Organization: Graduate School of Business & Public Policy (GSBPP)
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Publication Search Results
Total Ownership Cost: An Exercise in Discipline
As a first step, we felt it was important to gather research and data relating to total ownership cost initiative, without bias and complicating the process. This, in itself, is quite a task, as there had been quite a bit of work done in the area over the last two years in all services and numerous DoD programs. This presentation is designed to provide some insight and perspective into what we''ve drawn upon from the work done.
Cost as an Independent Variable (CAIV): Front-End Approaches to Achieve Reduction in Total Ownership Cost
During the latter half of the 1980s and throughout much of the 1990s, budget constraints were increasingly tight, resulting in Defense budget reductions (measured in constant dollars); these reductions commenced in FY 1986 and extended through FY 1997''the only increase being FY 1991, corresponding to Operation Desert Storm. In an attempt to squeeze every penny from required resources, DoD leadership emphasized the necessity of controlling cost of new warfighting systems''not only the cost of development and production, but also the cost of sustainment. In 1995, Dr. Paul Kaminski, the Under Secretary of Defense for Acquisition and Technology (USDA&T), introduced the term ''cost as an independent variable (CAIV),'' in recognition that resources were tight and that weapon system costs''lifecycle costs''would have to be managed and controlled through tradeoffs that occur during the developmental process.
Reform of Budgeting for Acquisition: Lessons from Private Sector Capital Budgeting for the Department of Defense
The ongoing replacement of Department of Defense (DoD) capital assets, as well as other much needed capital investments, will likely take place during a time of decreasing, or at least slowly growing financial resources over the long term. Some of this is due to the growth of entitlements, some to the size of the predicted deficit. Still another pressure is the long-term cost of military activity in Afghanistan and Iraq, predicted by CBO to be $450 billion over the next ten years. In addition, the Department of Defense is in the midst of an era of ''transformation'' under Secretary of Defense (SECDEF) Donald Rumsfeld that calls for the modernization of DoD warfighting doctrine, capital goods and business systems. The budgeting system has already been modified during Rumsfeld''s tenure (McCaffery & Jones, 2004, p. 403-435). Occasionally, it has been argued that the federal government and other public agencies should adopt ''corporate'' methods of budgeting to include the use of separate capital and operating budgets that are prevalent in the private sector. In the past, this argument has not made much progress, but the current trends enumerated above move us to consider that this argument should be revisited. It is clear that significant changes would have to occur in the present system if private budgeting methods were adopted by the DoD and other public organizations, but there are examples of public organizations that have made this leap, as the governments of New Zealand and Australia, as well as most of the states in the US have at least adopted some private budgeting methods with varying degrees of success.
Foreign Military Sales: A Financial Analysis and Assessment of the Administrative Surcharge Rate
This study addresses a request by the Defense Security Cooperation Agency (DSCA) to assess the foreign military sales (FMS) administrative surcharge rate and identify relevant cost drivers. The DSCA operates on a no-profit, no-loss basis and recovers full costs by charging a surcharge rate against FMS values. In 2006, the DSCA increased the rate from 2.5% to 3.8% based on an internal Fees Study Group analysis. While their analysis was well-founded, FMS has more than doubled''inflating the trust fund balance and raising questions regarding the proper surcharge rate. We recommend the DSCA lower its administrative surcharge rate from 3.8% to 3.0%. Historical models validate 3.0% as a sufficient rate when applied to actual data from 1999 to 2010. Monte Carlo FMS simulations demonstrate that 3.0% minimizes trust fund variation, while mitigating the risk of falling below safety levels or accruing an excessive balance. Using parametric cost-estimating techniques, we tested six cost factors as explanatory variables to predict workload and budgets. Through regression analysis, we identified the number of letters of request (LORs) completed during the fiscal year as the most statistically significant cost driver. Additionally, the DSCA should monitor the rising trends in contractor support and total open cases.
