For the past four years, Frank Kendall, undersecretary of defense for acquisition, technology and logistics, has updated Congress on the Better Buying Power (BBP) initiative and the need to firmly embed tools such as should-cost analysis into DoD acquisition culture.

Three key areas can help drive adoption should-cost analysis into the DoD acquisition culture: people and training, tools and processes, and leadership and should-cost pilot programs.

Complex categories like software serve as a good case study.

Both Kendall and Richard Lombardi, now principal deputy assistant secretary of the Air Force (acquisition), have cited how the F-22 program leveraged strong should-cost techniques to deliver benefits that align with many of BBP's objectives. Leadership in the F-22 program positioned the software should-cost initiative as a collaborative effort between the DoD and its suppliers, showing how the contractors and partners could improve profits, reduce cost and still develop a highly advanced weapon program.

The initiative resulted in profits for the suppliers and DoD savings of $66 million from the initial contractor proposal.

People and training

Acquisitions organizations across the DoD need well-trained employees with the appropriate technical skills to find opportunities for reducing costs within a contractor's proposal. Like the DoD employees working on the F-22 should-cost initiatives, they also need the ability to drive a thorough should-cost analysis.

Tools and processes

The should-cost training must focus on the tools and processes employees need to understand the deep analysis and how it can benefit their program. Such training will help them circumvent the confusion generated by the many definitions of "should-cost" used throughout the private and public sectors, which make it harder to embed a well-structured should-cost analysis into the DoD.

In software, for example, a should-cost analysis is often driven by multiple sets of tools and processes:

  • Modeling: Use of standard modeling tools such as SEER-SEM (SEER for Software) and COCOMO (Constructive Cost Model) in aviation should-cost initiatives can help estimate the software effort and shape optimal schedules.
  • Bottom-up estimation: Models each activity’s component costs against specific industry benchmarks and cost drivers.
  • Contractor comparison: Compares similar contractors to determine industry best practices and should-costs.
  • Program comparison: Estimates costs by benchmarking similar services and common mission profiles across a comparable scope of work.

Leadership and pilot programs

DoD leadership plays a key role in embedding should-cost across the department and within individual programs. With affordability being a major incentive, leaders must position should-cost as the direction of all acquisitions efforts.

The best way to embed should-cost into the culture is to conduct the analysis. Leaders must identify the programs that can pilot should-cost, coupled with skilled people who are trained in regard to should-cost tools.

In addition to bringing stakeholders onboard and piloting the initiative, leadership should take the following actions:

  • Bring the best practices to bear. Encourage team members to aggressively challenge the status quo and ask questions; to replicate best practices, and to determine the most effective cost-to-deliver program requirements.
  • Perform rigorous analysis. Understand the root-cost drivers and efficiency potential for major areas like supply chain and manufacturing.
  • Establish the right incentives. Help the team collaborate with suppliers. Implement incentives that encourage everyone to move beyond the status quo and work to lower DoD costs and improve suppliers’ profits.
  • Convert cost-management opportunities into realistic action plans with clear timelines and responsibilities. Use multiple approaches — negotiation, investment, joint-process improvement and contract restructuring — to reduce costs.
  • Track performance against the cost-reduction plans. Implement a target assurance program to identify cost-reduction targets and milestones; and review to ensure progress is regular, transparent and well managed.

Should-cost analysis used by organizations with well-trained employees and engaged leaders can benefit the DoD, its partners and the taxpayers through an improved acquisitions process with expanded benefits.

Christian Hagen is a partner with A.T. Kearney's Digital Transformation Practice in Chicago.

Share:
In Other News
Load More