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Cost Realism and Analysis Renewed Focus in Today s Environment

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Cost Realism and Analysis Renewed Focus in Today s Environment

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    1. Cost Realism and Analysis — Renewed Focus in Today’s Environment June 2002

    2. Agenda Environment Cost Performance Path Forward Audience Questions

    3. Environment

    4. Environment Defense Industry Consolidated into a Few Large Players Intense Competition Budget Impact High Debt. . . Competitive Stratification

    5. Environment Industry Margins Eroded-Single Digit ROS Common R&D Subsidies: X-33; EELV; Other Cooperative Agreements Fierce Competition: FIA, JSF, DD(X) Over Supply: Commercial Satellites & Launch VehiclesR&D Subsidies: X-33; EELV; Other Cooperative Agreements Fierce Competition: FIA, JSF, DD(X) Over Supply: Commercial Satellites & Launch Vehicles

    6. Eliminated Paid Cost Rule Ordered End of R&D Subsidies Increased Progress Payments Encouraging Performance-based Payments Permit Contractor Share in Cost Savings Environment Favorable DoD Policy Changes Emerging

    8. Environment DoD Budget Authority

    9. QDR From “Threat” Based to “Capability” Based Key Goals Assure Allies Dissuade Adversaries Deter Aggression Decisively Defeat Operational Challenges Protect the Homeland Guarantee Information Systems Project Power Deny Sanctuary, Greater Surveillance Strengthen Space Operations Apply New IT Concepts (C4ISR)

    10. Environment Budget Stability Improving Spiral Development Nunn-McCurdy Enforcement

    11. Environment Summary Defense Industry an Oligopoly with Unfavorable Operating Margins Government Receptive to Improving Industry National Security Dependent on Successful Transformation From “Threat” to “Capability” Deterrence The Path To Success is Through Solid Execution and Improved Performance

    12. Cost Performance

    13. Cost Performance Too Many Major Overruns SBIRS High Space Station Global Hawk Theater Ballistic Missile Defense What’s Causing The Cost Growth. . .?

    14. Top 10 Reasons For Poor Cost Performance

    15. Top 10 Reasons For Poor Cost Performance Proceeding Rightly From a Wrong Premise

    16. Top 10 Reasons For Poor Cost Performance (Cont’d) New Learning Curve Theory

    17. Top 10 Reasons For Poor Cost Performance (Cont’d) Do Not Mistake the Act of Planning for Actually Having a Plan

    18. New Moore’s Law Top 10 Reasons For Poor Cost Performance (Cont’d)

    19. New Math Concepts Top 10 Reasons For Poor Cost Performance (Cont’d)

    20. Top 10 Reasons For Poor Cost Performance (Cont’d) Test As You Fly

    21. Schedule, Schedule, Schedule Top 10 Reasons For Poor Cost Performance (Cont’d)

    22. Top 10 Reasons For Poor Cost Performance (Cont’d) COTS = Certain Overrun To Schedule

    23. Soft Funding = Hard Times Top 10 Reasons For Poor Cost Performance (Cont’d)

    24. Top 10 Reasons For Poor Cost Performance (Cont’d) Precision Without Accuracy

    25. Path Forward

    26. Path Forward Good Example - JSF Acquisition Approach Phased Down Select to Award Parametric Life Cycle Cost Data by Anticipated Phase From Each Competitor Shoulder-to-Shoulder Review Reconciliation of Cost Estimates Between USG and Contractor Encourage, Identify, Fund and Prototype Cost Reduction Candidates Early During the Down Select Process Do Not Encourage Contractor Investment

    27. Weight Evaluation Criteria Toward Performance and Realistic Cost, Not Lowest Cost Recognize the Risk Associated with the Work Scope and Use the Appropriate Contract Type Development – Cost Plus Production – Wait Until Risk has Been Mitigated Incentivize the Winner for Good, Balanced Performance: Technical, Schedule and Cost Path Forward Good Example - JSF Acquisition Approach

    28. Path Forward Contractors Should. . . Vigilantly Protect Against “The Top Ten” Perform Independent Cost Evaluations (ICE) of Their “Single Best Estimates” to Validate and Substantiate Credibility Reconcile Program Estimates & Independent Assessments Between Customer & Contractor Understand Differences & Rationale But. . . Maintain Independence & Propriety

    29. Path Forward Contractors Should . . . (Continued) Track Estimates & Calibrate/Adjust Estimating Systems/Process/Models for Improved Accuracy Establish & Maintain “Headlight” Metrics Above & Beyond Standard Earned Value to Assure Early Warning of Performance & Risk Issues

    30. Conclusion U.S. Government and Aerospace Contractors Must “Partner For Success” While Maintaining Arms Length Relationship Open and Candid Communication To Ensure Success Proper Contract Type Successful Business Plans For Customer & Contractor Stable Program Requirements & Funding

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