Toward Affordable Systems: Portfolio Analysis and Management for Army Science and Technology Programs
RAND ARROYO CENTER SANTA MONICA CA
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This plan calls for the consideration of the lifecycle cost of a system during its design and development stage. Studies have shown that on average, 85 percent of lifecycle cost decisions have been made by the end of technology development. This fact raises the concern that, after the ST phase, one cannot change the basic design to significantly reduce a systems lifecycle cost, further emphasizing the need to consider lifecycle cost at an early stage. The current method used by the Army Deputy Assistant Secretary for Research and Technology to evaluate ATOs does not include lifecycle cost. Thus, the purpose of this study is to develop and demonstrate a method and a model that allow the consideration of lifecycle cost at an early stage of a systems development, so that timely corrective actions can be taken if lifecycle cost moves above an acceptable level. In addition to the incorporation of lifecycle cost, the method is aimed at alleviating the problem of summing or comparing apples and oranges that often occurs when ranking ST projects. Typical schemes used in the Army ST community for selecting or ranking ST or other projects sum an individual projects contributions to meeting several different future capability requirements. This traditional approach to ranking runs the risk of having projects scored high and selected for continued funding, even though their high scores may all come from meeting the same FOC requirements. A portfolio of such highly ranked projects can leave the requirements unmet for the rest of the equally important FOCs. In addition to introducing a new method, the study also demonstrates how input parameters, including cost components, can be estimated. However, the Army ST and acquisition community will very likely have much better data and can more easily and accurately make cost estimates.
- Economics and Cost Analysis