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Cost Assurance and Analysis Service 14 May 2013

Cost Assurance and Analysis Service 14 May 2013. “….[He should] sitteth down first, and counteth the cost, [to see] whether he have sufficient to finish it” Luke 14: 28 - 29. CAAS Products. Independent Cost Estimating. Contract Pricing. Cost Assurance. Portfolio Analytics.

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Cost Assurance and Analysis Service 14 May 2013

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  1. Cost Assurance and Analysis Service14 May 2013

  2. “….[He should] sitteth down first, and counteth thecost, [to see] whether he have sufficient to finish it”Luke 14: 28 - 29

  3. CAAS Products Independent Cost Estimating Contract Pricing Cost Assurance Portfolio Analytics CAAS 2013: Who we are and what we offer CAAS Vision: ‘To be the MoD’s Professional Service Provider of choice for independent cost assurance and analysis services.’ CAAS Mission: ‘Enable the MoD to make better informed value for money decisions through life.’ Who we are: DG Res • A professional organisation of Cost Engineers, Cost Forecasters, Cost Accountants, and Portfolio Analysts. • Located at 7 main sites around UK tocover industry geography. • Organised under Customer Relationship Managers, to meet customer needs. DG Fin Comm Dir CDM Comm Ops Dir DCDS MilCap Key Stakeholders What we offer: • Independent Cost Estimates for the top 40 EPP and top 16 ESP projects. • Support to understand supplier costs. • An independent view of fair & reasonable prices. • Independent assurance of proposed project costs. • Support to understand sector costs and risks, at programme and portfolio level. • Estimating assurance support to the DE&S Business Case Review Board. Budget Mgt Investment Decision Support Contract Mgt Support CAAS Services FLCs DIO Key Customers OGDs Overseas Governments Head Office DE&S

  4. CAAS – Background • Steeped in history – Origins in 1st World War. • 1915-1918 working for Ministry of Munitions saved over £300m on the pricing of non-competitive munitions contracts for a total running cost of £81k. • Decade of Decay 2000-2010: • CAAS Staff reduced from 700 to 300 • No product development • Training and development activities wound down. • CAAS unable to provide cost management support all key MOD projects, link broken with the MOD capability area. DE&S project teams engaged external support piecemeal. • 2009 Gray Report highlighted the need for an effective MOD cost management capability.

  5. CAAS – Background • CAAS Development included as a key component of the Defence Acquisition Reform Programme (DARP) in 2010. Key objectives were; • Increase Capacity (from 322 to 500 staff by FY12/13) • Increase Capability (with an external partner KPMG/Bechtel/RAND). • CAAS Development Phase 1 – Current state assessment reached Dec 2010. • CAAS Development Phase 2 – Define and implement the CAAS development programme Feb 2011 – Sep 2013. • Defence Reform Report June 2011 – "We welcome the development and increased use of the independent costing capability provided by the Cost Assurance and Analysis Service. The Department should mandate the use of this service more broadly across Defence to support investment decisions and planning" • Transfer from Commercial to Finance function April 2012.

  6. Cost Assurance & Analysis Service A worked example

  7. CAAS Operations: Cost Forecasting Purpose Cost Forecasts for early stage projects and capability optioneering. Top down independent cost estimates. C A D M I D Key Activities Customers • Top down Independent Cost Estimates • Parametric Cost Forecasting • Historical Trend Analysis • Optimism bias • Budgetary forecasts • DCDS(Cap), DG Fin • FLCs • DE&S Project teams • DSTL

  8. CAAS Operations: Cost Engineering C A D M I D Cost engineering advice pre-tender (non-competitive) and testing contractor bids. Bottom up independent cost estimates. Purpose Key Activities Customers • Bottom up Independent Cost • Estimates • Commercial pricing • Direct labour estimates • Material estimates • Sub-contract /supply chain costs • DCDS(Cap), DG Fin • FLCs • DE&S Commercial staff • Defence Infrastructure Org • Other Governments

  9. CAAS Operations: Cost Certification Purpose Negotiate, agree rates, verify contractor costs and payments during life of contract C A D M I D Customers Key Activities • Overhead recovery rates • Cost Certification • TCIF reconciliations • Post costing outturn analysis • Reciprocal audits, mainly DOD • Currie Implementation • MoD Corporate Commercial • DE&S Commercial staff • Defence Infrastructure Org • Other Governments • Public Accounts Committee

