Slide No. 1 of 30 3/1/12

Systems Life Cycle Cost

Considerations Applied to

Stability and Reconstruction

Operations

John V. Farr, Ph.D., P.E.Professor of Engineering Management andDirector of the Center for Nation Reconstruction and Capacity DevelopmentDepartment of Systems EngineeringUnited States Military Academy at West PointWest Point, NY 10996-1779Office: (845) 938-5206 Cell: (845) 667-9573Email: John.Farr@usma.edu or john.vail.farr@gmail.com

Slide No. 2 of 30 3/1/12

• Introduction

• The Classical Systems

Challenges

• Stability and

Reconstruction

• Life Cycle Considerations

• Summary

Agenda

Slide No. 3 of 30 3/1/12

The mission for the Center for Nation Reconstruction and Capacity Development is to take an interdisciplinary and systems approach in facilitating and focusing research, professional practice, training, and

information dissemination in the planning, execution, and assessment of efforts to construct infrastructure, policies, and competencies mainly in

support of building partner capacity for communities and nations primarily in developing countries. The Center will have a strong focus on

professional practice in support of developing current and future Army leaders through its creation of cultural immersion and research

opportunities for both cadets and faculty.

Mission Statement

Slide No. 4 of 30 3/1/12

• Energy Security

• Resource Allocation and

Efficiencies

• Operations and Disaster

Resiliency

• Social and Environmental

Sustainability

• Energy Security

• Resource Allocation and

Efficiencies

• Operations and Disaster

Resiliency

• Social and Environmental

Sustainability

• Future Technologies and

Concepts

• Ilities - Sustainability,

Supportability, Affordability,

and Adaptability

• Future Technologies and

Concepts

• Ilities - Sustainability,

Supportability, Affordability,

and Adaptability

• Nation Reconstruction

• Forward Operating Bases

• Theater Security

Cooperation

• Host Nation Capacity and

Economic Development

• Assessment and Policy

• Reconstruction Training

• Nation Reconstruction

• Forward Operating Bases

• Theater Security

Cooperation

• Host Nation Capacity and

Economic Development

• Assessment and Policy

• Reconstruction Training

Warfighting Installation Operations Future Concepts

Our Research Agenda

Infrastructure and Other Supporting Enablers:People, Policies, and Technology

Conflict Non Conflict Conflict/Non Conflict

Methods Processes, and Tools (MPTs)

Advance the state of knowledge in complex socio-technological systems as related to

infrastructure in support of nation reconstruction, security cooperation, and

operational needs

Slide No. 5 of 30 3/1/12

Our Competencies

Life Cycle Cost AnalysisResource AllocationAssessmentDecision AnalysisSystems ThinkingModeling and SimulationInfrastructure AssessmentEconomic Development

Slide No. 6 of 30 3/1/12

Life Cycle Cost Analysis

Formal definition of life-cycle costingA general method of economic evaluation which takes into account all relevant costs over a given period of time adjusting for differences in the timing and the true value of those costs.

What is life-cycle cost?Life-cycle cost (LCC) is the total cost of ownership of a product, structure, or system over its useful life.

R&D Investment O&SF-16 Fighter 2% 20% 78%M-2 Bradley 2% 14% 84%

Slide No. 7 of 30 3/1/12

• Introduction

• The Classical

Systems Challenges

• Stability and

Reconstruction

• Life Cycle

Considerations

• Summary

Agenda

Slide No. 8 of 30 3/1/12

Cost in the Systems Process

HighAbility toInfluence

LCC(70-75%of Cost

DecisionsMade)

(10%-15%)

72% Life Cycle Cost28% Life Cycle Cost

Less Ability to Influence LCC (85% of Cost Decisions Made)

Little Ability to Influence LCC (90-95% of Cost Decisions Made)

(5%-10%)

Minimum Ability to Influence LCC (95% of Cost Decisions Made)

Conceptual Exploration

ComponentAdvanced

Development

SystemsIntegration/Preliminary

Design

SystemsDemonstration,

Test, andEvaluation

Production Operations,Support, &Disposal

Slide No. 9 of 30 3/1/12

• Increased system complexity• External funding instability• Loss of “mission urgency” at the end of of each major engagement• Diminished depth of talent in the government and/or contractor community• Requirements creep• The need to satisfy demands from an increasingly diverse user community• Inadequate up-front project planning• Lack of management oversight• Accountability• Clear metrics on both the government and contractor sides• Exponential growth in, and reliance on, software• Complex owner/prime/sub interdependencies

