COST AS AN INDEPENDENT VARIABLE CAIV Information Briefing

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COST AS AN INDEPENDENT VARIABLE (CAIV)
Information Briefing
Jeffery Bongard x72042 DRM, Cost Analysis
Division
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WHAT IS CAIV?

• CAIV simply means making performance and schedule
  a function of available (budgeted) resources
• Three program parameters
• SCHEDULE
• PERFORMANCE
• COST (PRICE)
• Two of these variables must depend on the third
• CAIV requires performance based contracting
• Requires user/developer participation in Cost
  Performance Integrated Product Teams (CPIPTs)

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WHY CAIV WILL WORK ?

• DoD SHIFT TO PERFORMANCE SPECS
• Requirements Stating Basic Warfighter Needs ---
  Not Detailed Designs/Mfg Processes
• Provides Necessary Trade Flexibility Without
• Compromising Basic Objectives
• MilSpec Reform
• Adoption of COTS and Commercial Practices
• SHIFT TO IPT MANAGEMENT APPROACH
• BUDGET REALITIES/CHANGED THREAT
• Provides the Compelling Need
• We Have No Other Choice

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WHAT TO EXPECT FROM CAIV?

• Substantial Reductions in the Cost of DoD
  Products (e.g. 2-to-1 or better)
• Shorter Program Cycle Times
• Clearer, Innovative Design, Manufacturing,
  Support and Contracting Approaches
• Quality Products that Fully Meet the Warfighters
  True Needs

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KEY CAIV INGREDIENTS

• Establish thresholds and objectives in
  Performance Requirements
• Implement Integrated Product Teams (IPTs)
• Continuous search for tradeoff opportunities

SETTING REALISTIC BUT AGGRESSIVE COST OBJECTIVES
THROUGHOUT THE LIFE CYCLE
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CAIV IN THE REQUIREMENTS PROCESS

• PERFORMANCE REQUIREMENTS
• Thresholds are the minimum acceptable system
  characteristics or capabilities
• Key Performance Parameters (KPPs)
• Non-KPPs
• Objectives include desired/preferred
  characteristics/capabilities above thresholds

KEY CONCEPT TRADE SPACE EXISTS BETWEEN THRESHOLD
AND OBJECTIVE VALUES FOR KPPs AND NON-KPPs
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EVALUATING TRADESPACE
Possible significant advantage
Possible significant advantage
OBJ1
OBJ3
Possible advantage
Possible advantage
TRADESPACE
TRADESPACE
KPP1
KPP2
NON- KPP3
Possible advantage
Possible trade-offs but viewed as disadvantage
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CAIV IPTs

• INTEGRATED PRODUCT TEAMS (IPTs)
• Multidisciplinary work teams comprised of all
  essential acquisition activities to optimize the
  design, manufacturing and supportability
  processes
• Through cooperation, teams must be empowered to
  make sound and timely decisions

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CONTINUOUS SEARCH FOR TRADE OFF OPPORTUNITIES
CONTINUOUS SEARCH FOR TRADE OFF OPPORTUNITIES

• Aggressive cost goals are needed at program
  inception and pre-ORD stage
• Program manager and contractors must be empowered
  to make trades during all phases of the program
• Program plans should incentivize this process
• Technological advances, competitive forces, and
  well structured incentives evoke cost reduction
  on a continuous basis throughout the life cycle!

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RISK AREAS FOR IPT CONSIDERATION

• Starting EMD/Production with designs dependent on
  Immature Technology
• Failure to address product manufacturability
  early
• Failure to address supportability considerations
  early
• Allowing Edge-of-the-Envelope Performance
  Requirements to become sacred
• Designing for the ultimate, accepting the
  resulting cost as a necessary consequence

Executing CAIV Addresses The Cost Impact of Risks
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CAIV IMPLEMENTATION EXAMPLES

• SINGARS - Established a price ceiling for unit
  production cost
• JSTARS - Established a price ceiling for unit
  production cost
• UM - Established first year spending limit due to
  PMs funding shortfall
• Firefinder Block II - Established CAIV target
  weapon system unit cost during EMD and Production
  phases
• Combat ID Dismounted Soldier (CIDDS) -
  Established a CAIV target weapon system unit cost
  during production. Minimum preferred desired
  requirements used as evaluation factors on Source
  Selection

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FIREFINDER BLOCK II SOW

• Contractor shall provide auditable Weapon System
  Unit Cost based on Government Production CAIV
  target
• First Unit Cost, learning methodology used, and
  Avg. Unit Cost for each year to be identified and
  explained.
• If CAIV Current Estimate exceeds CAIV Target,
  contractor shall provide alternatives and
  recommendations for potential tradeoffs.

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FIREFINDER BLOCK II SOW (CONT)

• CAIV Target vs. current estimates discussed at
  IPT meetings.
• If change projected to OS baseline established
  by government, contractor will identify cause (s)
  and impact and provide alternatives and
  recommendations for possible trade-offs.
• Contractor will generate data using life cycle
  cost model and submit CAIV report to document
  results of CAIV efforts.

