Program executive officer, command, control, communications, computers and intelligence and space

Ser PEO C4I/352

MEMORANDUM

Communications, Computers and Intelligence and Space

(b) SPAWAR Instruction 7720.C of 29 Jul 04

Encl: (1) PEO C4I and Space Procedures for Independent Reviews

and Assessments of the Program Life-Cycle Cost

Estimate and the Acquisition Program Baseline
1. This memorandum establishes PEO C4I and Space policy on defining Acquisition Program Baseline (APB) cost parameters of all assigned programs and governing ACAT III/IV program cost estimation procedures.
2. I share Mr. Young’s objectives outlined in reference (a) of lowering program costs and maintaining an accurate reflection of program life-cycle costs. Each program’s budget must reflect realistic costs and schedules, recognizing technical and integration risks. I direct Program Managers to follow the enclosed procedures jointly developed by PEO C4I and Space and SPAWAR 01, to accurately scope and cost a system’s life-cycle. This policy will instill confidence in program cost estimates, provide better management control by ensuring each program has a current and validated cost model, and provide accountability to established schedules and budgets. Reference (b) further defines SPAWAR’s services for cost estimating and analysis functions.
3. Please direct inquiries on this subject to Ed Butrovich at (619) 524-7652.

DENNIS M. BAUMAN

Distribution:

PMW 150 PMW 180 PMW 770 DJC2 JPO

PMW 160 PMW 750 PMW 780 AMF JTRS SPO

PMW 170 PMW 760 PMW 790

Code: PEO (C4I and Space) – AM

Phone: 619.524.7652

Date: 5 Jan 05

The purpose of this document is to establish PEO C4I and Space procedures regarding independent reviews or assessments of the Program Life Cycle Cost Estimate (PLCCE) and the Acquisition Program Baseline (APB). These procedures also define the PEO C4I and Space interface with SPAWAR Cost Estimating and Analysis Division (SPAWAR 01-6). Program Managers (PMs) will follow these procedures unless otherwise addressed in Navy or DoD directives or instructions.

A PLCCE represents the total cost to the government of acquisition and ownership of a system over its useful life. The PLCCE includes the cost of development, acquisition, operations and support (to include manpower), and when applicable, disposal. For defense systems, Total Ownership Cost (TOC) is defined as LCC.¹ All PEO C4I and Space Programs of Record require a PLCCE.

An ICE is a determination by an independent organization of all program costs. Title 10, Section 2434, United States Code, “Independent Cost Estimates; Operational Manpower Requirements” requires an ICE for Major Defense Acquisition Programs to include “all costs of development, procurement, military construction, and operations and support, without regard to funding source or management control.”

An SR is an independent cost estimate of high-risk cost elements conducted by an independent organization. The remaining elements of the PM’s cost estimate are reviewed for proper methodology. An SR is usually requested as a special study, and does not require the same level of analysis as a milestone review ICE.

The APB is an agreement between the Program Manager, sponsor, and the Milestone Decision Authority (MDA).  APB’s are established to enhance program stability and to provide a critical reference point for measuring and reporting the status of program execution. The requirement to baseline programs is statutory (Title 10 U.S. Code).

Recent Department of the Navy (DoN) senior leadership direction and specific policy and guidance from the Department of Defense (DoD) require acquisition programs to have a current PLCCE maintained over the life of the program. The specific direction and guidance are listed as follows:

B. DoDD 5000.1 of 12 May 2003 states, “The PM shall be the single point of accountability for accomplishing program objectives for total life-cycle systems management, including sustainment. The PM shall apply human systems integration to optimize total system performance (hardware, software, and human), operational effectiveness, and suitability, survivability, safety, and affordability. PMs shall consider supportability, life-cycle costs, performance, and schedule in making program decisions. Planning for Operation and Support and the estimation of total ownership costs shall begin as early as possible. Supportability, a key component of performance, shall be considered throughout the system life cycle.” ³

C. CNO Guidance for 2004, “Apply the following Sea Enterprise principles (All Echelon II Commands)

1. 
   Minimize acquisition and life-cycle costs
   
2. 
   Challenge every assumption, cost and requirement”⁴
   

For ACAT ID Programs, the OSD CAIG shall prepare the ICE per 10 U.S.C. 2434. The CAIG provides the MDA with an ICE at major decision points as specified in statute, and when otherwise directed. The MDA considers the ICE before approving entry into SDD or into Production and Deployment. The CAIG also prepares an ICE for ACAT IC programs at the request of the USD (AT&L) or ASD (NII).

NCAD/FMB-6 prepares the Component Cost Estimates for Navy ACAT IC and IAC programs. NCAD may also prepare the independent cost estimate for ACAT IAM programs on behalf of the OSD CAIG or as requested by ASD (NII).

