cost as an independent variable: principles and …user requirements, and considering opera-tions...

Cost as an Independent Variable (CAIV): Principles and Implementation

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TUTORIAL

COST AS ANINDEPENDENT VARIABLE:

PRINCIPLES ANDIMPLEMENTATION

Col Michael A. Kaye, USAF, Lt Col Mark S. Sobota, USAF,David R. Graham, and Allen L. Gotwald

Cost as an independent variable is a key tool in the thrust to reduce totalownership cost for defense systems. While the need for CAIV is driven by costconstraints, success relies upon identification and use of viable performance,cost, schedule, and risk “trade space.” The Air Force has integrated CAIVconcepts with those in the Reduction in Total Ownership Program (R-TOC),and has published a comprehensive guidebook for better understanding.

which integrated Cost as an IndependentVariable (CAIV) and a comprehensive R-TOC process for fielded systems (1999).The R-TOC process relies on baseliningoperating and support costs, identifyingTOC drivers, and identifying R-TOCopportunities. CAIV drives system designdecisions by providing comprehensiveinformation on alternatives and impacts.

Whereas CAIV and the R-TOC processhave many principles in common, CAIVexerts the most leverage when it influencessystem design and the R-TOC process ismost effective on fielded systems. Therelationship is shown in Figure 1.

T he Defense System AffordabilityCouncil (DSAC) Strategic Plan es-tablished Goal 2 to lower the total

ownership cost (TOC) of defense prod-ucts. The plan further established separate,aggressive objectives under that goal forsystems in acquisition and fielded sys-tems. These goals are further emphasizedin the draft new DoD 5000.1 and 2.

To provide a focal point on all reduc-tion in TOC (R-TOC) efforts, encompass-ing weapon system, infrastructure, andindirect dimensions, the Air Force estab-lished an R-TOC program office (SAF/AQXT). SAF/AQXT and the authors colla-borated to publish the R-TOC Guidebook,

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CAIV CONSTRUCT

CAIV is a key strategy for implement-ing R-TOC in the acquisition process, andis particularly effective during systemdevelopment. Air Force Instruction (AFI)10-601 (1998) defines CAIV as “the pro-cess of using better business practices,allowing trade space for industry to meetuser requirements, and considering opera-tions and maintenance costs early inrequirements definition in order to procuresystems smarter and more efficiently.”

CAIV is founded upon two primaryprinciples: First, system costs are con-strained. Whereas some programs do ob-tain additional funding when needed, suchfunding is often at the expense of other

programs or future modernization. Sec-ond, “trade space” is the foundation forsmart decisions. Trade space is the rangeof alternatives available to decision mak-ers. It is four-dimensional, comprisingperformance, cost (TOC), schedule, andrisk impacts.

The Air Force established a set of tenetsthat are core to CAIV implementation.The concept of well-understood tradespace is the capstone tenet that enablesdecisions critical to meeting user needswhile reducing TOC. The remaining fivetenets are the pillars that enable tradespace to be defined and exploited. Figure2, the CAIV model, depicts the relation-ship of the CAIV tenets.

Figure 1. R-TOC/CAIV Effectiveness

Program phase

0 I II III (Fielded system)

R-TOCProcess

CAIV


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TRADE SPACE

CAIV provides better support for criti-cal decisions by identifying viable perfor-mance, schedule, cost (TOC), and risktrade space. Identification and use ofviable trade space, or the range of alter-natives, with full knowledge of real andpotential impacts, is essential for makingthe right decisions to meet user needswhile reducing TOC. CAIV employs ahierarchy of cost reduction opportunitiesand tradeoffs to meet aggressive cost tar-gets, first looking to improve acquisitionand sustainment efficiencies, then scruti-nizing noncritical requirements. Tradeoffsof critical performance requirements are

only to be addressed as a last resort, withthe agreement of the Milestone DecisionAuthority and user.

Trade space is commonly defined byalternatives in terms of the performance,cost, and schedule impacts that eachalternative presents. Risk must also beincluded in two ways. First, risk is a fourthdimension in the trade space, recognizingthat critical decisions may be driven bythe risks of certain alternatives. Second,risk actually “discounts” the anticipatedperformance, cost, and schedule options;in other words, it lessens the trade spaceto ensure a decision maker does not tradeaway something that may not be attain-able. For example, assume you have a

Figure 2. CAIV Model

Capabilities-based

requirements

CAIV-based decisions

Cost, schedule, performance, risk, trade space

Partneringand

incentives

TOC/LCCfocus

Risk-basedmanagement

Measurement

User needs/R-TOC


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system with anticipated range of 2000miles versus a requirements threshold of1500 miles. You could trade away up to500 miles of range for a fully tested, vali-dated system and still meet threshold.However, you definitely would not tradeaway 500 miles of range at the beginningof program definition and risk reduction(PDRR), when there are potential weightgrowths, fuel consumption increases, etc.

