SCAF Workshop Cost Analysis and the Strategic Defence and Security Review (SDSR)

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Garey Davidson
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Tuesday 3rd February 2015 Royal Institute of Naval Architects

1 The following presentation was given at: SCAF Workshop Cost Analysis and the Strategic Defence and Security Review (SDSR) Tuesday 3rd February 2015 Royal Institute of Naval Architects (RINA) London Released for distribution by the Author

Force Structure Modelling Approaches SCAF RINA February 2015 2015 PRICE

3 Contents What is Force Structure Modelling? What is the output required? How it can be modelled Illustrated local Example Summary 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 2

4 DISCLAIMER & ACKNOWLEDGEMENTS The views expressed in this paper are mine and do not necessarily represent those of my employer. Pictures and graphics included have copyright which remains with the originators. All sources of data used in later slides and graphs are taken from public domain materials. The author gratefully acknowledges their contribution to the construction of this paper and for their use. ANY NUMBERS SHOWN ARE NOT REAL 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 3

5 What are we modelling? Define the Structure itself Identify contributing Assets Existing and/ or New The time period under consideration Where the Boundaries lie Any agreed comparison Metrics Any other Assumptions 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 4

Defence Capability 2015 PRICE Systems, LLC All

A Capability sub-set 2015 PRICE Systems, LLC All

8 A quote - and reason for not using Excel Possibly the single-most transforming thing in our forces will not be a weapons system, but a set of interconnections and a substantially enhanced capability because of that awareness. Secretary of Defense, Donald Rumsfeld 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 7

9 How Can a Structure be Modelled? Given a defined grouping of Projects and Programs, individual cost models may be combined to include: Project/ Programme details (Current, mid-term and far future) Replacement Project/ Programme details Delivery programmes Perceived Schedule & inter Project dependencies Technical details Technology details Supplier information (where known) Uncertainty High Level Risk view The combined Budget may then be used with overall predicted cost profiles for further analysis to aid planning and change programme timings PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 8

10 Model Requirements.. A Cost Model must have the ability to: Include/ exclude inflationary effects Convert currencies Deal with Uncertainty and provide output distributions Easily move projects/ programmes temporally Provide time phased outputs Deal with all Lifecycle phases Vary usage and deployment over time Mix & Match Sector projects Predict impacts of change on integration costs The above list is not exhaustive and can lead to very complex models if Excel is used 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 9

11 What are the Outputs Required? For a defined grouping of Projects and Programs, individual cost models may exist and be combined to provide: An Affordability test against required performance parameters A comparison to Budget Overall costs of a basket of Projects that might be placed with a particular Supplier A Ranking of Options by Size, Priority or other Attribute A range of cost outcomes (probability density functions) These Outputs may be at: Constant Cost or Net Present Value As Spent - includes inflationary effects Equivalent Annual Costs or Some other derived Metric ( cost per hour, cost per fatality etc) Each of the outputs will require different calculation mechanisms in any cost model 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 10

12 How Can a Structure be Modelled? Individual existing Projects and Programs may be represented differently depending on what is within or without the data boundary Support Costs only Mid life updates Major Refits Operators (necessary if there is a transition to uninhabited or large crew reduction) Integration of new capability with existing Assets The data may also require post model manipulation to obtain an agreed comparison metric. Note: most cost modelling is conducted at peacetime operational conditions, Capability modelling may require different operational conditions 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 11

13 Categorisation Attributes & Modelling Attribute Acquisition Cost Project Management Complexity Schedule Technical Difficulty Operation & Support Commercial Model Input Mapping Predicted Output Direct Input Direct Input, can also be an Output Engineering, Functional & System Complexity, Technology Employed Predicted Output Labour/ Profit rates, numbers of Contractors & Sites More may be found in Managing Successful Projects 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 12

14 A Local Structure modelled Subject Programs/ Projects are usually grouped by Sector, not to a Capability (eg Deep Strike) Programs/ Projects categories A to D Missing technical or quantitative data is fairly easy to find CAT A-D budgetary data is required Using the information, a top down parametric integrated model by Sector is possible More may be found in Managing Successful Projects 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 13

15 How a Structure could be modelled Subject Programs/ Projects are usually grouped by Sector, not to a Capability (eg Deep Strike) Using the information, a top down parametric integrated model by Sector is possible whether the grouping is by Sector or Capability A parametric approach will: allow determination of likely integration costs across all interacting projects frees the model builder from trying to include home grown inflationary and currency calculations allows consistent and robust representation of acquisition and usage over the required time frame 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 14

A traditional Sector Project Grouping 2015 PRICE Systems, LLC

A Capability Project Grouping 2015 PRICE Systems, LLC All

18 Example Sector Based Model Top 25 ACAT I-III by value Air - 16 Programs/ Projects Maritime - 9 Programs/ Projects Ranging 2012 to beyond 2030 Represents a DCP RoM Acquisition Budgetary value of $57Bn mid range estimate Covers approximately 70% of the ACAT I-III DCP Top 50 Programs by value. DCP Defence Capability Plan 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 17

Acquisition Silt Chart for Major Projects 2015 PRICE Systems,

Overall modelled MS Project Gantt view 2015 PRICE Systems, LLC

23 Summary Define what is required of a model Define the Project/ Capability Groupings Define Structure/ Capability Metrics Establish exactly what model Outputs should be Gather Project/ Programme Data Build the model Validate the model Analyse Outputs Compare Outputs to Budget (if needed) Present findings 2015 PRICE Systems, LLC All Rights Reserved 4 Decades of Cost Management Excellence 22