Authors: Capt Allen J. DeNeve, USAF, Lt Col Erin T. Ryan, USAF, Lt Col Jonathan D. Ritschel, USAF, and Christine Schubert Kabban
Cost growth is a persistent adversary to efficient budgeting in the Department of Defense. Despite myriad studies to uncover causes of this cost growth, few of the proposed remedies have made a meaningful impact. A key reason may be that DoD cost estimates are formulated using the highly unrealistic assumption that a program’s current baseline characteristics will not change in the future. Using a weather forecasting analogy, the authors demonstrate how a statistical approach may be used to account for these inevitable baseline changes and identify related cost growth trends. These trends are then used to reduce the error in initial acquisition cost estimates by over one third for major defense acquisition programs, representing a more efficient allocation of $6 billion annually.
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Authors: Capt Gary Jones, USAF, Edward White, Lt Col Erin T. Ryan, USAF, and Lt Col Jonathan D. Ritschel, USAF
Recent legislation, such as the Weapon Systems Acquisition Reform Act of 2009, requires a renewed emphasis on understanding operating and support (O&S) costs. Conventional wisdom within the acquisition community suggests a 70:30 cost ratio with respect to O&S and acquisition of an average weapon system. Using 37 Air Force and Navy programs, the authors estimate the mean overall ratio of O&S costs to acquisition costs to be closer to 55:45, although many weapon systems displayed significant deviation from this 55 percent average. Contributing factors such as life expectancy and acquisition strategy (i.e., new system or modification) affect this variance. Their research advises against using a single “one-size‑fits-all” O&S/acquisition cost ratio for all major DoD weapon systems.