Figure 3 portrays the cost-performancetrade space for a key performance param-eter (KPP), characterized by threshold andobjective values. Note that Figure 3 showsa “risk reserve” line to depict the amountthat the trade space is restricted, to pre-vent trading away what is not yet realized.The “solution set” line represents the

optimum cost-performance combinations:Points in the shaded region are solutions,but for any given point, either more per-formance for the same cost or the sameperformance for less cost is possible.

The trade space is of course multidi-mensional, corresponding to the numberof KPPs. Tradeoffs can be performed atmany levels. In the example above, wherea KPP is involved, the user must agree tothe tradeoff. When a contractor has con-figuration control below the “A Spec,”then the contractor can make tradeoffdecisions as long as the A Spec is met.The key is that the decision maker mustfully understand impacts on the other ele-ments, especially cost (TOC), in the tradespace.

Figure 3. Cost-Performance Trade Space


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CAPABILITIES-BASED REQUIREMENTS

CAIV relies upon capability-based re-quirements. Implementation requires theuser to define capability-based require-ments, stating what the system needs todo instead of how to build the system andhow subsystem allocations are made. Suchdefinition allows the system developmentteam flexibility to define a best-value sys-tem meeting user requirements. This re-quires the development of operationally-oriented performance requirements witha minimum number of KPPs. Require-ments-setting authorities must take specialefforts to exclude requirements not direct-ly contributing to user needs. Prioritizingrequirements helps exclude nonessentialrequirements while helping system devel-opers maximize use of the trade space byfocusing on characteristics contributingmost to mission accomplishment.

The requirements process specifies thatsystem requirements be reviewed at eachmilestone and revised as needed. But sys-tem performance thresholds defined atMilestone I (MS I), prior to Phase I tradestudies, may be difficult to change in laterreviews. That is the most important rea-son for introducing the cost dimensioninto the requirements-setting process asearly as possible. Beginning with realis-tic and feasible levels of requirements,within the best available measures of costestimation, provides the ability to identi-fy a realistic performance requirementsbaseline. Through CAIV trades, the pro-gram can take advantage of alternativeapproaches and designs to achieve higherlevels of performance at the same or low-er levels of cost as more information al-lows cost estimates to become morerefined and accurate. Staying flexible in

the finalization of requirements is impor-tant, as emphasized in the draft new DoD5000.1 and (2000).

The operational requirements docu-ment (ORD) I should identify systemcharacteristics and define threshold rangesrequired for user effectiveness and betreated as interim versus final. Warfightersand users use mission effectiveness andcost performance analyses as key parts ofthe analysis of alternatives (AoA). Whenthe preferred ap-proach is iden-tified, users em-ploy mission ef-fectiveness ana-lysis and CAIVprinciples to setinitial weaponsystem require-ments, based onthe best insightavailable to TOC. As a result, ORD Ishould include TOC objectives.

Phase I trade studies should provide re-quirements-setters sufficient insight toTOC/LCC impacts for them to set specificthreshold levels that ensure both missioneffectiveness and affordability. DuringPhase I, the weapon system IPT usesCAIV to define TOC impacts and conducttrade to refine requirements studies fo-cused on design and sustainment. Thederived data enables users. The IPT en-sures a continued ability to meet baselinerequirements while adapting to require-ments evolutions that drive system modi-fications. Finalization of requirementsfrom the ranges defined in ORD I shouldoccur at this time. Both the Joint StrikeFighter (JFS) and Advanced AmphibiousAssault Vehicle (AAAV) have employedthis evolutionary approach.

�Warfighters andusers use missioneffectiveness andcost performanceanalyses as keyparts of the analysisof alternatives(AoA).�


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PARTNERING

We can no longer allow the sequential,isolated approach to developing systems!CAIV relies on partnered management ofthe trade space between the user, acquirer,and industry participants, including stronginvolvement from the sustainment expertsin each of the three communities.

