Document created: 27 August 04
Air University Review, November-December
1970
The Programming Process
Lieutenant Colonel
Walter J. Boyne
Fifty-two billion dollars is still an almost unimaginable sum, even in these
days of moon shots and a forecasted trillion-dollar gross national product. Yet
52 billion is the approximate dollar value of the total acquisition costs of
all aircraft and missile systems currently being procured by the Air Force. The
scope of this vast procurement ranges from the routine purchase of an $18,000
single-engine training aircraft for a friendly country’s air force under the
Military Assistance Program to the enormously expensive and complex task of
procuring the Minuteman family of missiles, the life-cycle procurement cost of
which approaches $17 billion.
The Air Staff gives dimension and direction to this procurement activity. On
the one hand it shepherds the program through the Office of the Secretary of
Defense and Congress, responding appropriately to their guidance and justifying
the program’s share of the resources to be expended. On the other it must
transmit to the field implementing instructions that faithfully follow this
guidance yet permit sufficient flexibility for the operational elements to
react to changing conditions. Providing adequate perspective on which to base
these instructions and from which to respond to the demands of reviewing
authorities is the purpose of the programming process.
Programming is basically simple and orderly when viewed apart from the
almost continuous series of changes and exercises that constitute the
facts-of-life environment. Programming consists of deciding what the appropriate
production schedule should be, determining the cost of the weapon system under
this schedule, and balancing the programs to achieve a feasible fiscal year
funding pattern. In a laboratory situation this presumably would be done once a
year, and weapon systems would issue forth in a tidy, logical, economically
funded stream. In actual practice the stresses of the real world upset the
laboratory ideal, and thousands of combinations of schedules and costs must be
prepared to anticipate problems arising from changes in the economy, shifts in
military requirements, or new political decisions. The recent budget cuts are a
case in point; a number of alternative programs had to be explored to determine
what the optimum procurement program for the Air Force should be.
The basic planning papers that result from the procurement programming
process provide a series of bench marks against which alternate procurement
programs can be measured. They assist decision-makers in reducing what is
desirable to what is possible in terms of time, money, and production
capability.
the scheduling process
Ultimate procurement is always considered in the planning of even the most
exotic R&D project, although the mundane constraints of material
availability, production capability, and financial feasibility may not intrude
until the project develops more fully. It is not until the aircraft or missile
system becomes a candidate for inclusion in formal force planning that the
planners must determine the actual numbers to be procured and the annual buying
increments. The first formal presentation of a proposed force element will
appear in the Air Force Objective Force and the Joint Strategic Objectives
Plan; as the program progresses, the proposed force will appear, often in
modified form, in the Program Objective Memorandum, the Force and Financial
Program, the Five Year Defense Program, and, of course, the budget.
One essential basis for these documents is the production schedule, which is
simply a proposed plan for building the system at a certain rate over a certain
period, to deliver the previously determined number of weapons at a certain
time. All aircraft and missiles have such schedules, which are used at all
levels of the Air Force for planning purposes.
Early efforts to develop a production schedule are usually geared to the
tentative Initial Operational Capability (IOC) of the system. The IOC is the target date when the first operational unit is expected to receive a
sufficient number of weapons to undertake its mission. Many factors determine
the target IOC, including the degree of research and development still
required, contractor success in meeting project milestones, fiscal year funding
considerations, and the production capability available. Any of these could
cause a shift in the IOC, with immediate impact on both schedules and costs.
The production schedule itself is determined by several variables: the type
of system, the nature of the contract, lead time requirements, the production
rate decided upon, and the priority assigned to the project. Of course the more
complex a system is, the more likely the duration of production is to extend
the schedule.
The type of contract and the conceptual approach to the weapon system also
affect the production schedule. A high-risk system might call for a
cost-plus-incentive-fee contract, and a production scheduler would be inclined
to start production at a low rate and allow it to build up gradually. Thus any
unexpected difficulties could be resolved at minimum cost. A lower-risk system
(an off-the-shelf aircraft, for example) might be procured with a firm
fixed-price contract, and the schedule would be determined by other factors.
For very advanced systems, a “fly before you buy” plan is sometimes used. With
this plan, more time is required prior to beginning production than with a
concurrent development system, where production can be undertaken prior to
completion of R&D. In the former case, production rate may be
accelerated earlier after production commences, because of the confidence established
by the prototype’s flight-test program; in the latter, the production tempo may
be restrained to insure that R&D developments can be incorporated at
minimum cost.