The Problem

Slide No. 10 of 30 3/1/12

1969

1955

1969

1970

1953

1954

1946

F-14

UH-1

F-15

SSN 688

AIM-9

KC-135

B-52

1973

1959

1975

1976

1955

1957

1955

2010+

2004+

2010+

2026+

2025+

2017+

2040+

41+ Years

49+ Years

51+ Years

56+ Years

72+ Years

86+ Years

94+ Years

Extended LifeNotional Projected Lifetime

DevelopmentStart

Base Model IOCPlan Phase Out(Last Model)

Current Trends in Military Systems

Similar Reality for Enterprise Level IT Systems

Many Applications Pre-Date the Internet and the Client-Server Architectural Paradigm

We must start designing like private industry• Modularity• Open

source/architecture• Commercial

standards• Vendor can no

longer own elements• Upgradability must

be a key performance parameter

• Tradeoff performance for upgradability and sustainability

Slide No. 11 of 30 3/1/12

The Problem - DoD

Primary StructuralMaterials/Platforms

MechanicalSystems/Weapon

C4 ISR Infrastructure

Sensors

Communications

IT Hardware

IT Software

15 – 30 yrs

10 – 15 yrs

5 – 8 yrs

3 – 5 yrs

1 – 3

.5 - 2

.5 - 1

Improvised ExplosiveDevises .01 - 1

Car Bombs .01 - 1

Technology Cycle Times

? ?

Incremental Acquisition (Pre-Planned Product Improvement) implies known or fixed requirements

Evolutionary Acquisition implies evolutionary requirements

We cannot operate inside ourenemies cycle time - processes are

to cumbersome

Slide No. 12 of 30 3/1/12

Impact of “Front -End” InvestmentA NASA View of the Benefits of SE

Analysis of Gruhl's NASA Data

-50

0

50

100

150

200

250

0 5 10 15 20 25

%RQTDEF

%

• Recent National Academies study recommended that we spent more systems engineering resources during concept definition

• USAF has embraced this for all future programs

• As complexity increases we must spend more upfront to better develop requirements and manage expectations

• Upgradability (modularity, “openness”, no propriatarysoftware, COTs, etc) must be a key performance parameter when buying

Slide No. 13 of 30 3/1/12

Must Better Manage Contractors

• Fewer contractors with decreasing government budgets

• Are sophisticated global players • Must be smarter buyers/contract writers• Must develop like Toyota, Nokia, Apple• Re-examine the relationships between

buyers and vendors

Slide No. 14 of 30 3/1/12

Parametric Cost Estimation

Analogy

Detailed Engineering Build Up

Primary Technique Some Applicability Little or No Utility

Conceptual

Exploratio

n

Component

Advanced

Develop-

ment

Systems

Integration/

Preliminary

Design

SystemsDemon-stration,Test, andEvaluation

Productio

nOperations,

Support, &

Disposal

How Do We Cost Systems

Slide No. 15 of 30 3/1/12

Estimating Techniques

• Traditional approaches for measuring the technical scope of a development project include top-down, bottoms-up, and analogous estimating techniques.

• Top-down estimation starts with an estimate for what the project can or should cost and then allocates it to the various aspects of the project (management, systems engineering, software engineering, hardware engineering, integration testing, system delivery, and system support).

– The top-down estimate is often used to obtain a rough-order-of-magnitude estimate of what the project should cost.

• Bottoms-up estimation relies on engineers and management personnel to provide task-level estimates from a WBS at some level of detail based on experience; the task-level detail is then summed to produce an overall project estimate.

• Analogous estimation predicts future performance based on past performance.

• It is normally best if more than one technique is used to estimate a project’s technical scope, cost, and schedule for the purposes of accuracy.

• Type I (unknown cost categories) are more devastating than Type II (known category but bad cost data)

Slide No. 16 of 30 3/1/12

Cost and Schedule Estimates are constantly refined as the technical baseline work products are refined

Baseline

Created

Technical Work Products from

which estimate is developed

Typical review at which

technical work products

and associated cost /

schedule are baselined.