In the past, the all-too-common pro-cess flow was sequential, with limitedpart-nering. Under CAIV, the user definessystem requirements, with comprehensiveinput from sustainers. In addition, theacquirer and industry partners support theuser by identifying and quantifying themajor risks and TOC drivers, therebyenabling better informed decisions. Theacquirer leads system development, with

Figure 4. Partnering


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strong user and sustainer involvement onpotential trades identified by the acquireror industry. Industry, under contractualincentives, allocates requirements anddesigns systems for minimized TOC,seeks lower cost and equally capableaternatives for system elements under itscontrol, and makes recommendations forelements not under its control (based ontrade studies).

A key element in CAIV success willbe the cost performance integrated prod-uct team (CPIPT). The CPIPT will com-plete cost-performance-schedule tradeoffsleading to CAIV-based cost, performance,and schedule objectives. The CPIPT, toinclude the user, must work closely to-gether to agree on final threshold and ob-jective values for cost, performance, andschedule parameters in preparation for themilestone decision and completion of keydocumentation.

CAIV-based threshold and objectivesfor KPPs, life-cycle cost targets, and criti-cal milestones become the core drivers forthe subsequent program. These core pa-rameters must be consistent across theORD, acquisition program baseline(APB), acquisition strategy, and test andevaluation master plan (TEMP) that cometogether beginning with MS I. The IPT andCPIPT remain active through-out the pro-gram life cycle up through Phase III, pro-duction, fielding and deployment, andoperational support. The CPIPT is thecognizant group to continue CAIV-basedcost-performance-schedule trade-offs, toestablish cost range objectives for pro-duction and sustainment, and to reviseperformance, cost, and schedule objectivesprior to each milestone decision.

After MS I, the contractor should bea major contributor for CAIV-based

analyses and tradeoffs. Solicitations needto address life-cycle cost and performanceobjectives and request industry’s approachfor implementing and managing the CAIVprocess. The contractor and governmentmanagers should give consideration toestablishing a co-chaired hierarchy IPTstructure. Working level IPTs, formedaround critical subsystems, report to a man-agement IPT through a systems integrationIPT.

The core of the CAIV process is trade-offs conducted by the working level IPTs.Working level IPTs should be given a costtarget and chartered to conduct cost-per-formance tradeoffs to reduce subsystemcost drivers. Cost-performance tradeoffsat the system level depend directly on sub-system level cost and performancetradeoffs. Thenumber and fo-cus of IPTs willchange as theprogram ma-tures from de-velopment intoproduction andoperation andsustainment.

CAIV relies on acceptance of higherrisk to aggressively pursue a “best value”system for the user. Contractors and IPTsshould be given incentives to conduct ef-fective and meaningful cost performancetradeoffs.

The contractor is key in cost-perfor-mance trades. The contractor-governmentpartnership, in which the customer em-ploys prudent risk management and par-ticipates fully in the development of theconfidence needed to entrust weapon sys-tem development, ensures the success ofthe contractor’s cost-performance trades.

�CAIV relies onacceptance ofhigher risk toaggressivelypursue a �bestvalue� systemfor the user.�


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�Promotions andassignment policiesmust recognize andreward successesand best efforts.�

This partnership is the natural evolutionof the insight-oversight paradigm.

Promotions and assignment policiesmust recognize and reward successes andbest efforts. Cost-type contracts should in-clude an award fee clause that shares costsavings between the government and con-tractor. Incentives were a key ingredientin the Peace Shield program’s total suc-cess in meeting aggressive schedule andperformance requirements.1

The contractor shared 40 percent of a$50 million incentive bonus with employ-ees. The incentive, combined with anintegrated earned value-metrics-schedulesystem, superb partnering with the acqui-sition office and customer, and aggressivesoftware management, overcame an earlyschedule deficit to deliver a validatedsystem six months early.

There are many tools available to mo-tivate contractors: competitions betweenprimes, competition at the component

breakout level,award fees,award terms,performancebonuses, valueengineer ingopportunities,and multiyearor sole-source

awards. Acquisition offices should addressincentives as part of the CAIV plan in-cluded in the acquisition strategy. Contrac-tors must be encouraged to meet andexceed life-cycle cost reduction targets,not just near-term cost objectives.

In order to address life-cycle costs upfront and early, for example, continuationof a multiyear contract can be tied toreaching or exceeding interim life-cyclecost targets. The contractor could receive

a larger percentage of the next productionlot or could be awarded the next phaseif production unit costs meet or exceed acost reduction profile. The objectiveshould be to tie life-cycle cost targets andcontractor performance together throughinnovative and aggressive incentives.

TOC/LCC FOCUS

CAIV requires all team members main-tain focus on TOC/LCC. Fiscal constraintis a reality that all Air Force stakeholdersmust recognize. Based on the determina-tion of resource availability, stakeholdersmust set an aggressive but realistic TOCtarget for the system.

