the associated funds required will consist of both MDA RDT&E (procurement-related) budgets and the military service’s O&M and military personnel (MILPERS) funds, with specific sustainment responsibilities identified in system-unique memoranda of agreement (MOAs). As stated by LTG Patrick J. O’Reilly, USA, Director, Missile Defense Agency, operations and support (O&S) responsibilities relate to MDA’s role in material sustainment as well as procuring replacement spares and implementing P3I modifications of fielded systems. Breakout of sustainment costs includes training costs, routine maintenance costs, operational tests, and ongoing operational integration.

“Should” vs. “Will” Cost Guidance for Bounding the Range Estimates

Consistent with the Memorandum for Secretaries of the Military Departments and Directors of the Defense Agencies issued on November 3, 2010, and effective November 15, 2010, the committee made a concerted effort to incorporate the guidance on developing “should cost” targets as one of its “sound” estimating techniques.4

The committee generated 20-yr LCC range estimates for each of the committee’s recommended systems and those recently initiated by MDA systems based on first assessing the current technical and manufacturing maturity of all the systems and then generating “should cost” estimates as the lower bound (or minimum) costs based on the following:

 

•   Scrutinizing every element of program cost,

•   Assessing whether each element can be reduced by, for example, challenging the learning curves of similar systems, and

•   Applying other recently implemented or proposed industry productivity improvements as part of reducing the total costs of doing business with the government, including, for example by reducing overhead rates, indirect costs, and other contractor cost-cutting measures.

 

The OSD policy states that the metric of success for “should cost” management is leading to annual productivity increases of a few percent from all ongoing contracted activities as program managers execute at lower cost than budgeted. OSD policy guidance believes industry can succeed in this environment because OSD and the military services will tie better system performance to higher corporate profits and because affordable programs will be less likely to face cancellation.

This is in contrast with system costs based on a program’s “will” cost, on which the committee bases its upper bound, or maximum, estimates. These esti-

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4The OSD policy on this subject is based on the guidance described in the “Drive Productivity Growth Through Will Cost/Should Cost Management” article, issued by the Defense Acquisition University (DAU) Acquisition Community Connection.



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