The lead time requirements for the production schedule vary directly with
the sophistication of the system and its size and intended life cycle. A purely
state-of-the-art aircraft usually can be assumed to have an 18- to 24-month
lead time. An advanced system—the B-l, for example—may have a longer lead time,
and certain of its components, such as avionics, landing-gear forgings, and the
like, may have even longer lead times than the weapon system itself.
These items are accommodated to the schedule by means of an advance buy.
This is a request in the President’s budget for money in advance of the fiscal
year in which the weapon system will be purchased, to be used for those
specific line items of equipment that have the longer lead times. This method
permits adherence to the concept of full fiscal year funding without tying up
the entire program’s funds for the time required to obtain the pacing items.
Production rate is a product of many factors. Physical circumstances—the
size of the system, plant, and work force—determine the upper limit of
production rate in some instances, while available finances determine it in
others. At the other end of the continuum, rates must be at least high enough
to enable the contractor to retain a reasonable work force, establish economic
working relations with subcontractors, and so forth. Ideally the rate will
begin slowly, to minimize the inevitable interruptions incidental to training a
work force, processing new materials, and insuring supplier deliveries. It will
then build to an optimum rate that will achieve the adjusted IOC at the least
cost, by using the plant at its most efficient level of production.
Sometimes the urgency of the requirement for the system to meet a projected
threat overrides cost considerations, and a higher-than-optimum production rate
will be called for to advance the IOC. (Obviously, production rate is not the
only means for accelerating production; procurement concepts can be revised,
contract provisions can be altered, higher priorities can be assigned, and so
on.) Conversely, financial constraints sometimes overbalance the requirements
for a specific IOC, and the delivery schedule is reduced accordingly.
Once the production schedule is decided upon, the quantities to be procured
in each fiscal year can be determined. This is a mechanical process,
colloquially called “ticking.” To illustrate, assume that procurement action
for a certain aircraft or missile is initiated in FY 1972. If the system has a
typical lead time of 24 months, the production schedule will show deliveries
beginning in FY 1974. (By convention, new systems are assumed to begin
production on 1 October rather than 1 July of the fiscal year, to allow some
tolerance for the time required to achieve a “go ahead” from Congress.) The
number of aircraft procured from FY 1972 funds will be the number delivered
from October 1974 to September 1975; the aircraft procured from FY 1973 funds
will be those delivered from October 1975 to September 1976, and so on.
Of course, if the appropriation is less than that requested, the quantities
procured during that year will be reduced. Moreover, depending upon
Congressional attitudes toward the overall program, the intended production
schedule may be either curtailed or stretched out over a longer period of time
to achieve the ultimate quantity desired. This process makes clear the numbers
to be procured in each fiscal year and indicates the impact of the system on
the future budget years.
the costing process
Costing is much more complex than the scheduling process. With a
sophisticated new system, it is perhaps more an art than a science. Fundamental
to this process is the use of parametric studies that determine the probable
envelope of costs for a system postulated to have certain capabilities and
characteristics. These studies air based on both experience and judgment
and make use of cost data accumulated from earlier procurement cases. They
serve as a vehicle for considerable discussion and planning during the RDT&E
phase of the program. The methodology for creating a parametric study is well
established, and a considerable body of literature on costing is available.
Initial costing is normally performed for the Air Staff by Air Force Systems
Command (AFSC). Revisions to the predicted costs are forwarded to the
Air Staff as more is learned of the system. In past years these cost studies
and reports were based primarily on contractor inputs, but recent emphasis has
been placed on developing an independent cost-estimating capability within AFSC.
The requirement for cost information is acute at all stages of a system’s
development, but it becomes even more urgent as the system matures in the
acquisition cycle. Should the program come under fire for cost growth or
performance deficiency, the details and history of the costing become
absolutely critical.
The basic costing data are developed by the field from many varied
sources—records of direct labor/hour costs, estimates of machining exotic
metals, examination of contractor records, and so forth. The information is
presented to the Air Staff in various formats, including AF Form 1037 and AF
Form 1537. For most costing purposes, the data are synthesized into a costing
worksheet. Totals and subtotals are extracted from the worksheet to provide
information for a variety of management reports, briefings, memorandums, and so
forth. Most commonly used of these are
| Unit Recurring Flyaway Cost |
|
Gross Flyaway Cost |
|
Gross Weapon System Cost |
|
Unit Production Cost |
|
Unit Program Cost.
|
The Unit Recurring Flyaway Cost shows the cost of the
airframe, propulsion, armament, electronic fire control, and similar
air-vehicle items. Airframe is usually the most significant cost element, and
initial cost studies are frequently based on the aircraft’s AMPR weight
(for Aeronautical Manufacturer’s Planning Report).* This weight is
multiplied by a dollar factor that is usually based on historical data of
recent similar airframes. Yet another factor based on aircraft size, type, and
capability is multiplied by this AMPR weight/dollar figure to compute an
initial cost starting point.