At each milestone, decision makers willreview targets and progress toward veri-fying that they will be met. Cost targetsshall be addressed in the acquisition strat-egy and will be included and tracked inthe acquisition program baseline (APB).CAIV-based cost targets should be in-cluded in requests for proposals (RFPs)and contractors given incentives toachieve cost targets. Also, all personnelmust constantly be cognizant of the needto identify cost reduction opportunitiesand tradeoffs.

Typical targets for procurement andsustainment are average unit procurementcost (AUPC equals total procurementfunding/total quantity) and average unitO&S cost (AUO&SC equals unit cost perflight hour, etc.). Each of these metricscan be tailored to the specific system. Pro-curement targets can be expressed as a costprofile; for example, AUPC versus pro-duction lot number. Sustainment targets maybe expressed as a percentage reductionrelative to O&S costs of a similar system.


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�The reality isthat instant-yeardollars arepolitically andpractically thedriving factor inprogram decisions.�

Confidence limits for development,procurement, and sustainment cost targetswill vary with the phase of the programas well as system complexity and the de-gree to which it is pushing the state of theart. At MS I, for example, developmentcost estimates should be more accuratethan estimates for O&S costs.

Estimating TOC/LCC poses a signifi-cant challenge early in the program, es-pecially for cutting-edge programs. Inaddition, government and industry havesometimes had large variances in costestimates, leading to program start com-plications. SAF/AQ has sponsored a costestimating reinvention team to addresssome of these challenges.

Unfortunately, TOC/LCC focus maywell be the weakest link in the CAIVprocess. The reality is that instant-yeardollars are politically and practically thedriving factor in program decisions. It iseasy to say decision makers must makedecisions based on TOC considerations,but a lot harder to manage real programsthat way. When we see high payoff invest-ments rejected in our programs, it seemswe often manage by the “modifiedWimpie philosophy,” which is not, “I willgladly pay you on Tuesday for a ham-burger today,” but “I will gladly pay youfor three hamburgers on Tuesday for ahamburger today!” While we may bemoansuch an approach, we must realize thatwithout the hamburger today, we maystarve and not reach Tuesday! The onlyway we can overcome this malady is withmore accurate, believable tradeoff data, sothat decision makers will have a betterpicture of the true impact.

RISK-BASED MANAGEMENT

Risk management is an integral part ofCAIV. It recognizes we cannot afford toavoid all risk, but rather must managethe critical risks. A comprehensive anddisciplined risk management programthroughout a program’s life cycle is criti-cal to effective management to meet cost,performance, and schedule.

As established by DoD 5000.2-R (DoD,1998) and AFMCP 63-101, the risk man-agement program identifies and tracks riskdrivers, generates risk-handling plans, andprovides for monitoring to track risk “re-tirement” or growth. Risk reduction mea-sures are included in cost-performancetradeoffs, where applicable.

Program partners must jointly identify,analyze, and prioritize critical programrisks, then periodically review handlingplan progress.Handling ap-proaches canrun the gamutfrom develop-ing alternate de-signs for criticalcomponents tosimple monitor-ing to ensure arisk does nottake root and grow. A commonly used toolfor identifying and prioritizing risks isshown in Figure 5.

The risk matrix helps identify the risksthat must be addressed—those that havehigh probability of occurrence and poten-tial high impact. Risk management is notjust an engineering function! The teammust address programmatic risks and allfunctions must be involved in the handling


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plans as appropriate. In fact, any programelement associated with cost, schedule,and performance has a direct interfacewith the risk management process.

It is important to remember that riskmanagement is used throughout a pro-gram’s life cycle. A risk management planshould be part of the early CAIV strat-egy. Several programs have reaped ben-efits by conducting government-industryrisk brainstorming and prioritization ses-sions that directly influenced the RFP(e.g., Space Lift Range Modernization andSatellite Control Network programs). RFPsshould require offerors to identify theirrisk management approach, risks inherentin their design, and risk handling plans.

MEASUREMENT

Setting realistic but aggressive goals forcost and performance is a key element ofprogram management. Measuring progress

toward attaining those goals is a challeng-ing but critical element of CAIV imple-mentation. Proper metrics will add valueby aiding decision making rather than sim-ply reporting status. Metrics measure awide range of parameters, including healthof critical processes, effectiveness of costsaving initiatives, and status of the “valuestream.”

