May 29, 2009 Vol. 2, Issue 5
Recent studies by the RAND Corporation and the Government Accountability Office (GAO) draw similar conclusions about trends in cost growth in major defense acquisition programs.
Cost growth in major defense acquisition programs has been a problem for decades. In “Cost Control: How Government Can Get More Bang for Its Buck,” RAND researchers studied 68 defense programs from the past 30 years and found that these grew by an average of 46% over what had been estimated at the time of development approval. Looking at a subset of 35 complex programs involving aircraft, missiles, electronics systems, launch vehicles, munitions, armored vehicles, and satellites, cost growth averaged 60% over estimates.
The authors found that more than two-thirds of the cost growth in those 35 programs could be attributed to government decisions, while nearly one-quarter was due to estimation errors. The government decisions often concerned changing technical requirements, order quantities, or schedules. The estimation errors included inaccurate cost and schedule estimates as well as unexpected technical challenges. Estimation errors could be attributed to inaccurate data or models, engineering inaccuracies, or overoptimistic assumptions about cost, schedule, or technology development. The authors caution that pinpointing the causes of cost growth is “not an exact science,” due to the difficulty in isolating the multiple variables.
Defense space acquisitions have consistently experienced high cost growth. In testimony delivered on May 20, 2009 before the Senate Subcommittee on Strategic Forces, Cristina Chaplain, Director of GAO Acquisition and Sourcing Management, stated that estimated costs for major defense space acquisitions have increased significantly over initial estimates.
In some cases, these cost overruns have forced the Department of Defense (DOD) to scale back the quantity or capability of their systems. The consequences of these restructuring decisions could result in capability gaps. “This year it is also becoming more apparent that space acquisition problems are leading to potential gaps in the delivery of critical capabilities,” Chaplain said.
Her testimony cited four primary reasons that DOD experiences cost growth in its space programs, including:
- Starting more weapons systems programs than it can afford, which creates competition among programs;
- Initiating programs before determining that the capabilities it requires can be achieved within cost and schedule;
- Attempting to satisfy all requirements in a single satellite, regardless of design maturity or technical challenges in specific areas; and
- Lacking the capability to practice effective oversight.
GAO links the lack of government oversight to changes related to the Total System Performance Responsibility (TPSR) initiative in the late 1990s, which gave contractors total responsibility for the integration of an entire weapon system. “The resulting erosion of DOD’s capability to lead and manage the space acquisition process magnified problems related to requirements creep and poor contractor performance. Further, the reduction in government oversight and involvement led to major reductions in various government capabilities, including cost-estimating and systems-engineering staff. The loss of cost-estimating and systems-engineering staff in turn led to a lack of technical data needed to develop sound cost estimates,” Chaplain said in her testimony.
Read the full RAND Review “Cost Control: How Government Can Get More Bang for Its Buck.”
Read the GAO report DOD Faces Substantial Challenges in Developing New Space Systems (GAO-09-705T).