Methodologies used to develop cost (and schedule) estimate from technical work

products

Customer 1. Customer ( or Stakeholder /

Business) Requirements

- Capabilities and

Characteristics

2. ConOps or Business processes

Business Requirements

Review or Proposal

Estimates are based on experience and historical data

Estimates are a ROM (rough order of magnitude) and +- 75%

Top Down

• Based on number / complexity of requirements

• Based on number / complexity of scenarios

• Based on external interface complexity

Analogous

• Estimate based on complexity of technical work products compared to similar complexity

of known completed projects.

System 1. System Requirements –

including high level test

strategy for each

requirement)

2. Preliminary Architecture

System Requirements

Review

Estimates are based on experience and/or a tool (COTS or developed) Estimates are

preliminary and +- 50%

Top Down

• Based on number / complexity of requirements (functional and non-functional)

• Based on number / complexity of scenarios

• Based on architecture complexity, technology maturity, etc.

Analogous

•Estimate based on complexity of technical work products compared to similar complexity

of known completed projects

Bottoms Up

• Estimates based on architecture

Component

(HW, SW,

Process)

1. Component Requirements

(for each SW, HW, or

process) – and test strategy.

2. System Architecture

(documenting all HW, SW,

and processes, and interfaces

between them)

3. Test Architecture defined

Preliminary Design Review Estimates usually developed using a tool (function point, COCOMO suite, number and

complexity of HW components, WBS, etc).

Estimates are detailed and +- 10%

Bottoms Up

• Estimates from each development group providing their cost and schedule based on the

requirements allocated to their component, the system architecture, and the technologies

selected.

Design, Test,

and

Production

1. HW, SW, and Process Design

2. Test strategies, plans, cases,

environment setup

3. System into Production (SW,

HW, and processes) and

Service Level Agreements

1. Critical Design

Review

2. Test Readiness

Review

3. Production Readiness

Review

Estimates are based on detailed technical work products

Bottoms Up

1.Updated cost and schedule estimates based on design details

2.Test cost and schedule updated estimates based on technical work products

3.Operational, support, and maintenance costs updated based on delivered solution

The Problem

Slide No. 17 of 30 3/1/12

• Introduction

• The Classical Systems

Challenges

• Stability and Reconstruction

• Enterprise Challenges Versus

Systems

• Learning Organizations

• Summary

Agenda

Slide No. 18 of 30 3/1/12

S&R Is A Complex System

Surprising EmergenceEvolves on Its Own as a WholeActs RobustlyThrives on DiversityMany Factors at PlayStimulates Different Perspectives Ever ChangingInforms the ObserverPerforms OpenlyInternal and External Relationships are KeySelf-OrganizedSensitive to Small EffectsExhibits Tight and Loose Couplings

System

SoS

Enterprise

ComplexSystem

From work by Brian White at Mitre and Vernon Ireland

Increases in Complexity Produces• More Stakeholders• More Requirements Creep• Potential For Funding Cuts• Complex Contractor/Subcontractor/Owner Relationships• Challenges in Expectations Management• Technology Challenges

Slide No. 19 of 30 3/1/12

How do we invest scarce resources to promote cessation of COIN and promote stability and economic development?

Conflict Spectrum

Typical Timeline for a Typical Regional Conflict

Year 1 2 3 4 5 6 7 8 9 10

Non-intervention Stabilization and Reconstruction (S&R)

Large-ScaleCrisis

orHostilities

Res

ourc

es

COIN and/orCapacity DevelopmentNation Reconstruction

Capacity DevelopmentNation Reconstruction R

esou

rces

for

Cap

acity

Dev

elop

men

t, R

econ

stru

ctio

n, C

ultu

ral

Tran

sfor

mat

ion

and

Und

erst

andi

ngMission of the Center is to change how and whenresources are allocated

Slide No. 20 of 30 3/1/12

Some Thoughts About Stability and Reconstruction

Most of the challenges of reconstruction are social – values, corruption, traditional power bases, etc.Little thought given to the total ownership costs or how to sustain solutionsSuccess is directly related to the lack of complexityWe often do not understand the second order effectsMust balance top down versus bottom ups developmentNon government organizations are the best executors of bottoms up development

Top DownViability of Government

GovernanceLegitimacy

Sustainable and Enduring Development

Bottom Up

Effective Allocation of Resources

DoD

Incr

emen

tal C

osts

(Bill

ions

of F

Y 2

004

Dol

lars

)