The earned value management system(EVMS) and technical performance mea-surements (TPMs) provide particularlyuseful metrics. A contractor needs anEVMS to manage complex tasks. Properpartnering will provide government of-fices insight into the EVMS. TPMs areproduct design and performance assess-ments that estimate values of essentialperformance parameters of the currentdesign. TPMs assist in determining the po-tential impacts of differences betweenplanned and actual values. Table 1 listsother useful metrics and tools.

Figure 5. Risk Matrix

Impact

Pro

babi

lity

X

X

X

X

XX

X

X

X

X

XX

X

X

X


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Table 1. Illustrative CAIV Metrics and Features

Are cost objectives definedand consistent with require-ments programmed andprojected fiscal resources?

• Out-year resources identified? (dollars)

• Production and O&S cost objectives included in theRFP?

• Key tradeoff issues addressed (e.g., in AoA)?

• RFP contains a strict minimum number of performancespecifications? (number)

• CPIPT functioning, tradeoff space identified in programbaseline and RFP?

• Risks to achieve cost objectives identified and programsteps to address these defined? (risk plan )

• Incentives for achieving life cycle cost objectivesincluded in the RFP and contract? ( percent relativetotal contract dollars; period of performance tied to lifecycle cost target profile)

• Mechanism for contractor suggestions to reduceproduction and O&S costs in place and operating?(value engineering clause)

• Allocation of cost objectives provided to IPTs and keysuppliers

• Measurement and estimation of reliability and maintain-ability

• Robust contractor incentives plan in place?

• Provide appropriate tools for cost-performance tradeoffs(including incentives) and participate in cost-perfor-mance tradeoff process (hierarchy IPT structure; awardfee flow down to IPT members)

• Identifies and implements new technologies and manu-facturing processes that can reduce costs

• Identifies procedural/process impediments to costreduction measures

• Establishes strong relationship with vendor base,including sound incentives structure

Is the government managingto achieve cost objectives?

Are contractors managing toachieve cost objectives?


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These examples reflect the degree towhich a program is structured for CAIVsuccess. They provide important and ob-servable tools that assist in setting aggres-sive production and operating and support(O&S) cost objectives and managementof the program. In some cases, quantita-tive metrics can be defined as indicatedby the parentheses at the end of a processstep.

CAIV EVOLUTION THROUGH

THE LIFE CYCLE

CAIV is initiated at the beginning of aprogram and evolves through the lifecycle. As an acquisition methodology,the application of CAIV varies betweeneach acquisition phase as performancerequirements, initially established as arange between required thresholds anddesired objectives, narrow as a programmigrates toward production. Let’s brieflyexamine the application of CAIV acrossan acquisition life cycle using the CAIVtenets.

PHASE 0In Phase 0, CAIV supports the analy-

sis of alternatives (AOA) by focusing onKPPs and cost drivers. The R-TOC pro-cess provides essential tools with data

from existingsystems andtechniques forbaselining costdrivers. At theend of thisphase the ORDis established

with threshold and objective ranges, fund-ing is assigned for development (where

necessary), and a maintenance strategy isproposed to minimize long-term O&S.Unfortunately, current practice providesa detailed ORD, usually based on missioneffectiveness analysis, without adequateassessment of TOC impacts.

Requirements. The highest Air Forcelevels ensure that defense system effec-tiveness is optimized within constraints ofavailable and projected resources. Also,warfighters and users utilize missioneffectiveness and cost performance analy-ses as key parts of the AoA. When thepreferred approach is identified, users em-ploy mission effectiveness analysis andCAIV principles to set initial weaponsystem requirements, based on the bestinsight available to total ownership cost(TOC). As a result, ORD I should includeTOC objectives.

Partnering. The warfighter and userlead the requirements definition efforts,and should have acquirer support if anexisting program office or a developmentplanning core team is assigned.

TOC focus. The Phase 0 IPT focuseson the life-cycle aspects of a program bydeveloping and recommending an opera-tion and sustainment (O&S) strategy thatwill optimize the elements of reliabilityand maintainability. TOC focus recog-nizes that the majority of life-cycle costis in the O&S phase, and the resultingstrategy will reflect a system that bothmaximizes system reliability and requiresminimum downtime to fault, isolate andrepair problems.

Risk-based management. As muchacquirer involvement as possible is de-sirable to support the user in gaining anearly understanding of potential risks andhandling alternatives. In preparation forMilestone 1, the acquisition strategy must

�CAIV is initiatedat the beginningof a program andevolves throughthe life cycle.�


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identify the key risk areas within theproposed solution. These will becomeintegrated into the CAIV strategy and,ultimately, the RFP.

