Toward Affordable Systems: Portfolio Analysis and Management for

183 Pages·2009·1.14 MB·English

by  Brian G. Chow

THE ARTS This PDF document was made available from www.rand.org as
CHILD POLICY a public service of the RAND Corporation.
CIVIL JUSTICE
EDUCATION
Jump down to document6
ENERGY AND ENVIRONMENT
HEALTH AND HEALTH CARE
INTERNATIONAL AFFAIRS
The RAND Corporation is a nonprofit research
NATIONAL SECURITY
organization providing objective analysis and
POPULATION AND AGING
PUBLIC SAFETY effective solutions that address the challenges facing
SCIENCE AND TECHNOLOGY the public and private sectors around the world.
SUBSTANCE ABUSE
TERRORISM AND
HOMELAND SECURITY Support RAND
TRANSPORTATION AND
INFRASTRUCTURE Purchase this document
WORKFORCE AND WORKPLACE Browse Books & Publications
Make a charitable contribution
For More Information
Visit RAND at www.rand.org
Explore the RAND Arroyo Center
View document details
Limited Electronic Distribution Rights
This document and trademark(s) contained herein are protected by law as indicated in a
notice appearing later in this work. This electronic representation of RAND intellectual
property is provided for non-commercial use only. Unauthorized posting of RAND PDFs
to a non-RAND Web site is prohibited. RAND PDFs are protected under copyright law.
Permission is required from RAND to reproduce, or reuse in another form, any of our research
documents for commercial use. For information on reprint and linking permissions, please
see RAND Permissions.
This product is part of the RAND Corporation monograph series. RAND
monographs present major research findings that address the challenges facing
the public and private sectors. All RAND monographs undergo rigorous peer
review to ensure high standards for research quality and objectivity.
Toward Affordable
Systems
Portfolio Analysis and
Management for Army Science
and Technology Programs
Brian G. Chow, Richard Silberglitt, Scott Hiromoto
Prepared for the United States Army
Approved for public release; distribution unlimited
ARROYO CENTER
The research described in this report was sponsored by the United States
Army under Contract No. W74V8H-06-C-0001.
Library of Congress Cataloging-in-Publication Data is available for
this publication.
ISBN 978-0-8330-4682-6
The RAND Corporation is a nonprofit research organization providing
objective analysis and effective solutions that address the challenges
facing the public and private sectors around the world. RAND’s
publications do not necessarily reflect the opinions of its research clients
and sponsors.
R
® is a registered trademark.
© Copyright 2009 RAND Corporation
Permission is given to duplicate this document for personal use only, as
long as it is unaltered and complete. Copies may not be duplicated for
commercial purposes. Unauthorized posting of RAND documents to
a non-RAND Web site is prohibited. RAND documents are protected
under copyright law. For information on reprint and linking permissions,
please visit the RAND permissions page (http://www.rand.org/
publications/permissions.html).
Published 2009 by the RAND Corporation
1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138
1200 South Hayes Street, Arlington, VA 22202-5050
4570 Fifth Avenue, Suite 600, Pittsburgh, PA 15213-2665
RAND URL: http://www.rand.org
To order RAND documents or to obtain additional information, contact
Distribution Services: Telephone: [phone];
Fax: [phone]; Email: [email protected]
Preface
The objective of this project was the application of the RAND Corporation’s Portfolio
Management (PortMan) approach to U.S. Army applied research and advanced tech-
nology development. In our analysis, we applied and expanded PortMan to help the
Army achieve a better match between its capability gaps and the products of its science
and technology (S&T) programs at an affordable cost.