Depending on a program’s ACAT, or on specific request from PEO C4I and Space, SPAWAR 01-6 may:

1. 
   Advise and assist ACAT I program offices, as requested.
   
2. 
   Prepare an ICE or a SR for ACAT II Programs prior to a Milestone B or C review.^7,8
   
3. 
   Independently assess the PLCCE and review the APB if directed by PEO C4I and Space.⁹
   
4. 
   Participate on program Acquisition Coordination Teams (ACT).
   
5. 
   Act as a principal cost advisory body to PEO (C4I and Space).
   

1. 
   The PM must plan to sufficiently fund the performance of an ICE, or a SR.
   
2. 
   The PM must ensure the PLCCE is current, maintained throughout the life cycle of the program, and updated if there are any changes to the following:
   

1. 
   Technical requirements
   
2. 
   Program structure
   
3. 
   Program or installation schedule
   
4. 
   Procurement Quantities
   
5. 
   Inflation/escalation indices
   
6. 
   Budget
   
7. 
   Acquisition Program Baseline
   

3. 
   The PM should use qualified cost analysts with proven experience in preparation of life cycle cost analysis, estimates and tools. SPAWAR 01-6 may assist the PM in assessment of qualified contractor cost analysts.
   
4. 
   Per DoD 5000 series, the PM is responsible for developing a Cost Analysis Requirements Description (CARD) for all ACAT I/IA programs. The PM will provide the CARD to the OSD CAIG or NCAD prior to the conduct of the ICE or SR. CARD development guidance and ICE procedures are contained in DoD 5000.4-M, “Department of Defense Manual Cost Analysis Guidance and Procedures,” dated December 1992. SPAWAR 01-6 can provide additional guidance and support on the CARD.
   
5. 
   
   
6. 
   The PM should provide the information described in Appendix A, Program Information, to the cost analyst to allow an independent analysis of the PLCCE and sufficiency review of the cost model. The information can be supplied by providing existing program documentation as displayed in Table 1 of Appendix A, or separately upon request by the cost analyst.
   

When tasked to prepare an ICE, SPAWAR 01-6 implements a formal process, which begins when SPAWAR 01-6 accepts the required program information and PLCCE. Exhibit 1 lists the key events of the process. Program offices should plan on the conduct of the ICE taking 7 months.

1. 
   Current prices or realized costs
   
2. 
   Cost incurred on similar programs
   
3. 
   Earned Value Management data, or
   
4. 
   Verification based on experience that the methods and data used in constructing the estimate are reasonable.
   
   
   

W

When tasked to review a program’s APB, SPAWAR 01-6 will independently assess the PLCCE. Exhibit 3 identifies the 01-6 APB review timeline.

There are seven (7) key events leading to the SPAWAR 01-6’s review of a program’s APB:

1. 
   SPAWAR 01-6 meets with PM.
   
2. 
   PM provides draft PLCCE to SPAWAR 01-6 35 days prior to submitting the APB for approval. The following criteria apply:
   
   1. 
      The PLCCE is approximately 80% complete
      
   2. 
      The PLCCE reflects the program’s current technical and programmatic requirements.
      
   3. 
      The supporting documentation and rationale are provided, including a basis of estimate for each Work Breakdown Structure (WBS) element, the associated WBS dictionary, identification of the cost estimating methodologies used to develop the PLCCE, a list of ground rules and assumptions, and data sources used to support the cost estimate.
      
3. 
   SPWAR 01-6 discusses PLCCE findings with PM
   
4. 
   PM provides updated PLCCE to SPAWAR 01-6
   
5. 
   SPAWAR 01-6 reconciles with PMO its Final PLCCE. If a reconciled position with the estimate is not reached, then the APB will move forward with SPAWAR 01-6 comments for the MDA’s consideration.
   
6. 
   PMO provides Draft APB to SPAWAR 01-6
   
7. 
   SPAWAR 01-6 reviews the APB and discusses findings/ proposed recommendations with the PM
   

S
ince all documentation listed in Table 1 may not be available, the PM should coordinate with SPAWAR 01-6 on how to provide, either through program documents or other agreed sources, the following supporting program information:

1. 
   Generic Program Information
   
   1. 
      Program Basics
      
      1. 
         Organization Name
         
      2. 
         PEO
         
      3. 
         PMW
         
      4. 
         Common Short Name or Acronym
         
      5. 
         Common Name or Program (Spell out Acronym)
         
      6. 
         Program ACAT (if not an ACAT, please indicate)
         
      7. 
         Phase (e.g., Concept Refinement, Technology Development, SD&D, P&D, O&S)
         
   2. 
      A copy of current APB
      
   3. 
      The completed template as provided in Exhibit 4
      

2. 
   Program Baseline Description
   
   1. 
      System Overview. This section should contain a general description of the system
      

(including the functions it will perform and key performance parameters), a description

of how the system fits in with other systems, and the planned maintenance and support

concept. Include the following, if available:

1. 
   WBS
   
2. 
   Predecessor and/or Reference Systems (i.e., currently operational or pre-existing systems with a mission similar to this system). In this section also state the predecessor/reference systems (if any) the new system is replacing and the key system-level differences.
   