Measurement. Objective TOC shouldbe set in the ORD. The requirements“owner” should estimate which require-ments are likely to be cost drivers; andfor each such driver, track whether ad-equate TOC insight has been gained. Thisis hard! For that reason it is essential thatusers work with financial experts withinacquiring agencies to best estimate totalownership costs.

PHASE IMaximum leverage for CAIV efforts

exists in Phase I, since system design hasnot yet been finalized.

Requirements. During Phase I, the wea-pon system IPT uses CAIV to define TOCimpacts and conduct trade studies focusedon design, particularly as influenced byO&S. Tradeoff data enables warfightersand users to refine requirements.

Partnering. The team now typically in-cludes an acquisition program office andat least one contractor. The acquirer willhave the lead for completing PDRR, butmust ensure close coordination with theuser. Using CAIV, the team should base-line expectations through the followingsteps:

• Identify common and unilateral ob-jectives to ensure concerted, focusedeffort.

• Define all interdependencies and orga-nize, plan, and commit to act to meetthem. Central to this aspect is analysisof the contractor’s network and criti-cal path, and integrated master plan

(IMP). Based on this analysis, thegovernment should build its own IMPto ensure government action meetstimelines expected by the contractor anddoes not give any cause for contractorclaims.

• Generate a unified risk handling plan.

• Develop a concept of operations(CONOPS) to define management andworking level interaction, metrics, etc.

TOC focus. With a funded and mannedprogram, adequate effort can now be ex-pended to identify TOC and risk impactsfrom design and sustainment trade stud-ies.

Risk-based management. The teamshould generate a unified risk-handlingplan to addresshigh and mod-erate risk areas.The plan shouldconsolidate pre-vious risk ana-lyses, conductfurther brain-storming, pri-oritize risks, al-locate risk-handling responsibilities, andregularly review status. Implementationmay include provisions in acquisitionstrategies, contracts, or parallel efforts. Asa minimum, the contract should requirethe contractor to conduct trade studies toidentify trade space.

Measurement. The team must con-tinue to track TOC estimates to TOC ob-jectives. In addition, requirements “own-ers” should continue to track degree ofinsight to TOC impact for each identifiedcost driver. The team should track risk

�The team shouldgenerate a unifiedrisk-handling planto address highand moderaterisk areas.�


366

drawdown per the handling plans withmetrics tied to specific risk reductionaccomplishments. Use of TPMs can bevery effective for such effort.

PHASE IIEarly in Phase II, system design freeze

limits the ability of CAIV to generate fur-ther substantial cost savings. However,focus on producibility and O&S may stillyield benefits.

Requirements. The IPT uses CAIV toensure requirements are met at minimumTOC.

Partnering. The team may expand to in-clude other organizations (e.g., AFOTEC).The same principles of teaming apply asapplied in Phase I.

TOC focus. Tradeoff studies will focuson manufacturing and sustainment im-pacts on TOC and risk. A mature designand testing of components and prototypesshould enable more accurate estimates ofO&S impacts on TOC.

Risk-based management. The con-tract again requires trade studies to iden-tify the “trade space,” although the abil-ity to make substantive changes decreasesas the design matures. The team shouldemploy the same type of risk programdefinition as described in Phase I.

Measurement. The team continues totrack TOC estimates to TOC objectivesand risk drawdown through TPMs. Inaddition, the contractor EVMS, in con-junction with the integrated master plan(IMP) and integrated master schedule(IMS), provide accurate status for comple-tion of development as well as visibilityto any potential problems before they getout of hand. Data from prototype and com-ponent builds and testing will support pro-duction cost estimates. The team will have

determined the availability and visibilityof such metrics during their partneringsessions.

PHASE IIIIn Phase III, CAIV can generate TOC

savings through production improvementsprior to delivery of finished systems to theuser. For fielded systems, the R-TOCprocess is primary in identifying cost-sav-ing opportunities, but the CAIV processreally starts all over again in support ofsystem modifications.

Requirements. The IPT ensures con-tinued ability to meet baseline require-ments while adapting to requirementsevolutions that drive system modifications.

Partnering. Although some partnersmay have changed from earlier phases(especially if major modifications are inprocess), the same principles apply.

TOC focus. With an eye on reducingimmediate costs, contractors are givenincentives in production contracts tostreamline manufacturing processes toreduce the cost of producing systems.Additionally, all members of the IPT,especially maintainers, work to ensureproposed sustainment processes andpractices, maximize system availability,and minimize cost.

