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Viewpoint: Put system affordability first

Fix imbalance between acquisition, resources

Nov. 3, 2013 - 01:53PM   |  
By EVERETT PYATT   |   Comments

Soon there will be a new U.S. deputy secretary of defense. The secretary should focus on the growing imbalance between system acquisition plans and available resources.

Long-term projections of aircraft and ship force levels made over the last two decades have shown that planned force levels cannot be maintained within planned resource levels. However, few actions were taken to correct this imbalance.

For example, the total military aircraft inventory is about 14,000. Aircraft last about 20 years, so about 700 aircraft should be purchased annually to maintain force levels. Yet only about 450 have been procured annually. Thus, the force level will decline to about 9,000 aircraft. This reduction will have an impact on strategy and tactics of the future.

A similar situation exists for ships. The planned force level is 306 ships, but it will not be reached under current funding. The Navy ignored this problem by supporting an entirely new carrier design that is now having major cost overruns and schedule delays. The new ballistic missile submarine became a $7 billion ship until a cost ceiling of $5 billion was imposed. An attempt to build a low-cost combatant resulted in the most expensive corvette in the world. Cost control is a skill that must be learned.

Development programs for a new bomber and Trident submarine for strategic forces are underway. While both are included in current R&D programs, neither is affordable within current budget levels without major changes elsewhere.

Many new programs are under study in the analysis of alternatives process. Some will entail major funding.

An important management reform is to set a long-term (decade or more) resource plan or defense top line and allocate resources by project. The past failure to establish project affordability has allowed the acquisition community to relegate cost to a last-priority problem. The result has been a series of programs canceled or curtailed due to excessive cost, wasting significant resources.

The worst example is the Army Future Combat Systems program, totaling about $30 billion. The F-22 stealth fighter jet program was truncated due to cost. F-35 costs may preclude program completion. The Navyís DDG-1000 destroyer program was truncated due to cost and performance problems. Carrier costs have grown by about 50 percent over the prior carrier class, leaving carrier force levels up for debate despite a law requiring 11 ships.

Affordability of projects must become a prime concern of service secretaries as programs are formulated, not just the purview of some bureaucratic cubbyhole.

A recent study of acquisition system performance concluded that half of DoDís major acquisition programs have shown less than 8 percent cost growth. But including the other half results in an average cost overrun of almost 25 percent.

Overruns cost roughly $400 billion, largely in future spending. Overruns equal five years of major acquisition funding. That should be unacceptable.

The overall conclusion from this report is that overrun percentages have been stable over the past decade. All of the changes in regulation, law, organization and process have had no impact on cost control. Since the process does not work, increased hands-on management is mandatory.

Another approach is needed. Under the direction of the deputy secretary, the services must implement cost-control teams with full authority to revise performance specifications, delete hardware that fails testing, improve production planning and modify contracts to achieve cost control.

The initial goal for major program savings should be $100 billion. This is about 25 percent of cost growth in major programs.

In conclusion, two steps are needed to establish cost control:

■ Set project cost limits based on funds availability and force level requirements rather than project manager estimates. The project manager has to define the approach to meet that ceiling.

■ Establish service cost reduction teams to make reductions in any cost and performance category. Target savings should be $100 billion over the remaining life of programs.

Current budget negotiations underline the urgency of getting a major cost-control initiative started, with the full support of a new deputy defense secretary building on the good intentions expressed in the Better Buying Power initiative of the current deputy secretary.

Everett Pyatt is the leader of the Project for Defense Management and Acquisition Leadership at Arizona State Universityís McCain Institute for International Leadership. He is a former assistant secretary of the Navy.

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