Original Post Date: Wednesday, November 10, 2010

I was recently struck by Ash Carter’s (Under Secretary of Defense for Acquisition, Technology & Logistics) Memorandum for Acquisition Professionals, Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending (14 September 2010). Within this broad sweeping memo, Ash Carter outlines 23 principal actions in five major areas aimed at increasing efficiency in Defense acquisition.  The first major area covered is “Target Affordability and Control Cost Growth”.

Within this major area, program managers must treat affordability as a requirement before milestone authority is granted to proceed (starting with Milestone A). This means developing affordability targets and treating cost as a Key Performance Parameter. 

What I find really interesting is the critique of Will Cost vs. Should Cost. The memo is critical of Will Cost, or Independent Cost Estimates (ICE). As Dr. Carter points out, “the ICE reflecting business-as-usual management in past programs, becomes a self fulfilling prophesy. The forecast budget is expected, even required, to be fully obligated and expended.” To combat this “vicious cycle”, the memorandum now requires “each major program to conduct a Should Cost analysis justifying each element of program cost and showing how it is improving year by year or meeting other relevant benchmarks for value.”

In my career experience, parametric estimating models such as TruePlanning play a major role in targeting affordability and controlling cost growth. In terms of affordability analysis, TruePlanning contains a unified framework of all elements of program cost (hardware, software, IT and Systems) and has built-in capacity to interface with engineering optimization tools such as Model Center. Through this interface cost can be treated as a Key Performance Parameter (KPP) for optimization and engineering trade off analysis.

In terms of Should Cost and ICE, TruePlanning provides the industry standard capability to conduct Should Cost and calibrated (actual program history) for ICE. Most interestingly and to the point of the Carter memo, TruePlanning has the capability of breaking the “self fulfilling” prophesy of business-as-usual. Using a calibrated TruePlanning model for ICE, estimators can change key engineering and programmatic parameters and see the impact on cost. For example, parameters such as requirements stability, engineering complexity and team composition can be quickly changed to assess a new program’s reality while still taking into account past performance history.

As the Carter memorandum points out … “the ability to understand and control future cost from a program’s inception is critical to achieving affordability requirements.” Because of TruePlanning unified framework and comprehensive cost models, it is a tool very well suited to provide the types of analysis outlined in the memorandum.

Zach Jasnoff
Solutions Architect, PRICE Systems