  10. C A D M I D CAAS Operations: Portfolio Analytics Delivery of evidence based cost management assistance to strategic decision making. Purpose Customers Key Activities • Industrial landscape • Modelling • Programme/Project Options/Sensitivities/ Scenarios Analysis • Manage Programmes • Performance Improvement • Financial Evaluation • DCDS(Cap) • DG Fin • FLCs • DE&S Operating Centres • DE&S Supplier Relations Team • DIO • Programme Boards

  11. CAAS Products and Services – More Detail Independent Cost Estimating Contract Pricing Cost Assurance Portfolio Analytics Top-down estimating Independent Portfolio Budget FLCs Bottom-up estimating PROJECT TEAM Sector Risk Analysis DG Fin 3rd Order Assumptions Sector/Industry Analysis DE&S Financial Equipment Costs Budget Mgt Business Modelling HOCs Support Costs Options Analysis Project Teams Other DLOD Costs Risk and Contingency Costs Performance Reports Supplier Insight Competitive Bid Evaluation Estimating Assurance Top-down estimating Project Schedules FLCs Bottom-up estimating Sector/Industry Analysis SUPPLIER Pricing investigation OCs Contract Bid Data Supplier Efficiency Analysis HOCs Profit, charging & recovery rate reviews Investment Decision Support Labour / Charging / Profit Rates Project Teams MOD Effectiveness Analysis DIO Sales forecasts Audits (non-UK) Business Modelling Performance Reports Accounts EVM Analysis Post Costing Review MOD/Industry Impact Analysis DE&S SRT OTHER MOD OCs Forecast of Outturn Financial Modelling Inflation Rates / Indices Cost Certificates Contract Management Support HOCs Contract Termination Reviews Exchange Rates Supplier Insight Post Award Reviews Programme Boards Benefits Realisation Project Teams Benefits analysis Quantitative Project Risk (Cost and Schedule) Analysis Modelling and V&V

  12. Planning Round – Independent Cost Estimates (Equipment Procurement Plan - EPP) • Aim: To provide independent cost estimates for the EPP to inform the setting of realistic programme/project budgets and their approvals. • What have we done? • Planning Round 12 - CAAS completed independent cost analyses for 40 Defence Equipment & Support (DE&S) Category A and B projects. Representing approx 70% of the procurement budget over the Planning Round 12 10 year period. • CAAS provided view on likely costs sector risks to highlight funding requirements out with those of the existing projects. • Impact: • Revised project/programme costings informed by CAAS analysis. • Provision of contingency at portfolio level. • Critical input for DE&S quarterly finance reviews.

  13. Planning Round Independent Cost Estimates – Equipment Support (ESP) • Aim: To produce and maintain independent cost estimates for 50% by value of ESP spend, as soon as practicable. • Scope • 19 projects covering 21 Basic Level Budgets – projects selected based on scale and strategic importance and ensuring coverage across the Front Line Commands. • Planned work will enable CAAS staff to develop skills and capabilities in ESP independent cost estimates and learn from experience. • Timescales • Delivery of initial ESP independent cost estimates to CAAS in December 2012. independent cost estimates enhanced (refinements in scope and methods/techniques) through to May 13 ready for June 2013 Quarterly Reviews.

  14. CAAS Development - People • CAAS Awareness Practitioner Expert (A-P-E) Framework • • CAAS is deploying an A-P-E framework that links core and functional competence to the ability to consistently deliver products and services to defined output standards. • Functional framework owned by the relevant Head of profession • Current investment in CAAS is targeted at the accelerated progression of new staff from Awareness to Practitioner – over 200 staff have joined CAAS over the past 2 years! • • Implementation of the A-P-E process has been trialled in two areas and is being implemented across CAAS as an integral part of the staff annual performance • • A-P-E progression to improve direct utilisation across CAAS operations

  15. CAAS Development – Information Knowledge Management CAAS IKM Achievements • CAAS IKM Strategy and Tools & Technology Strategy • IKM Governance structure implemented • SharePoint environment implemented – improved collaboration and storage • Formal Records Management system launched • CAAS Data Warehouse developed and Direct Data Entry facility introduced • CAAS secure wikis launched to provide an audit trail Next Steps • Data Warehouse migration to DFMS (Defence Financial Management Platform), to integrate cost and budgetary data • Implementation of the CAAS Knowledge Management Framework

  16. CAAS Leadership

  17. Key Challenges & Opportunities for the future • Exploitation of Independent Cost Estimates to keep Equipment Programme affordable. • Building future relationships with MOD Head Office and the Front Line Commands • Impact of the DE&S Materiel Strategy • Impact of the Single Source Pricing Review • CAAS Follow on Development Programme

  18. Cost Assurance and Analysis Service

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