1. 
   Risk. Identify the risk areas associated with the program (risk areas may include: design concept, technology development, test requirements, schedule, acquisition strategy, funding availability, contract stability, obsolescence, or any other aspect that might cause a significant deviation from the planned program). List the measures (or planned measures) to reduce those risks. Quantify the risk areas to the program by preparing a High and Low estimate dependent on the program’s technical and schedule baseline.
   
2. 
   System Operational Concept.
   
   1. 
      Deployment Description: Describe the deployment method of the system in terms of operating locations (ship, ground based, combination, etc.) and number of sites
      
   2. 
      Support: Provide a description of:
      
      1. 
         Hardware and software support concepts
         
      2. 
         Navy maintenance & support versus contractor maintenance & support requirements
         
      3. 
         Scheduled maintenance intervals and major overhaul points
         
      4. 
         Repair versus replacement criteria
         
      5. 
         Other support issues not addressed above
         
   3. 
      Training: Summarize the training plan/requirement for:
      
      1. 
         System operators
         
      2. 
         Maintenance personnel
         
      3. 
         Support personnel
         
      4. 
         Users
         
      5. 
         Systems administration
         
3. 
   Quantity Requirements
   
   1. 
      Hardware: Identify the quantities of the system to be developed, tested, produced, installed and deployed by acquisition phase and year. Also provide your installation schedule, any material that may be required, test units that will be consumed, and any other relevant information.
      
   2. 
      Software:
      
      1. 
         Identify software language
         
      2. 
         Identify SLOC or Function points by segment
         
      3. 
         List the New, Modified, and Reusable SLOC by segment throughout the program’s life cycle
         
4. 
   Manpower Requirements. For those items that can be identified as LOE, identify the manpower requirements broken out by Program Office, Program Office Support, Operation, Maintenance, ISEA, SSA, etc. identified as government or contractor for the following program phases (Include direct manpower requirements only). For example:
   

Development	Production	Operations & Support
Contractor and Government	Contractor and Government	ISEA
Program Office Support	Program Office Support
Test personnel	Test personnel

1. 
   System Activity Rates. Estimate the activity rates (e.g., number of operating hours per year, operating shifts per day, etc.) for each system.
   
2. 
   System Milestone Schedule. Attach the program master schedule. At a minimum, the schedule should include the major milestones of the program by phase.
   
3. 
   Acquisition Plan and/or Strategy. This section should include the following information:
   
   1. 
      Contractors. Identify by acquisition phase all contractors working on the program including:
      
      1. 
         Contractor’s Name
         
      2. 
         Prime or Sub
         
      3. 
         Acquisition Phase (e.g., Technology Development, System Development, etc)
         
      4. 
         Describe what is Contractor Tasked to Develop or Support
         
      5. 
         Estimate the number of prime contractors expected for future acquisition phases
         
   2. 
      Contract Type. Identify the type of contracts awarded/to be awarded in each phase of the program.
      
4. 
   System Development Plan. Describe all testing to be accomplished during the development and operation of this program. The number, type, location, and expected duration of tests (for both hardware and software) should be identified, along with the organizations that will conduct the test programs. Tests should be identified as either government or contractor conducted.
   
1. 
   The Cost Estimate 
   

1. 
   Cost Estimating model (Note: SPAWAR 01-6 prefers the cost model to be provided in MS EXCEL to better understand the basis of the estimate (BOE))
   
2. 
   Costs identified by Work Breakdown Structure (WBS)
   
3. 
   Basis of estimates (BOEs) for each WBS element including the following:
   
   1. 
      Brief explanation of selected cost estimating techniques (e.g., analogy, parametric, engineering estimates
      
   2. 
      Analogous systems, if applicable
      
   3. 
      Learning curve slopes and factors identified and rationale of analogous systems referenced
      
   4. 
      Cost Estimating Relationships (CERs).
      
   5. 
      Historical data (Actuals)
      
4. 
   Cost estimate time phased summary:
   
   1. 
      By Fiscal Year in Base Year dollars (BY$)
      
   2. 
      By Fiscal Year in Then Year dollars (TY$)
      
5. 
   Back-up sheets cross-referenced by WBS and the dollars they support
   
6. 
   Costs identified by appropriation and funding source. Identify what are program office costs and/or other costs
   
7. 
   Indirect costs
   
8. 
   Payroll tables, cost adjustment indices, and other factor tables referenced for review
   
9. 
   Sunk costs identified by WBS or other cost elements
   
10. 
    Wrap rates/Forward Pricing Rate Agreement (FPRA) assumptions referenced for review
    

4. 
   Estimate Analysis
   

1. 
   Major cost drivers.
   
2. 
   Explanation for changes between old and new estimates (e.g., change in scope, new data, inefficiencies).
   
3. 
   Major program metric/objectives identified for potential performance measures against the baseline estimate.
   
4. 
   Ground Rules and Assumptions
   
5. 
   Explanation of Cost Estimating methodologies used to develop the estimate.
   

E
xhibit 4