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Cost estimating's critical role within ICBM's risk to resource process.
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The Inter-Continental Ballistic Missile (ICBM) Systems Directorate, located at Hill Air Force Base, Utah reports directly to the Air Force Nuclear Weapons Center at Kirtland AFB, New Mexico and is responsible for delivering a safe, secure, responsive, on-time and on-target nuclear deterrent force to the warfighter as the nation's nucleus for ICBM development, acquisition, and sustainment.
Among its many achievements, the directorate was named the Outstanding Air Force Program Office for 2015 for the exceptional work of its 600 military and civilian Airmen in directly contributing to the sustainment of the highest alert rate in the Minuteman (MM) III missile's 50-year history by ensuring the operational readiness of hundreds of missiles, multiple launch centers, dozens of maintenance vehicles, multiple communication systems, and over 34,000 square miles of infrastructure. After hearing about the directorate's program management initiatives during the Utah Chapter's March 2016 Mini-PDI, the ASMC Executive Director advised the Chief of the Directorate's Program Control Division that an upcoming edition of the Armed Forces Comptroller would be devoted to the theme of "Cost Management" and mentioned it would be great to include an article about the ICBM program management.
The ICBM Systems Directorate initiated a substantial process improvement effort that leverages project and issue tracking software tools with innovative engineering, financial management, and cost estimating methodologies. The directorate needed to revamp internal processes used to plan, program, budget, and execute scarce resources to maximize the mitigation of identified weapon system issues/ risks for the MM III weapon system. The new process, labeled Risk Based Resource Allocation, or Risk to Resource (R2R), has proven invaluable in cataloging and communicating weapon system risk to stakeholders at all levels while ensuring optimal use of taxpayer dollars.
Making up the ground-based portion of the Department of Defense's (DoD) nuclear triad, the MM III weapon system deployed in 1970 with some of its equipment originating with MM I and MM II as early as 1963. Originally designed with a service life of 10 years, MM III has been actively on alert for nearly 46 years. With MM Ill's replacement program, called the Ground Based Strategic Deterrent (GBSD), scheduled for Full Operational Capability (FOC) in 2036, the MM III requires attention to aging and attrition issues to continue as a credible deterrent through the fielding of GBSD. As with any mature weapon system, aging, diminishing manufacturing sources, and parts obsolescence are major factors that continue to impact long-term sustainment and present risks to continued system effectiveness.
This article outlines the interdependent planning and cost estimating processes used within the organization that enable effective mitigation of MM III weapon system risk while dealing with the all too familiar limitations on financial and human capital resources. Specifically, it details the cornerstones of the directorate's R2R methodology and how they tie to the DoD planning, programming, budget, and execution phases. It will also identify the varying cost estimating methodologies used throughout the process to provide stakeholders with a progressive level of cost fidelity. This cost fidelity enables data-driven decision support through major steps of the process, and efficient use of resources, driving maximum weapon system effectiveness and risk mitigation.
Risk Identification/Planning
The ICBM Systems Directorate is continuously evaluating immediate, mid, and long-term system risk using the weapon system's Operational Safety, Suitability, and Effectiveness (OSS&E) baseline. The purpose is to provide known essential characteristics and information needed to safely and effectively operate, upgrade, maintain, and sustain the MM III, its sub-systems, and critical end-items. Risks associated with OSS&E are identified and cataloged within an off-the-shelf Jira-based issue and project tracking system at the ICBM Risk Management Board (RMB). The RMB evaluates risk across the weapon system elements of Operational Ground Equipment, Aerospace Vehicle Equipment, System Test, and Future Systems. The RMB assigns consequence/likelihood scores to each issue/risk using impacts to the weapon system's key performance parameters of accuracy, reliability, availability, and hardness (survivability). At this early point in the process, identification of risks and required timelines for mitigation are the prominent activities. Risks that may require repair, refurbishment, replacement, or modernization programs, and their potential costs, typically require further research completed by the ICBM program managers, engineers, logisticians, equipment specialists, and cost and financial analysts before moving forward.
All risks identified and concurred upon within the RMB are summarized within the ICBM Systems Roadmap. The roadmap harvests risk scoring, schedule, and cost data from the Jira-based risk management tracking system. The roadmap summarizes 100% of presently known issues applicable to all systems, subsystems, and major components that currently have or will require mitigation activities. These risks and corresponding mitigation activities, including known costs, are provided to ICBM stakeholders in an annual roadmap update that is used for information sharing, decision making, and future programming of resources. Figure 2 represents a notional view of how weapon system risk data represented in the roadmap is automatically organized by total risks and further broken down based on mitigation requirements and type of mitigation effort (acquisition or sustainment).
The full roadmap cost estimate, which includes all current and future acquisition and sustainment efforts required to mitigate risk, is based on three types of estimates with varying levels of fidelity:
1. Program Office Estimates (POE) for ongoing programs,
2. Analogies for efforts performed in the past, and
3. Commercial parametric models, such as PRICE TruePlanning for fledgling efforts.
With over 300 activities within the roadmap requiring estimates and only a handful of cost analysts to generate these estimates, PRICE TruePlanning is a relatively fast method to arrive at an estimate. It typically provides results more relevant than program manager or engineering inputs alone. Once PRICE generates the estimate based on engineering and cost analyst inputs, factors for Work Breakdown Structure (WBS) elements not captured within PRICE, such as other government costs, are added to complete the initial roadmap estimate.
