Part I of this series appeared in the Fall 1993 issue of the DACS Newsletter and discussed how cost analysis can help a program manager throughout the software life cycle. Part II suggests possible reforms to help improve the accuracy of cost estimates, improve software management, and better aid the acquisition process.
One way towards achieving this goal of providing accurate information is to develop a common cost database that would be available to cost analysts and program managers. When someone wants to know, for example, the replacement cost of an F-18 or ARC-210 radio, he could look it up in the common database. COEA (Cost and Operational Effectiveness Analysis) and other cost studies would have to use the database and therefore reduce the amount of subjectivity in cost estimates. With this type of information available at the program manager level decisions could be made at a much lower level in the organization chain. This database would also be conducive to conducting more trade-offs between performance and affordability, and doing so earlier in the program life cycle.
A more demanding standardization program would include standardizing accounting systems for defense contractors, standardizing cost instructions for RFPs, and developing a set of standards for conducting cost analysis. Having common cost reporting systems for all contractors would allow easier comparisons at lower levels of financial reporting, allowing the customer to measure and compare productivity and efficiency between bidders. At the present time comparisons are almost impossible to make because each contractor has a unique accounting system and costs are reported differently.
Common cost instructions would save contractors considerable bid and proposal expenses because they would not have to devote so much time to understanding and complying with individual RFP cost instructions. Perhaps they could use the savings to compete more on other programs. Standardization of accounting systems and knowing the customer is using the information to measure productivity and efficiency may also force contractors to look for ways to improve efficiencies and thus become more competitive. More commonality in reporting, collecting, and evaluating should tend to increase competition.
Assignments in a contracts department would provide opportunity to see how the Government works with contractors on a formal basis. Analysts would become familiar with cost and pricing information, auditing, administration of contracts, negotiating, and acquisition regulations. Appointments in a program office would familiarize analysts with matrix organizations, the program planning and budget cycles, compromising, formal briefing techniques, and technical leadership. Temporary tasks in budget, engineering, or other smaller departments would also tend to make analysts more understanding of the entire environment.
Work assignments should be supported with a formal training program, by having cost analysts attend approximately eight training courses offered throughout the Defense Department. Not only would this provide theory and basis for rules in place, the documents furnished with the courses would be sources of reference for future work. As analysts become more seasoned and skilled they should be sent to industry and defense sponsored conferences to collect information and interface with counterparts in industry. Lastly, junior analysts should be assigned a mentor to guide their careers and be able to support their work assignments.
To help control this process, program managers should attempt to baseline requirements as early as possible in the development cycle. Requirements should be identified in terms of criticality to the success of the mission, and cost estimates generated for each requirement. Since some requirements are more difficult to implement than others, cost estimates will vary widely. As the program proceeds through development phases, additional requirements will increase in cost due to the need to update prior documentation, conduct tests, and other reviews.
Estimating each requirement will give the program manager many benefits. He will be able to identify the criticality, the cost and schedule impact, and the priority of each requirement. The program manager will be able to do requirement trade-offs, selecting the combination of requirements that are affordable and necessary. Requests for more functionality of the program after the program is baselined will be able to be followed-up with an estimated cost for implementation. Lastly, requesters for more requirements will be furnished with a cost estimate to implement, thus allowing the lowest level in the organization the ability to do value analyses and trade-offs.
Cost analysis needs to be conducted at the approval of each phase of software development. A cost to complete estimate, together with new schedules, needs to be calculated to determine, overall, if there are any problems with the project. If there are problems, the program manager can take appropriate actions to remedy the situation. This process should be explained to prospective contractors during a cost instruction pre-proposal conference. Explaining what the Government wants in terms of how the evaluation will be conducted will surely help contractors prepare proposals. Explaining how the Government will rely on cost analysis to manage the program will preclude optimistic forecasts.
No one seems to gain when a major program is canceled. The Government falls behind in replenishing its fleet in an optimally planned fashion, it looses congressional support for the program, and morale drops among its employees; the contractor is faced with lay-offs, angry stockholders, and defending itself during termination procedures. The taxpayer ends up paying for defense programs with no deliverables and unemployment compensation benefits.
Congress has reacted to the savings and loan fiasco by introducing a bill, entitled, The Financial Fraud Detection and Disclosure Act. The bill requires auditors to report problems in accounting earlier and prevents retribution for whistle blowing. Perhaps the Defense Department should take the initiative of re-engineering cost analysis before it is forced to do so by an independent agency. Rather than look upon cost analysts as public accountants with a hidden agenda of over estimating program changes, program managers should view cost analysts as managerial accountants with the ability to identify work areas that are performing well and work areas that need attention.
Initiatives to improve cost analysis could include recognizing a certification society to independently determine standards for certified cost analysts with the implication of disciplining cost analysts who certify poor estimates. Another idea would be to have cost analysis supported by an office independent of the program manager, and therefore remove the ability of the program manager to strongly influence the estimate. This step needs to be debated because it removes the program manager's total responsibility for the program. Then again, the program manager may be thrilled to have someone else break the bad news on an underfunded, underestimated program.