearly stated.
                                              53
        Review and Presentation
                (Continued)

• The realism test checks to see if the
  assumptions and ground rules are consistent
  with the statement of work and if the costs
  are in line with historical data.
• We evaluate completeness by determining
  whether the estimate includes all the work
  stated in the request for proposal and
  whether the costs are traceable and
  reconcilable.
                                            54
              Risk and Uncertainty Analysis


                     Risk Analysis Approaches

                                             • Detailed Network & Stochastic
                          • Discrete Technical, Schedule, and Estimating Risks
Effort




                 • Detailed Monte Carlo Simulation (each WBS)
           • Bottom Line Monte Carlo Simulation
         • Add a Risk Factor/Percentage
                                 Detail
                Risk and Uncertainty Analysis


                        Probability Distributions                        Total Cost
WBS Cost Distribution




                                     Frequency
                                                         PDF


         P.E.
                                                          Sum PE   MLC (Mode)
+


                           =
                                                         CDF


         P.E.                         Confidence   50%
 +
                                                   20%


      P.E.                                               Sum PE    MLC

 + Many More
                     Risk and Uncertainty Analysis


                         Probability Density Function
                                        Forecast: Results=
Cell B28                                 Frequency Chart                          4,978 Trials Shown
   .0 2 4                                                                                           117



   .0 1 8                                                                                           8 7 .7



   .0 1 2                                                                                           5 8 .5



   .0 0 6                                                                                           2 9 .2

                                                    M e a n = $ 2 ,1 9 8
   .0 0 0                                                                                           0

            $ 1 ,2 5 0     $ 1 ,7 5 0         $ 2 ,2 5 0             $ 2 ,7 5 0        $ 3 ,2 5 0
        Risk and Uncertainty Analysis


            Cumulative Distribution Functions

                                  Fo re ca s t: R e s u lts =
Cell B 28                        C um ul a ti v e C ha rt    4 , 9 7 7 Tri a l s S h ow n
   .9 9 5                                                                        4977



   .7 4 7



   .4 9 8



   .2 4 9



   .0 0 0                                                                        0

            $ 1 ,2 5 0   $ 1 ,7 5 0       $ 2 ,2 5 0     $ 2 ,7 5 0     $ 3 ,2 5 0
                  Reasons for Risk


  Technical   Programmatic         Cost          Schedule
Physical      Material        Sensitivity to   Degree of
Properties    Availability    Assumptions      Concurrency
Material      Skill           Sensitivity to   Sensitivity to
properties    Requirement     Technical Risk   Technical Risk
Software      Environmental   Sensitivity to   Sensitivity to
Complexity    Impact          Programmatic     Programmatic
                              Risk             Risk
Integration   Contractors     Sensitivity to   Number of
Interface     Stability       Schedule Risk    Critical Path
Requirement   Funding Profile Estimating       Estimating
Changes                       Errors           Errors
Operational   Political
Environment   Advocacy


                                                                59
                        Cost Schedule Curve

                                                        Fixed Cost
                                                Technology Outdate
                  Parallel Effort
                  More ECP
Life Cycle Cost




                  Less Mature Design




                                                         Typical
                  Min          Optimal


                             Development Schedule

                                                                     60
       Development Schedule

             Mean Cycle Time to IOC

                       DoD

Pre-1992 Starts    132 months (11 years)

Post-1992 Starts   89 months (7.4 years) on-going

F-22               216 months (18 years) IOC 2004

Comanche           264 months (22 years) IOC 2006


                   Commercial
Boeing 777         54 months (4.5 Years)



                                                    61
                       Schedule Goals


            Commercial Drivers
       • Technology Drives Schedule
       • Constraint Schedule
       • Goal is ROI Maximization

                                                        Defense
Cost




                  Commercial                       DoD Drivers
                                              • Funding Drives Schedule
                                              • Unconstrained Schedule
                                              • Goal is Cost Reduction


                       Development Schedule
                                                                   62
       DoD Program Schedule Drivers




                     Funding Allocation
Cost




                   Acquisition Process


              Program Execution

                                   Cycle Time Reduction Goal


              Development Schedule
                                                               63
            Final Documentation

• Provide the means for other analysts to get the
  same results that we have in our cost estimate.
• Providing good directions and a clear trail to
  follow are essential in having an estimate that can
  be replicated.
• Provide step-by-step documentation of the
  methodologies, supporting data, ground rules, and
  assumptions, equations, examples, etc.,
• Ability to interpret or evaluate someone else’s cost
  documentation is as important as ability to prepare
  good cost documentation.
                                                    64
             CAIV Process

• Set realistic but aggressive cost objectives
  early in acquisition program
• Manage risks
• Track progress using appropriate metrics
• Motivate Government and industry
  managers to achieve program objectives
• Incorporate incentives to reduce O&S costs
  for fielded systems
                                                 65
  Cost As An Independent Variable
             (CAIV)

• Best time to reduce cost is early in the
  process.
• Involves the stakeholders in the process.
• Cost tradeoffs must be addressed early in
  the acquisition process and embedded in
  program requirement documents, Request
  For Proposals (RFPs), contract provisions,
  and source selection process.

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                            Cost Analysis Domain

      Inputs (Descriptions)            Process (Models)                  Outputs (Costs)
          Requirements                                                                 ASARC
Acquisition Assumptions                                                                CAIG, DAB
                                       Cost Analysis Process                           APB
    Design Parameters                  Databases, Tools, & Models                      PPBES
       Risk Assessment                                                                 AOA




Types of Cost Studies
                 Studies         Should be Known                 Unknown                 Class
               Cost Estimating   Descriptions, Models               Costs                Analysis
 Current
Capability
                                 Description, Historical
              CER Development                                       Models              Synthesis
                                        Costs
 Needed                                                    Descriptions ( Design and
Capability
                    CAIV         Cost Goals, Models                                       Control
                                                           Performance Parameters)



             Performance Based and Design Based Cost Models Currently do not Exist
                                                                                             67
         Analysis of Alternatives

• Set realistic, aggressive cost objectives early
  in development
• Manage risks
• Track progress with appropriate metrics
• Motivate government/industry managers
  to achieve program objectives
• Incorporate incentives to reduce O&S costs
  for fielded systems.
                                                    68
Cost
Analysis
Art or
Science?




           69

								
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