DoD’s Affordability Eyeball

The DoD wants to do the right thing. Secretary Gates wants to save $20B per year over the next five years and he’s tasked Dr. Ash Carter to get it done. In Carter’s September 14th memo titled: “Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending” he writes strongly:

…we have a continuing responsibility to procure the critical goods and services our forces need in the years ahead, but we will not have ever-increasing budgets to pay for them.

And, we must


I like it.

Of the DoD’s $700B yearly spend, $200B is spent on weapons, electronics, fuel, facilities, etc. and $200B on services. Carter lays out themes to reduce both flavors. On services, he plainly states that the DoD must put in place systems and processes. They’re largely missing. On weapons, electronics, etc., he lays out some good themes:  rationalization of the portfolio, economical product rates, shorter program timelines, adjusted progress payments, and promotion of competition. I like those.  However, his Affordability Mandate misses the mark.

Though his Affordability Mandate is the right idea, it’s steeped in the wrong mindset, steeped in emotional constraints that will limit success. Take a look at his language. He will require an affordability target at program start (Milestone A)

to be treated like a Key Performance Parameter (KPP) such as speed or power – a design parameter not to be sacrificed or comprised without my specific authority.

Implicit in his language is an assumption that performance will decrease with decreasing cost. More than that, he expects to approve cost reductions that actually sacrifice performance. (Only he can approve those.) Sadly, he’s been conditioned to believe it’s impossible to increase performance while decreasing cost. And because he does not believe it, he won’t ask for it, nor get it. I’m sure he’d be pissed if he knew the real deal.

The reality: The stuff he buys is radically over-designed, radically over-complex, and radically cost-bloated.  Even without fancy engineering, significant cost reductions are possible. Figure out where the cost is and design it out. And the lower cost, lower complexity designs will work better (fewer things to break and fewer things to hose up in manufacturing). Couple that with strong engineering and improved analytical tools and cost reductions of 50% are likely. (Oh yes, and a nice side benefit of improved performance). That’s right, 50% cost reduction.

Look again at his language. At Milestone B, when a system’s detailed design is begun,

I will require a presentation of a systems engineering tradeoff analysis showing how cost varies as the major design parameters and time to complete are varied.  This analysis would allow decisions to be made about how the system could be made less expensive without the loss of important capability.

Even after Milestone A’s batch of sacrificed of capability, at Milestone B he still expects to trade off more capability (albeit the lesser important kind) for cost reduction. Wrong mindset. At Milestone B, when engineers better understand their designs, he should expect another step function increase in performance and another step function decrease of cost. But, since he’s been conditioned to believe otherwise, he won’t ask for it. He’ll be pissed when he realizes what he’s leaving on the table.

For generations, DoD has asked contractors to improve performance without the least consideration of cost. Guess what they got? Exactly what they asked for – ultra-high performance with ultra-ultra-high cost. It’s a target rich environment. And, sadly, DoD has conditioned itself to believe increased performance must come with increased cost.

Carter is a sharp guy. No doubt. Anyone smart enough to reduce nuclear weapons has my admiration.  (Thanks, Ash, for that work.) And if he’s smart enough to figure out the missile thing, he’s smart enough to figure out his contractors can increase performance and radically reduces costs at the same time. Just a matter of time.

There are two ways it could go: He could tell contractors how to do it or they could show him how it’s done. I know which one will feel better, but which will be better for business?

4 Responses to “DoD’s Affordability Eyeball”

  • We have been tasked by OSD to build “collaboration” in the weapon system supply chain. DoD have been extremely supportive and have challenged us provide linkage opportunities with a number of MDA platforms. Our 50K foot, nut-shell goal is a 33% reduction in C/T…we have helped 47 suppliers show dramatic results and DoD has provided great support/presence for our effort. More here:

  • The government already has a tool available to it which can be used to meet Secretary Gates’ objective, and much more — Value Engineering. The government requires ALL construction projects in which $20 Million or more of federal money is used, to undergo a Value Study prior to the start of construction.

    What the government doesn’t seem to understand is that the same methodology can be used for manufactured products, processes, and services! The Value Methodology can reduce costs without reducing (and often improving) quality, reliability, serviceability, etc.

    And the great thing about the methodology is that it IS NOT incompatible with DFM/A, LEAN, Six Sigma, and other improvement methodologies. Some of the best savings in design are when VM and DFM/A are combined to generate cost reduction ideas and put them into practice.

    A $20B savings out of a $400B budget ($200B products + $200B services)is ONLY 5%!! Gates has set the bar too LOW! He should be setting it at more like 20% ($80B), and knowledgeable contractors could easily achieve it.

  • Mike:

    From John “The government already has a tool available to it which can be used to meet Secretary Gates’ objective, and much more — Value Engineering.”

    I agree that VE can do much good on the product development front. In fact, I see VA and DFMA as two sides of the same argument and I contend functional analysis is the key to designing out cost. Starting with “what creates function?” and following up with “what does it cost?”, radical cost savings are inevitable.

    I agree strongly with you that 5% savings asked for by Gates is far too low.

    Thanks for contributing such strong content.


  • I strongly agree with John’s point about the sights being set too low. Unimaginable amounts of money, to most of us, amount to some pretty small percentages in the arena the DoD plays in. Small changes in design goals can mean huge savings in the cost to procure, yet are such small percentages in the big picture. I believe that once you begin working with numbers in the billions…and so fluidly…value becomes more obscured. You become numb to the kind of dollars the DoD spends annually. Unless you are the one actually paying the bill.

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