CHARACTERIZING THE ACCURACY OF DoD OPERATING AND SUPPORT COST ESTIMATES

For decades, the DoD has employed numerous reporting and monitoring tools for characterizing the acquisition cost estimates of its programs. These tools have led to dozens of studies thoroughly documenting the magnitude and extent of DoD acquisition cost growth. However, little attention has been paid to the behavior of the other main cost component of a system's life cycle cost: Operating and Support (O&S) costs. Consequently, the DoD has little knowledge regarding the accuracy of O&S cost estimates or how that accuracy changes over time. In a previous paper, the authors describe an analytical methodology for remedying this deficiency via a study to characterize the historical accuracy of O&S cost estimates. The results are presented here, and indicate there tend to be large errors in DoD O&S cost estimates, and that the accuracy of the estimates improves little over time. INTRODUCTION AND MOTIVATION The DoD’s definition of Life Cycle Cost (LCC) is the total cost to the government spanning all phases of the program’s life: development, procurement, operation, sustainment, and disposal (DoD 1992). Note that this definition includes some costs accrued before a system formally enters the acquisition phase (e.g., concept refinement and technology development) as well as certain costs accrued as the system transitions out of sustainment (e.g., demilitarization and disposal). These initial and final costs—though sometimes sizeable from an absolute perspective—tend to be negligible when compared to the costs incurred during the program’s acquisition phase and its Operations and Support (O&S) phase (DoD CAIG 2007; DAU 2012). Consequently, one can state, to a high degree of accuracy, that a system’s LCC is simply the sum of its total acquisition costs and its total O&S costs. Of these two cost components, the DoD has historically placed significantly greater emphasis on the acquisition side of the equation. Over the years, a plethora of control and oversight accountability mechanisms have been implemented with the expressed purpose of improving the execution and/or management of the acquisition phase of defense programs. Meanwhile, the O&S sustainability considerations have been perennially neglected or subordinated to acquisition requirements or program survival (DoD 2009; Choi et al. 2009). By virtue of its traditional focus on the acquisition component of a system’s life cycle, the DoD has managed to gain a variety of valuable insights into the nature of the acquisition costs of defense, including how accurate acquisition cost estimates are and how they tend to behave over time. These insights have provided the framework for many revisions to the acquisition process and provided the opportunity for numerous improvements to the acquisition cost component of a system’s LCC. The same cannot be said for the O&S cost projections. Consider that between 1945 and 2008, there were at least 130 separate studies and commissions focused on the acquisition of DoD systems, dozens of which involved the accuracy of the cost estimates (DoD 2009). During this same time period, there appears not to be a single published study pertaining to the accuracy of O&S cost estimates.