A Framework for Calculating Indirect Costs and Earned Value for IT Infrastructure Modernization Programs
Earned Value (EV) supports proactive project management by comparing work accomplished over time against the cost and schedule of work authorized. This comparison is essential to a range of tasks such as performance-based acquisition and budgeting. However, the utility of EV as a planning and management tool depends on the accuracy of Planned Value (PV) estimates. For Information Technology (IT) infra-structure modernization projects, those estimates are dominated by difficult-to-calculate indirect costs''for the effort consumed in communication, control, and coordination activities. While the DoD 5000 recognizes and recommends including indirect costs in Earned-Value computation, it does not provide guidance on how to do so. However, a conceptual framework built around the notion of communications efficiency can be constructed and evaluated using the information resident in artifacts such as Enterprise Architecture products, organizational capability and maturity assessments, and repositories of project data; each of these provide a basis for developing (parametric) bounds on indirect costs and, in some instances, direct estimates. These methods can be built into an Earned-Value Management (EVM) system.
DoD is Not IBM: The Challenges of Implementing Strategic Sourcing in Defense Acquisition
In this paper, we examine the initial efforts to instill a strategic purchasing mindset in defense organizations and to create commodity councils whereby strategic sourcing might be executed. Our analysis has determined that there are at least three primary barriers to successful implementation of strategic purchasing in DoD acquisition. First, products or services that may be easily ''commoditized'' by industry are subject to many more constraints which limit or obviate the ability for the Government to leverage its spend. Second, the additional regulations and statutes which the DoD must comply with (such as the Buy American Act, Davis-Bacon, and Small Business Rules) limit the opportunities to pursue leveraged buying. Third, there is no single voice responsible for the organization spend, or with the ability to dictate and enforce strategic acquisition programs. This paper offers potential solutions for each of these challenges.
A Transaction Cost Economics View of DoD Outsourcing
Many goods and services required for government operations can be provided through commercial markets. Public officials, therefore, face a number of ''make-or-buy'' decisions. Transactions Cost Economics (TCE) offers a useful foundation for characterizing ''make-or-buy'' decisions, which this paper explores. Our dual objective is to synthesize key principles of TCE and to apply TCE to federal outsourcing. One especially useful insight is that transaction costs vary widely, and depend in known ways upon the attributes of the outsourcing action. This means, among other things, that one size should not fit all in outsourcing decision processes.
Budgeting for National Defense Acquisition: Assessing system linkage and the impact of transformation
In this article we conduct a processual analysis (Barzelay, 2003; Barzelay &Gallego, 2005) to assess evidence and test the following hypothesis: the complicated architecture and processes of national defense planning, programming, budgeting and execution and the defense acquisition decision system lead to unintended and negative consequences for defense acquisition and procurement. The purpose of this article is to identify key points of linkage weakness or failure between DoD financial management and acquisition decision systems. We first describe the PPB system and decision process. We then provide an analysis of recent changes to PPB. Next, we describe the defense acquisition system (DAS) in detail. This leads us, by drawing on interview data, to identify systems linkages and areas of misalignment between the PPBES and the DAS. Finally, we provide conclusions with respect to our hypothesis, analysis of consequent key problems and issues, and areas that require further research.
Reform of Budgeting for Acquisition: Lessons from Private Sector Capital Budgeting for the Department of Defense
Current trends in federal budgeting move us to conclude that the argument for implementing capital budgeting in the federal government should be revisited. It is clear that significant changes would have to occur in the present system if private sector capital budgeting methods were adopted by the DoD and other agencies of the federal government. However, there are examples of public organizations that have made this leap. The governments of New Zealand, Australia and the United Kingdom, as well as most of the states in the US, have adopted some private budgeting methods with varying degrees of success. This report explores how capital budgeting is practiced in the private sector, in other governments and how some of this could be applied in the federal government and Department of Defense. The report also provides a brief critique of DOD acquisition budgeting.
Privatizing the Naval Surface Warfare Center Depot at Louisville
During the 1995 Base Realignment and Closure (BRAC) process, the Department of Defense (DoD) recommended that the Louisville depot be closed and its workloads transferred to several DoD facilities. The depot''s principal mission was to overhaul and repair the Navy''s multi-platform 5-inch gun and its Phalanx close-in antiaircraft system. The plan was to transfer the gun repair work to the Norfolk Naval Shipyard, Virginia, the Phalanx to the Naval Surface Warfare Center, Crane, Indiana, and the engineering support functions to the Naval Surface Warfare Center, Port Hueneme, California. During the BRAC review process, the city of Louisville proposed to the Commission that the DoD privatize the depot workload in-place. The Commission found that the Navy''s cost savings from the closure were overstated, that the gun systems engineering functions at Louisville are consistent with operational requirements, and that the maintenance and overhaul functions performed at the facility have contributed substantially to the effectiveness of the Department of the Navy.