In the course of the study, we broadened our aim to develop a method and model
not only suitable for the selection and management of the Army’s S&T portfolio, but
also applicable to projects at later stages of development and to other individual ser-
vices’ projects, or to all military projects. This monograph describes the method and
model, and sources and procedures used to estimate the input parameters. It also dem-
onstrates example applications for assisting decisionmaking on various important S&T
issues. However, it should be emphasized that this study focused on methodology
development. To demonstrate the methodology, we took a retrospective look at how
well a small subset of 2005 Army Technology Objective (ATO) projects could meet
a hypothetical set of gaps, which we assumed occurred in every force operating capa-
bility (FOC) requirement and sub-requirement. In other words, the study did not
use data on real capability gaps and provided no information on how well the Army
S&T portfolio meets the actual gaps. Moreover, since the ATOs were evaluated against
hypothetical gaps, one should not draw any conclusions about the merits or drawbacks
of any specific S&T project discussed in this study in meeting real Army capability
gaps.
This monograph should be of interest to S&T and acquisition managers who are
responsible for portfolio management of programs; engineers in research, development,
test, and evaluation programs; and those who are interested in the optimal allocation
of funds among different programs and/or developmental stages to yield the lowest
total lifecycle cost in meeting future capability gaps.
This research was sponsored by Stephen Bagby, Deputy Assistant Secretary of
the Army (Cost and Economic Analysis), Office of Assistant Secretary of the Army
(Financial Management and Comptroller) and conducted within RAND Arroyo Cen-
ter’s Force Development and Technology Program. RAND Arroyo Center, part of the
iii
iv Toward Affordable Systems: Portfolio Analysis and Management for Army S&T Programs
RAND Corporation, is a federally funded research and development center sponsored
by the United States Army.
The Project Unique Identification Code (PUIC) for the project that produced this
document is SAFMR08810.
For more information on RAND Arroyo Center, contact the Director of Oper-
ations (telephone [phone], extension 6419; FAX [phone]; email Marcy_
[email protected]), or visit Arroyo’s Web site at http://www.rand.org/ard/.
Contents
Preface ................................................................................................. iii
Figures .................................................................................................vii
Tables .................................................................................................. ix
Summary .............................................................................................. xi
Acknowledgments ................................................................................ xxiii
Abbreviations ....................................................................................... xxv
ChAPTer One
Introduction ........................................................................................... 1
Study Objectives ....................................................................................... 2
Problem Statement ..................................................................................... 3
Report Structure ....................................................................................... 4
ChAPTer TwO
The Current DoD Acquisition Policy ............................................................. 5
Joint Capabilities Integration and Development System .......................................... 5
Army Acquisition Categories ......................................................................... 5
DoD Acquisition Policy and AoA .................................................................... 7
S&T Programs ......................................................................................... 8
ChAPTer Three
Description of Our evolutionary Method ......................................................13
Our Model .............................................................................................15
Step One: Attributing Value .......................................................................16
Step Two: Marginal Cost ......................................................................... 23
Step Three: Linear Programming Model .........................................................25
Simplifying Assumptions Used .................................................................. 26
Potential of the Model ............................................................................... 26
ChAPTer FOur
estimation of Input Parameters ...................................................................29
v
vi Toward Affordable Systems: Portfolio Analysis and Management for Army S&T Programs
ATOs Selected for Our Analysis ....................................................................29
Overwatch ACTD ....................................................................................31
Objective .............................................................................................31
Degree of Meeting FOC Requirement ...........................................................31
Estimation of Cost Components ................................................................. 34
Remaining Lifecycle Costs for 29 ATOs ........................................................ 42
ChAPTer FIve
Applications to S&T Portfolio Management .................................................. 43
