The Path to a Successful Army Cost Position: Understanding the Process
Tracey Goldstein and Steve Loftus
First of two installments
For the past few years, DoD budget reductions have been looming just on the edge of the horizon. Now those budget limitations are upon us. As such, costs are at the forefront of the decision-making process. Leaders rely on high-quality cost estimates, based on approved requirement descriptions, to support their decisions on using limited DoD resources. Acquisition program managers need to be prepared to provide cost descriptions and estimates earlier in the life-cycle process, to explain and justify methodologies used, and to prove that the program is resourced in accordance with the estimate. These descriptions are provided to HQDA.
Acquisition reform is forcing DoD to be more accountable for the way acquisition programs are executed by placing greater emphasis on cost, schedule, performance, and resourcing. Among other stipulations, Section 2366 of Title 10 states that a cost estimate for a Major Defense Acquisition Program must be submitted with the concurrence of the Director of Cost Assessment and Program Evaluation, and that the level of resources required to develop, procure, and sustain the program is consistent with the priority level assigned by the Joint Requirements Oversight Council.
At each milestone decision, the Milestone Decision Authority (MDA) must certify in writing that reasonable cost and schedule estimates have been developed, and that the program is fully funded through the Future Years Defense Plan.
The Army is well-positioned to meet the cost estimating needs of senior leadership to aid with difficult decisions brought on by budget constraints. But for leadership to make the best possible decisions, data are required well in advance.
Supporting Earlier Decision Points
DoD Instruction (DoDI) 5000.02, Operation of the Defense Acquisition System, has been revised to better define mandatory early decision points. The push for earlier investment decisions affects not only the project management office (PMO), which must prepare the documentation and estimates, but also the HQDA agencies such as the Office of the Assistant Secretary of the Army for Acquisition, Logistics, and Technology (ASAALT) and the cost community.
DoDI 5000.02 requires Service Cost Positions at Milestones A, B, C, and full-rate production decision reviews. For Acquisition Category I and special interest programs that have an MDA above the program executive office (PEO) level, these changes mean that the PMOs must plan and make life-cycle decisions and assumptions earlier in the process. In the past, service agencies did not develop estimates until Milestone B.
The Army has a process to develop Service Cost Positions, referred to as the Army Cost Positions (ACPs). In addition, program funds are aligned to the ACP through the Cost Review Board (CRB). (See Figure 1.) Until recently, most Army programs first surfaced at the HQDA level for a decision at Milestone B; Milestone A was effectively tailored out of the process and managed at the PEO level. The DoD leadership recently started requiring Milestone A for programs.
Each milestone requires analysis and evaluation to determine the program’s status. Documentation to support the analysis is required as part of the milestone decision. A complete list of documentation required at each milestone is available from the Army Systems Acquisition Review Council Executive Secretary. As programs move toward their respective milestone decisions, certain required documents are developed and become available to the analyst; they can be used to produce cost estimates using conventional cost estimating methodologies.
To properly cost an acquisition program, extensive information about it must be identified. Without the detailed information, life-cycle cost data cannot be derived. The detailed information provided in the Cost Analysis Requirements Description (CARD) provides a complete description of the system being estimated. The intent is to define the program to a sufficient level of detail that captures quantities, fielding, sustainment, and training strategies.
Currently, multiple estimates are developed to support acquisition decisions; the program office has an estimate that it develops internally, and the service cost centers develop a cost estimate. These estimates are built on the program description and capabilities as defined in the CARD. Multiple estimates are useful, because the delta between them can provide decision makers with information about the program’s risks and uncertainty. Estimates that are close to one another may mean that there are sufficient data to accurately project costs and that there should be confidence in the estimate. Estimates that are far apart usually indicate little supporting data or that the program contains risks.
Although multiple estimates help identify the range of possible costs, decision makers usually require a single estimate. In the past, decision makers were asked to pick an estimate without knowing the underlying quality of the data sources used, assumptions made, or methodologies.
The CRB recommends the program office provide draft copies of the CARD to the Deputy Assistant Secretary of the Army for Cost and Economics (DASA-CE) and the ASAALT as early as possible, but no later than the established timeline to ensure an ACP to support the milestone decision. Note that submission of a draft CARD to DASA-CE does not constitute the beginning of the CRB ACP development process. PEO-signed and -approved CARDs are submitted to ASAALT to begin the formal process. (See Access AL&T article, “Journey of a Successful CARD.”)
Preparation Is Key
The Army is well-positioned to meet the cost estimating needs of senior leadership to aid with difficult decisions brought on by budget constraints. But for leadership to make the best possible decisions, data are required well in advance. It is essential to prepare well-developed CARDs that capture not only the responsibilities of the PMO but also the requirements for DoD. Operation and Support tails need to be planned in advance in order to feed the Army’s decision-making process. It is also essential to be able to produce cost estimates to support milestone decisions, and to develop the capability to provide cost estimates that support investment decisions earlier in a program’s life cycle.
The five major steps in the CRB process are to define and describe requirements through a well-defined CARD; estimate the costs via the Program Office Estimate and Independent Cost Estimates; reconcile the two estimates; conduct affordability analysis; and gain ACP approval. This enables leadership to make cost-informed decisions early when planning acquisition strategies. The results are well-defined programs with high-quality cost estimates that are documented, defendable, and affordable.
NEXT: The CRB process, step by step.
- TRACEY GOLDSTEIN is a Management Analyst for the DASA PPR. She holds an M.B.A. and an M.P.A. from Syracuse University. She is Level III certified in business – cost estimating and is Level I certified in program management. Goldstein is a U.S. Army Acquisition Corps (AAC) member.
- STEVE LOFTUS, an Army Field Artillery Officer for 10 years, is the Cost Review Board Director for the DASA-CE. Loftus holds a B.S. in math and computer science from The Citadel. He is Level III certified in business – cost estimating and Level I certified in program management. Loftus is an AAC member.
June 28th, 2012, No comments yet
The Deputy Assistant Secretary of the Army (DASA) for Plans, Programs, and Resources (PPR) serves as the Chief Financial Officer and advisor to the Assistant Secretary of the Army for Acquisition, Logistics, and Technology (ASAALT), [&hellip...
June 28th, 2012, No comments yet
In September 2010, the Deputy Assistant Secretary of the Army for Plans, Programs, and Resources (DASA PPR) established the Army Performance Assessment and Root Cause Analyses (PARCA) office. The purpose was to realign the mission [&hellip...
June 28th, 2012, 1 Comment »
Proper preparation of a Cost Analysis Requirements Description (CARD) is a vital step in having a successful acquisition program. Here is how the CARD is completed: The Program Management Office (PMO) staff prepares the CARD. [&hellip...