S&RCosts

Fiscal years 1991-2004

200

150

100

50

0

Major Combat Operations

Southwest Asia

Somalia

Haiti

Bosnia

Kosovo

Afghanistan

Iraq

Source DoD Comptroller and Congressional Research ServiceIncremental Costs are defined as costs to DoD in excess of normal peacetime operating expensesSlide taken from Defense Science Board 2004 Summer Study on Transition to and from HostilitiesCurrent Incremental Cost in Iraq/Afghanistan is $5.7 billion/month

MajorCombatOperations

Slide No. 21 of 30 3/1/12

• Introduction

• The Classical Systems

Challenges

• Stability and

Reconstruction

• Life Cycle

Considerations

• Summary

Agenda

Design

From the Perspective of the Developer

ProductDevelopment

ProductConception

Production

R&D Cost

Operations andSupport Costs

Disposal Costs

Life Cycle Cost

Logistics Retirement

CapitalInvestment

Slide No. 22 of 30 3/1/12

Life Cycle Categories

Life Cycle Cost Categories

Slide No. 23 of 30 3/1/12

Cost And Schedule OverrunsOn Time, On Budget

Project

Cost Estimators Challenges

Slide No. 24 of 30 3/1/12

Factors That Can Increase Prices

• Incomplete product specifications

• Evolving requirements

• Frequent change requests

• Supplier not meeting commitment (consistently late deliveries, etc.)

• Frequent management/key personnel changes

• Outsourcing

• Product is too complex

• Technology is not mature

• Lack of customer involvement

• Increased software requirements

• COIN

• Corruption

• Lack of competition

• Inefficient ownership (not wholly owned)

• Domain knowledge

• Lack of customer involvement

• Formal legal system

• Lack of infrastructure

• Product is to complex

• Lack of the human capital

• Infrastructure support

• Suppliers

Typical Complex System Reconstruction Project

Slide No. 25 of 30 3/1/12

Project Management

Hardware

Systems Engineering

Life Cycle

Software

Integration

Components of Systems Costing

Both are complex technical, economic, and sociological systems

Traditional Systems Costing

Reconstruction Costing

Project Management

Infrastructure Support

Unknown

Life Cycle

Acquisition/Construction

Social Considerations

Slide No. 26 of 30 3/1/12

Construction Costs (10-

15%)

Operations and Maintenance of Facility (85-

90%)

Supporting Infrastructure and Services Road improvements, Power, People, Equipment, Training, etc.

Components of S&R Costing

Capacity development must be considered in any nation building project

Slide No. 27 of 30 3/1/12

• Introduction

• The Classical Systems

Challenges

• Stability and

Reconstruction

• Life Cycle

Considerations

• Summary

Agenda

Slide No. 28 of 30 3/1/12

• About $1.4T has been spent by the US in

Iraq/Afghanistan since 2001

• Several hundred $B ($53B in Iraq) between DoS,

USAID, DoD/CERP, DoJ, DoA, NGOs, etc. for

reconstruction and not stability operations

• Poor job of building partner capacity and

sustainable development

• Traditional methods (PCE, Bottoms up, etc) of

cost estimating are difficult to use

• We must take a holistic approach to

reconstruction projects ….addressing only

acquisition costs waste scarce resources

Summary

“This is the fault of the Americans,” the deputy minister of electricity, Ra’adal-Haras, said. “They put in place a big, wide-open democracy after the regime. They went from zero democracy to 100 percent. Democracy has to be step by step. You see the result. (from the NY Times)

Slide No. 29 of 30 3/1/12

Summary

For Systems We MustChange the acquisition system – DoD 5000Write good requirementsExperienced SE, PM, etc., throughout the life cycleOpenness must drive solutionsBuy it only if we can pay the TOCInstill a TOC perspectiveBetter manage early cost expectationsIncentivize contractors to save moneyDevelop SoS and complex systems methods

For Stability and Reconstruction We MustInvest in capacity development before projectsInvest in the NGOs (bottoms up)Ensure that the projects align with international goalsUnderstand the second order effectsDo no judge (or contract) based upon our values

Slide No. 30 of 30 3/1/12

Portfolio Problem

…. and that’s everything you need to know about life cycle cost analysis .. any questions

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