Fidelity for each estimate is defined for each potential program through the use of a pedigree, which determines program realism. The seven characteristics for program realism are:
1. Requirements definition
2. Technical baseline
3. Schedule
4. Cost data & methodology
5. Cross-checks
Each characteristic can be scored from green to red based on specific definitions and the program's level of maturity. These seven characteristics of the program determine the cost estimate realism. This may be confused with confidence level; however the program pedigree determines estimate fidelity. ICBM analysts strive to make as many of the seven characteristics turn from red to yellow or yellow to green through analysis, data collection, and documentation. The goal is for the cost analyst to collect the appropriate data required to help the program manager articulate cost, schedule, and performance characteristics enabling achievement of an effective risk mitigation program.
Each year the directorate updates the roadmap model's functionality and replaces less desirable estimating methodologies with those that better identify projected costs based on available data. The roadmap is consistently used to determine and understand potential impacts, should programs shift to the right or left. Often, delaying programs or choosing to forego activities triggers additional risk areas requiring attention. The roadmap provides an indication of these opportunity costs and provides leadership a data-driven understanding of all risks associated with decisions.
Requirement Definition/Programming
The next steps within ICBMSD's R2R process focus on generating a well-defined mitigation approach before completing the programming phase and submitting the organization's Program Objective Memorandum (POM). Figure 3 identifies the directorate's specific steps and timelines associated with generating a higher fidelity POM submission. Obligating and expending resources efficiently during execution year(s) is highly dependent on a deeper understanding of mitigation effort requirements, phasing, and cost. Improper phasing or inadequate cost estimates wreak havoc on program and financial managers who have to deal with under/over-execution, schedule deviations, and budget reclamas during years of execution.
Significant levels of manpower are involved in preparing a mitigation effort to the point of being ready for programming and receipt of Future Years Defense Program (FYDP) funding. To focus efforts on the most pressing needs, using command planners analyze the roadmap to provide the directorate with a "shortlist" of prioritized mitigation activities that require higher fidelity cost, schedule, and performance data. The shortlist is developed using roadmap risk impacts as well as associated schedule and cost estimates to determine trade space available in the using command's planned resources through the FYDP years. Once the shortlist is received, the organization focuses manpower resources on completing the next steps in the process to develop an Early Acquisition Strategy (EAS), including a higher fidelity cost estimate that will inform POM input.
Following the Requirements Validation Board, the technical requirements defined within ICBM's Technical Evaluation Review Board (TERB) process, chaired by the directorate's chief engineer, provides the starting point for the estimator to begin work. The existing roadmap estimate is further refined based on the outcomes of TERB, and creation of the Cost Analysis Requirements Description (CARD) or CARD-like document begins. This document is critical for the first characteristic in the pedigree (requirements definition). Possessing stable requirements is THE key factor in creating a high fidelity cost estimate. With WBS elements for the program beginning to take shape, determination of the areas requiring additional focus occurs to help the cost analyst raise the fidelity of the estimate from the roadmap estimate. Typically the program managers and engineers focus on requirements definition, technical baseline, schedule, and program risks. The cost analyst will focus on cost data, methodology, and cross-checks, as well as assisting the Integrated Product Team with risk and schedule. The cost analyst will ensure the requirement defined in the CARD reflects the program technical and schedule information used to understand program scope and technology requirements. For potential Acquisition Category I, II, and III programs it is critical to ensure analogies are sound and, at a minimum, provide top-level cross-checks for major WBS elements in Engineering Manufacturing & Development (EMD) and Production phases.
At this stage, cost analysts initiate the use of an internally developed cost phasing model called the Stedge-Valentine (S-V) phasing tool. The purpose of the S-V phasing tool is to provide program managers, financial managers, and cost analysts with a means of forecasting future costs for EMD efforts. Furthermore, the S-V tool provides insight into relative milestone dates such as Preliminary Design Review and Critical Design Review, and the expenditure profile necessary to meet these key milestone dates. This is accomplished by using probability distributions, which in turn act as obligation/expenditure curves that model monthly programmatic burn rates.
To forecast anticipated obligation/expenditure costs, the model uses two probability distributions to phase total estimated program costs: Rayleigh and beta distributions, of which the analysts can choose their preference. The model assumes programmatic input parameters from the user and then determines the appropriate probability distribution parameters using Microsoft Excel's Solver. The model's output includes period and cumulative obligation/expenditure curves for the total estimated program costs. In determining which distribution to use, Rayleigh or beta, the decision is based mostly on data available. The cost analysts need only the total program cost and duration to use the Rayleigh, but will require additional insight into percent expended by milestone dates to use the beta. The goal is to complete the requirements, schedule, preliminary acquisition strategy, and higher fidelity estimate within two or three months to support EAS evaluations and ultimate approval by the ICBM system program manager.
