Cover: Extreme Cost Growth

Extreme Cost Growth

Themes from Six U.S. Air Force Major Defense Acquisition Programs

Published Oct 6, 2015

by Mark A. Lorell, Robert S. Leonard, Abby Doll

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Research Questions

  1. What are the key characteristics of six U.S. Air Force Major Defense Acquisition Programs (MDAPs) experiencing extreme cost growth?
  2. How can the Department of Defense and the Air Force improve cost and schedule outcomes for Air Force MDAPs?

This report identifies and characterizes conditions present in six U.S. Air Force Major Defense Acquisition Programs (MDAPs) experiencing extreme cost growth, using case study analysis. This report is a companion to Air Force Major Defense Acquisition Program Cost Growth Is Driven by Three Space Programs and the F-35: Fiscal Year 2013 President's Budget Selected Acquisition Reports (RR-477-AF, 2014), which analyzed cost growth trends in current U.S. Air Force MDAPs using Selected Acquisition Report (SAR) data. The case study analysis provided in this document is based on government program documentation and publically available open source materials, as well as interviews with program officials and subject matter experts.

The authors find that the key common attributes among the six programs with extreme cost growth can be grouped into two broad areas: (1) premature approval of Milestone B and (2) suboptimal acquisition strategies and program structure. They offer two broad recommendations for improving cost and schedule outcomes for Air Force MDAPs: (1) Establish credible baseline cost estimates at MS B to provide realistic baseline metrics for accurately measuring real cost growth, and (2) develop, refine, and implement robust evolutionary or incremental acquisition strategies and policies that reduce and control technological and programmatic risk, unless timely operational need has clear priority over cost savings.

Key Findings

Premature Approval at Milestone B

  • The six Air Force Major Defense Acquisition Programs (MDAPs) examined were not ready for approval at Milestone B (MS B).
  • Five of the six programs examined were characterized by insufficient technology maturity and high integration complexity at MS B.
  • Many of the programs chose unrealistically optimistic cost estimates at MS B that underestimated the challenges of incorporating commercially derived technologies, even though more realistic independent cost estimates were available.

Suboptimal Acquisition Strategies and Program Structure

  • In all six programs, acquisition strategies and program structures were adopted that lacked adequate processes for managing risk through incrementalism and provision of appropriate oversight and incentives for the prime contractor.
  • Four of the programs were not ready for approval at MS C; use of a combined MS B/C milestone or premature award of MS C took place prior to the achievement of adequate production article design stability.

Recommendations

  • Major Defense Acquisition Programs (MDAPs) must have credible baseline cost estimates at MS B to provide realistic baseline metrics for accurately measuring real cost growth. Program planners should recognize the strong predictive relevance of predecessor programs' costs, be skeptical regarding claims that new approaches or technologies will substantially reduce costs compared with past systems, and consider credible alternative cost and risk assessments from authoritative sources.
  • The Air Force should develop, refine, and implement robust evolutionary or incremental acquisition strategies and policies that reduce and control technological and programmatic risk, unless timely operational need has clear priority over cost savings.

Research conducted by

The research reported here was commissioned by the Deputy Assistant Secretary for Acquisition Integration (SAF/AQX), Office of the Assistant Secretary of the Air Force for Acquisition, and conducted within the Resource Management Program of RAND Project AIR FORCE.

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