Risk-based management. For steady-state systems, teams should focus on risksthat may upset the steady state. Riskoccurs in all phases of acquisition and itis constantly monitored and re-examinedto ensure old risks are managed and newrisks are identified.

Measurement. As in previous phases,a well-functioning EVMS along withmanufacturing IMP and IMS provide theIPT the necessary information to assessprogram progress and status.


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HYBRIDSMost acquisition programs consist of

modifications and ACAT III acquisitionefforts. One of the most innovative aspectsof the revised acquisition regulations isthe recognition that these systems do notneed to go through the classic Phase 0, I,II sequence before being fielded. In suchcases, the IPT should review the aboveguidance and synthesize or tailor to theprogram at hand. As part of the CAIV pro-cess, IPTs are encouraged to minimizeacquisition times and costs by stream-lining the acquisition processes whereverand whenever possible.

CONCLUSION

CAIV is a viable concept for attainingR-TOC objectives. CAIV and the AirForce R-TOC process go hand-in-hand:CAIV primarily applies to systems in ac-quisition and the R-TOC process appliesto fielded systems. Much of the CAIVconstruct described here is not new. Partsof it have been applied in numerous pro-grams. The authors, and many other pro-gram managers, really used key elementsof CAIV before they knew it was CAIV.The construct presented here offers a moreintegrated, definitive CAIV implementa-tion description than has previously beenavailable. In fact, the CAIV construct pre-sented is more a program managementconstruct than pure CAIV.

Challenges to realizing the benefits thatCAIV offers still exist. The greatest chal-lenge is the need to make decisions basedon future impacts to break the paradigmof continuously mortgaging the futurewhen faced with the reality of the criticalexigencies of today. That paradigm leads

to Under Secretary of Defense (Acquisi-tion and Technology) Jacques Gansler’s“death spiral” (1998). Improved under-standing and believable quantification ofTOC impacts is critical to overcoming thatfate. The key targets to enable better in-formation for our decision makers fallalong the lines of the CAIV tenets:

• an improved requirements process tofocus on capabilities-based require-ments supported by TOC impact data;

• improved, partnered management ofthe trade space;

• recognition by every member of theuser, acquirer, and contractor team thatthey have an R-TOC role (in addition,improved cost estimating capabilitiesin government and industry);

• improved understanding and imple-mentation of risk management;

• better metrics;

• integrating all CAIV aspects for effec-tive program management; and

• training users, acquirers, and contrac-tors at all levels on CAIV implemen-tation so that CAIV becomes ingrainedin the culture.

Finally, CAIV as a term of art shoulddisappear in the future—but everyoneshould do it! In 1991, a senior-level gov-ernment-industry team addressed theproblem of excessive engineering changeproposals in development by definingClear Accountability in Design (CAID).CAID determined that the government


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David R. Graham is a program analyst in the Air Force Deputy Assistant Secretary’sManagement Policy and Program Integration Division. He began working for theAir Force in 1979 at the Space & Missile Systems Center (SMC), Los AngelesAFB, CA, and has held a variety of budget, cost performance, cost estimator,and program analyst positions up to the present.

(E-mail address: [email protected])

Allen L. Gotwald is a systems engineer working at the Air Force MaterielCommand’s Engineering and Technical Management, System Engineering PolicyDivision, at Wright-Patterson Air Force Base, OH. He worked for 7 years withinthe F-16 program office where he served as lead engineer on the developmentof mission planning systems and later served as the lead engineer for the F-16Block 50 program. In 1997 Gotwald was selected as an engineer within theCentralized Acquisition Support Team (CAST) at the Air Force Material Com-mand Headquarters. He later became the co-director for CAIV implementationacross the command, helped with the development of the Reduction in TotalOwnership Cost (R-TOC) Guide, and developed an implementation workshopfor the Integrated Master Plan and Integrated Master Schedule (IMP/IMS).Gotwald holds an M.S. degree in engineering management from the Universityof Dayton.


Colonel Michael A. Kaye, U.S. Air Force, is the chief of the Acquisition SupportTeam at the Space and Missile Systems Center (SMC), Los Angeles Air ForceBase, CA. He recently headed an Assistant Secretary of the Air Force for Acqui-sition (SAF/AQ)-sponsored reinvention team focused on boosting CAIV andSustainment in the requirements process. Prior to assuming his current posi-tion, Kaye served as Deputy Program Director of PEACE SHIELD, a $5 billionCommand, Control, and Communications (C3) system installed in Saudi Arabia,which received the 1994 John J. Welch, Jr., Award as the top Air Force program.He holds an M.B.A from Hardin-Simmons University, M.S. in engineering sciencefrom Purdue University, and B.S. in physics from the University of Illinois.


