Army embracing 'should-cost' approach to weapons, acquisition programs
June 14, 2011
By Kris Osborn, ASA (ALT)
WASHINGTON (Army News Service, June 14, 2011) -- The Army is working to drive productivity growth, maximize efficiency and eliminate redundancy through an approach called "Should-Cost/Will-Cost" management, service officials said.
The push to implement the new approach to acquisition came as guidance from Ashton Carter, undersecretary of defense for acquisition, technology and logistics.
"Doctor Carter is challenging program managers to drive productivity improvements into their programs during contract negotiation and program execution," said Heidi Shyu, the acting assistant secretary of the Army for acquisition, logistics and technology.
Shyu said the approach involves scrutinizing every element of government and contractor costs.
The "Should-Cost/Will-Cost" approach is grounded in an effort to lower costs and improve affordability within acquisition programs by increasing scrutiny and targeting areas of potential cost reduction. Carter's guidance to the services stresses the need to reduce overhead costs where possible and increase the measure of analysis given to programs.
"I will require the manager of each major program to conduct a Should-Cost analysis, justifying each element of program cost and showing how it is improving year by year or meeting other relevant benchmarks for value," wrote Carter in a Sept. 14, 2010, Memorandum for Acquisition Professionals.
Carter went on to say that managers should be driving productivity improvements in their programs, and should be scrutinizing every element of program cost to determine if what elements can be reduced relative to the year before.
Because of the guidance, each program manager must now provide a "Should-Cost" estimate, designed as an internal management tool for incentivizing performance.
The "Should-Cost" estimate will then be compared and measured against the "Will-Cost" estimate, described as the official program position for budgeting, programming and reporting.
"By January 1, 2012, all ACAT I, II, and III programs will have milestone decision authority-approved 'Should-Cost' execution targets," Shyu writes.
The goal of the approach is to improve business practices and increase efficiency in contracting and acquisition program management.
"Program managers must begin to drive leanness through 'Should-Cost' management," Shyu said.
Program managers have historically argued that they could bring certain elements of a program in for less cost compared to independent cost estimates developed by outside organizations, said Cherie Smith, who directs the ASA(ALT) Performance Assessment and Root Cause Analysis Directorate.
"It doesn't take a crystal ball to see that we are going to be expected to do more with less," Smith said. "Within the established financial boundaries, Miss Shyu's goal is to incentivize our PMs by allowing them the ability to use these savings to lower risk in other areas of their program."
Along with mandating affordability and establishing a "Should-Cost" management approach, additional elements of the Army effort to implement Carter's guidance include initiatives to eliminate redundancy within warfighter portfolios, make production rates more stable and economical and set shorter time lines to manage programs.
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