Depth in Capability Contributions in the ATO Pool ........................................... 43
Inadequacy in Existing ATO Pool ..................................................................45
Optimal ATO Set .................................................................................... 46
Monitoring of the Existing ATO Portfolio ........................................................47
Remaining S&T Cost Attributable to Each FOC ................................................47
Cost-Effectiveness of S&T Funds in Developing Individual FOCs ............................49
ATO Ranking .........................................................................................51
Cost Reduction Required for Moving to a Higher Rank ........................................53
Recommended Rule for Allocating Lifecycle Funds to Develop FOCs ....................... 54
Cost-Effectiveness of Remaining Lifecycle Funds in Developing Individual FOCs ..........55
Non-Linearity in Total Remaining Lifecycle Cost to Meet FOC Requirements .............55
Non-Linearity in Total Remaining S&T Cost to Meet FOC Requirements ..................57
Existence of an Optimal Total Remaining S&T Budget ........................................58
ChAPTer SIx
Findings and recommendations ..................................................................61
Model Applications and Findings ...................................................................61
Iterative Improvements on Value and Cost Estimates ............................................63
Recommendations ....................................................................................65
Appendix
A. Additional Information on Army Acquisition Categories and
Combat Developer ..............................................................................67
B. estimation of expected values ...............................................................71
C. estimation of Marginal unit Cost, number of units, and Marginal
Operating and Maintenance Cost ......................................................... 107
D. universal Curves for estimation of the remaining Lifecycle Cost
for Components ............................................................................... 131
e. Choosing essential ATOs Across a wide range of Capability requirements .... 141
F. Insensitivity of Model results to Detailed estimation of remaining
Lifecycle Cost .................................................................................. 145
Bibliography ........................................................................................ 149
Figures
S.1. Achievable and Required Expected Value for 29 ATOs............................ xiv
S.2. ATOs That Meet Various FOC Requirements at the Lowest
Total Remaining Lifecycle Cost .......................................................xv
S.3. Remaining Lifecycle Cost for Four 10-Percent Increases in Requirements ..... xvii
S.4. Existence of an Optimal S&T Budget ............................................... xix
2.1. The Defense Acquisition Management Framework .................................. 6
3.1. Portfolio of Navy Applied Research Projects from a Previous
RAND Monograph .....................................................................14
3.2. Situations in Which FOCs Apply to Warfighters ....................................21
4.1. Annual Purchases of an Electronics System over a 20-Year Period ................37
5.1. Degrees of FOC Requirements Met by 29 ATOs .................................. 44
5.2. Achievable EV and REV for 29 ATOs ................................................45
5.3. Achievable EV and REV for the Optimally Selected 11 ATOs ................... 46
5.4. For Development, Some FOCs Need More S&T Funds ...........................49
5.5. Some FOCs Need More S&T Funds to Develop Each
Percentage Point of Capability ........................................................ 50
5.6. ATOs That Could Meet Requirements at the Lowest Remaining
Lifecycle Cost ............................................................................52
5.7. Remaining Lifecycle Cost Attributable for Meeting Each of the
13 FOCs ..................................................................................55
5.8. Some FOCs Need More RLCC Funds to Develop 1 Percent of
Their Capabilities ....................................................................... 56
5.9. Remaining Lifecycle Cost Needed to Meet Various Fractions of
FOC Requirements ......................................................................57
5.10. Remaining S&T Cost Needed to Meet Various Fractions of
FOC Requirements ......................................................................58
5.11. Existence of an Optimal Remaining S&T Budget ..................................59
D.1. SDD to S&T Ratio for Current Electronics Systems ............................. 135
D.2. Relationship Between Upgrade Cost and Total Procurement Cost for
Historical Electronics Weapon Systems ............................................. 136
D.3. Upgrade Cost to Total Procurement Cost Ratio for Historical
Electronics Weapon Systems ......................................................... 137
D.4. Annual Purchases of an Electronics System over a 20-Year Period .............. 138
vii
viii Toward Affordable Systems: Portfolio Analysis and Management for Army S&T Programs
D.5. Vehicular System Production as a Ratio of First Three Years ..................... 139
E.1. ATOs That Meet Various FOC Requirements at Lowest
Remaining Lifecycle Cost ............................................................ 142
F.1. ATOs That Meet Various FOC Requirements at Lowest
Remaining Lifecycle Cost ............................................................ 148