Lt Col Mark S. Sobota , USAF, is currently assigned to the U.S. Special Opera-tions Command (USSOCOM) as Chief, Aviation/Space Operational Test andEvaluation Branch at USSOCOM Headquarters, MacDill AFB, FL, and previ-ously served at the Electronic Systems Command, Air Force Flight Test Center,and Air Force Research Lab covering a variety of weapon systems from JointSTARS, LANTIRN, F-16, B-1B, F-15E, and conducted advance research for theF-22. He is a graduate of the Defense Systems Management College’s APMC97-3, received a B.S. degree in chemistry from the Virginia Military Institute, anda B.S. degree and M.S. degree in aeronautical engineering from the Air ForceInstitute of Technology.


would not take configuration control be-low the “A Spec” until generally afterphysical configuration audit. Most people

in acquisition today cannot identify CAID,but it is the standard. CAIV should go thesame way.


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REFERENCES

Air Force Materiel Command (1997, July9). Acquisition risk management(AFMCP Pamphlet 63-101). Wright-Patterson AFB, Ohio: Author.

Gansler, J. (1998, September 2). The revo-lution in business affairs: The need toact now. Falls Church, VA: Associa-tion of the U.S. Army.

Secretary of the Air Force/AQCT. (1999,May 27). R-TOC: Reduction in totalownership cost. In CAIV/TOC Guide-book. Washington, DC: Author.

ENDNOTE

1. The contract bid was a $1.1 billioneffort for control software, integra-tion, test, and operational activationof the $5 billion command, control,and communications system for inte-grated air defense of Saudi Arabia.

DoD. (1998, March 23). DoD directive5000.2-R. Mandatory procedures formajor defense acquisition programs(MDAPs) and major automated infor-mation system (MAIS) acquisitionprograms (Section 3.3.3). Washing-ton, DC: Author.

DoD. (2000, March). Draft New DoD di-rective 5000.2-R. Mandatory proce-dures for major defense acquisitionprograms (MDAPs) and major auto-mated information system (MAIS)acquisition programs (Section 1.3;1.4). Washington, DC: Author.


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APPENDIX

will be regularly tracked, we can definefour regions on the chart that the TPM maybe in.

I: Weight well below threshold; highconfidence system will meet thresh-old at MS III.

II: Weight below threshold; the closer tothe threshold, the more active effortsmust be to contain growth.

III: Weight above threshold; need aggres-sive weight reduction program.

IV: Weight well above threshold; lowprobability to meet threshold evenwith aggressive program.

RISK MANAGEMENT APPROACHLet us consider an example of a poten-

tial risk management approach. Typically,system weight is a critical parameter thatwill impact total system performance.Assume that keeping weight under theallocated threshold is particularly vital, asit usually is. Numerous studies have alsoshown that weight typically grows throughdevelopment of a system. Figure 6 showsan allocated threshold along with “uncer-tainty bands” that narrow as the designmatures. Clearly, a tested, validated sys-tem at Milestone (MS) III should be dis-tinctly characterized. However, at Mile-stone I, a “paper design” only estimatessystem weight. Assuming the weightTechnical Performance Measure (TPM)

Figure 6. Managing Risk

ThresholdMS I MS II MS III

Uncertainty Band

Wei

ght

Good

IV

I

II

III

Uncertainty Band


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COST DRIVER CALCULATIONFigure 7 is a simplistic view of a “comb

chart” analysis of cost drivers for a sys-tem. The costs are divided into RDT&E,procurement, and O&S. Each is furthersubdivided into WBS elements. Such sub-division should go down as far as practi-cable. For each element, dollar estimatesand percentages of TOC are generated.This analysis will provide a baseline

Figure 7. Cost Drivers

against which R-TOC efforts are com-pared. Currently, SAF/AQCT is coordi-nating 10 Air Force pilot programs usingthis methodology to generate R-TOCplans and associated objectives. We an-ticipate that this procedure will be directedon almost all programs in the future.

Directions for conducting such analysisare in the R-TOC Guidebook previouslycited.

TOC

R&D

Proc

O&S

Fuselage

Avionics

Engine

Engine

Avionics

Fuel

Manpower

Infrastructure

CLS

Depot

Flightline

Training

SPO


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cost as an independent variable: principles and …user requirements, and considering opera-tions...

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