Following completion of the EAS, the directorate has a higher fidelity cost estimate for use in final POM deliberations and trade space calculations. With the final go-ahead from the using command, programs are laid into the FYDP portfolio in preparation for the upcoming budgeting and execution phases. This process gives the organization two years to refine the program and collect relevant data to support the program Acquisition Strategy Panel and milestone decisions. Depending on the program size and available resources, programs may conduct a cost capability analysis providing excellent decision support data that assists in the evaluation of potential trade-offs and determination of affordabillty goals.
Budgeting/Execution
The activities completed through this point enable completion of the Budget Estimate Submission with sufficient programmatic (cost, schedule, risks, and impacts) information available to support Program Budget Reviews, Issue Resolution, Resource Management Decision inputs, and final submission into the President's Budget (PB). Information available also aids in the early development of execution year spend plans and financial distribution requirements. Following PB submission, cost analysts initiate the POE process, which generates a high fidelity cost estimate to support milestone decisions and Acquisition Strategy Panels chaired by the Milestone Decision Authority.
The goal of the POE is to continue to improve the seven characteristics of a high fidelity program previously identified. For the POE, the PRICE TruePlanning model is switched from the prime methodology to a cross-check, where possible, while reviewing additional information and data provided by contractor proposals that may provide revelations on technical maturity, schedule, and sustainability. This stage is where the directorate begins to incorporate program life-cycle cost estimates including EMD, Production, and Operating & Support requirements. Sustainment estimates play a major role in ensuring the weapon system or components are properly maintained for the assumed life of the program. Once the program completes production and enters sustainment, much of the information contained in the life-cycle estimates is cataloged within the roadmap to identify annual weapon system sustainment (WSS) requirements supporting a significant portion of the directorate's annual Operation and Maintenance (O&M) portfolio needs. Sustainment estimating process and methodologies predominantly consist of using available historical information. However, when new requirements emerge, much of the effort is focused on obtaining the correct labor hours, materials, and applicable repair rates.
No article touching on process improvement would be complete without detailing some results. With the R2R and revamped cost estimating processes still in their infancy, the process change as described was expected to require a few programming and budgeting cycles to start showing portfolio-wide measurable results during execution years. To this point, the results have been extraordinary. Risk-based data-driven decision-making is now practiced extensively in the organization. Program risk and prioritization data is immediately on hand with strategic trade-off analyses spanning up to 30 years, taking hours rather than weeks to complete. Cost estimates are more realistic. Acquisition strategy development is efficient and thorough, with contract award and financial execution having improved dramatically. Additionally, POM deliberations take days not months with highest priority weapon system risks supported by the using command through the FYDP. Expenditures for programs with established baselines are consistent with cost phasing plans and meeting Office of Secretary of Defense obligation and expenditure goals. Operating and Support requirement's fidelity increased substantially enabling a reduction in total annual costs of $45 million. Last but not least, ICBM just recorded the best fiscal year close-out in its history with an execution rate of nearly 100 percent, expiring only $6.00, while ensuring expected capability is delivered to the warfighter. For a portfolio annually executing over $1 billion in Research Development Test & Evaluation, Procurement, and O&M appropriations supporting 175 acquisition and sustainment efforts requiring over 300 contracting actions, that's not too shabby. But, it can get better. Next year ICBM is shooting for $4.00.
This article's purpose is to provide the reader with some very top level information concerning ICBM's progressive planning and cost estimating processes that ensure every dollar planned for and spent is based on prioritized risk. For more detailed information concerning ICBM's Risk to Resource and cost estimating processes, please don't hesitate to contact the authors.
by John R. Carlson, MBA, CDFM, DFMC3, B-FM III and Gary A. Ober, MBA, B-CEIII
John R. Carlson, MBA, CDFM, DFMC3, B-FM III
John R. Carlson is the Chief of ICBM Program Control, ICBM Systems Directorate, Air Force Nuclear Weapons Center, Hill Air Force Base, Utah. John leads the team responsible for the long-range planning, financial management, cost analysis, and acquisition oversight for the inception-to-retirement integrated management of the ICBM weapon systems. He holds DoDFM Level III, APDP Level III in Business - Financial Management, and CDFM certifications as well as a BS in Business and a Masters in Business Administration.
Gary A.Ober, MBA, B-CE III
Gary A. Ober is the Chief of Cost and Economic Analysis, ICBM Systems Directorate, Air Force Nuclear Weapons Center. Gary leads the team of cost analysts responsible for costing inception-to-retirement integrated weapon systems management of the Minuteman and future ICBM weapon systems. He holds APDP Level III in Business - Cost Estimating, a BS in Business, and a Masters in Business Administration.
The views expressed in this work are those of the authors and do not reflect the official policy or position of the Air Force, Department of Defense, or the United States Government.
Caption: Figure 1--ICBM Risk to Resource (R2R) Process
Caption: Figure 2
Caption: Figure 3--ICBM POM Process Timeline
COPYRIGHT 2017 American Society of Military Comptrollers
Carlson, John R.; Ober, Gary A.
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