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FIREFINDER BLOCK II SECTION L

• AFFORDABILITY- Offeror shall
• Provide EMD funding profile by fiscal years
• Provide all assumptions, methodologies,
  performance trades, and supporting rationale for
  achieving the Production Weapon System Unit cost.
  
• Identify CAIV cost and detail the management
  plans and techniques to monitor and control.
• Provide narrative on proposed design and
  maintenance concept to minimize OS costs.

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FIREFINDER BLOCK II SECTION M

• Affordability evaluated by assessing
• feasibility and degree of compliance to projected
  EMD funding requirements per year.
• reasonableness of the offerors CAIV assumptions
  and methodologies considering the proposed cost
  of the EMD system.
• OS cost impacts associated with offerors
  proposed approach.

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CIDDS KPPs
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CIDDS NON-KPPs (preferred)
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CIDDS OBJECTIVE REQUIREMENTS (desired)
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CIDDS SECTION M

• Performance does not meet minimum requirement
  (KPP) - rated a deficiency
• Performance meets or exceeds a preferred
  requirement (non-KPP) - rated an advantage or a
  significant advantage
• Performance does not meet a preferred requirement
  (non-KPP) - rated a disadvantage
• Performance meets a desired requirement
  (objective) - rated an advantage

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WHERE ARE WE NOW?

• CAIV TRAINING EMPHASIS
• IPT ROLE
• PERFORMANCE BASED CONTRACTING
• INCENTIVES AND VE
• FORMAL CHARTERS FOR IPTs
• NEEDED
• TOTAL OWNERSHIP COST (TOC) -
• ROADSHOW VII (AUG 98)
• METRICS NEEDED
• FOR SUCCESS

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WHAT CAN YOU DO?

• PREVENT/AVOID REQUIREMENTS TAKING ON A LIFE OF
  THEIR OWN
• Look for tradeoff OPPORTUNITIES
• Better, Quicker, Cheaper
• KEEP PROGRAMS AFFORDABLE
• User wants / industry provides
• Are the appetite SUPPRESSER

OR
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WHAT CAN YOU DO?

• CONSIDER COST AS THE INDEPENDENT VARIABLE
• Design for Low Life Cycle Cost from the Start
• DONT AUTOMATICALLY SETTLE FOR LOWER PERFORMANCE
• Use Your Entire Team - Govt Industry IPT
• Be Innovative
• Be Creative
• Most Importantly, Start Implementing!!

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POINT OF CONTACTS

• Jeffery Bongard
• bongard_at_doim6.
• monmouth.army.mil
• 732 - 427 - 2042
• DSN 987 - 2042
• Robert Dow
• dow_at_doim6.
• monmouth.army.mil
• 732-427-2733
• DSN 987-2733

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• Frequently
• Asked
• CAIV
• Questions

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CAIV IMPLEMENTATION QUESTIONS AND ANSWERS

• HOW IS CAIV INCORPORATED INTO THE ARP?
• PM approves CAIV Threshold for inclusion in the
  ARP AFTER PM/user reach agreement on KPPs and
  affordability number
• WHO DECIDES WHETHER OR NOT CAIV HAS TO BE THERE
  AT ALL?
• CAIV is to be utilized for all acquisitions per
  AAE policy and PEO policy
• AFTER EARLY CAIV GOALS ARE ESTABLISHED, DOES THAT
  MEAN WE CANT RAISE UNIT PRODUCTION COST GOALS AS
  WE GET BETTER DATA?
• CAIV goals can be adjusted, but must be approved
  at MDA level

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CAIV IMPLEMENTATION QUESTIONS AND ANSWERS (cont)

• WHAT KIND OF CAIV DATA SHOULD WE REQUIRE OF THE
  CONTRACTOR?
• It depends on what your CAIV covers, be it up
  front unit cost goals in proposal, future cost
  for subsequent phase of program, etc.
• HOW DO ENGINEERS EVALUATE TRADE SPACE IN THE ARP?
• CAIV is intended to focus on the absolute minimum
  key essential performance criteria, e.g., range,
  weight, resolution, etc.
• WHAT IS THE BEST TYPE OF CONTRACT IN A
  COMPETITIVE AWARD?
• Best type is FPI except for RD, when cost plus
  is preferred

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CAIV IMPLEMENTATION QUESTIONS AND ANSWERS (cont)

• SHOULD COST ANALYSIS HAVE A NEW ROLE TO PLAY IN
  SSEB PROCESS TO EVALUATE LEARNING CURVES, AVG
  UNIT COSTS OF HW, CER DEVELOPMENT AND PARAMETRICS
  USED BY OFFERORS?
• Yes, in conjunction with the technical
  evaluation, not as a stand alone group and
  probably should be part of technical factor