*AMPR weight: The empty weight of the aircraft less the (1) wheels,
brakes, tires, and tubes; (2) engines; (3) starters; (4) cooling fluid; (5)
rubber or nylon fuel cells; (6) instruments; (7) batteries and electrical power
supply; (8) turret mechanism; (9) remote sighting units; (10) air-conditioning
units; (11) auxiliary power plant; (12) trapped fuel and oil. Engine
manufacturers have historically developed products in advance of military
requirements, either through independent research or for the civilian market.
 |
|
Figure 1. A hypothetical costing worksheet
|
The remaining items of recurring flyaway cost are estimated independently of AMPR
weight. Engine costs are usually easy to develop, as the
manufacturers generally have anticipated requirements and have an estimate
based upon a comprehensive data base.
Unfortunately, this sequence does not apply to avionic and electronic
subsystems, the development of which usually parallels the airframe
development. Sufficient historical data exist to permit crude cost estimates on
a “per pound” basis, but they may be several hundred dollars off per pound on
an existing production unit and tens of thousands of dollars off per pound on a
purely experimental item. For example, a new radio receiver might be estimated
to weigh 15 pounds; because it is a relatively simple system, its cost might be
estimated at $900 per pound, or $13,500. On the other hand, a classified system
of great complexity might weigh 150 pounds and its cost estimated at $15,000
per pound. The cost analysts realized how important it is to achieve greater
accuracy, and they continually refine estimates as hard data become available.
However; Intuitive judgment frequently assumes paramount importance.
“Nonrecurring” costs, the costs not considered to be related to production
quantity variation, are based on contractor capability, AMPR weight,
ultimate tooling requirements, and historical data. They are
computed next and added to the recurring flyaway cost to determine the Gross
Flyaway Cost.
Other elements of cost—peculiar aerospace ground equipment (AGE),
publications data, training—are initially developed as a percentage breakout of
the development and production cost, based on experience and refined with
empirical data. Together they constitute the cost element labeled “Peculiar
Support,” which, when added to the Gross Flyaway Cost, results in Gross
Weapon System Cost.
Unit Production Cost is made up of the Gross Weapon
System Cost plus the cost of initial spare parts, divided by the total number of
production items. Unit Program Cost is made up of the
costs of the gross weapon system, initial spares, research and development, and
military construction, divided by the total number of production and R&D
items.
One other costing element that is important to aircraft and missile
procurement is the impact of production experience on the unit cost of the
system being produced. There are economies to be achieved in series production,
of course, and the 100th production article can be expected to cost less than
the 50th, the 200th less than the 100th, and soon. About 35 years ago T. P.
Wright, an engineer and executive with the Curtiss Aeroplane and Motor Company,
formulated the idea of decreasing direct labor costs with an increase in the
number of airframes produced.1 Extensions of this concept have since
gained almost universal acceptance in the aircraft and missile industry under
the popular term “learning curve.”
A plotted learning curve may show that as the quantity of units is doubled,
the cost declines to 80 percent of the previous cost. For instance, at 100
airplanes the unit average cost may be $1.32 million, while at 200 airplanes
the unit average cost may be $1.06 million.
|
 |
|
Figure 2. Eighty percent learning curve
|
If the program should be curtailed to 20 aircraft, the unit average cost may
shoot up to $2.2 million. This relatively simple fact of life has occasionally
been the cause of much concern and has puzzled planners when a drastic cut in
procurement quantities did not result in a large saving in production costs.
The learning curve is used with other data in the costing process to
determine by an iterative process the costs of alternative buy programs.
the end result
The scheduling and costing activities that make up the procurement
programming process directly support the overall planning, programming, and
budgeting (PPB) cycle. Initial efforts for the very long-range planning
of the Joint Strategic Objective Plan are limited in accuracy to the data
available and to the degree that proposed systems have been defined.
As the PPB cycle progresses, so does the system, and successive
requirements for more accurate data are matched by development of new inputs
from the field. During this period these inputs are used in the hundreds of
alternative programs which the Air Staff prepares to meet contingency and
emergency situations. As competition for scarce budget dollars in a particular
fiscal year intensifies, the competing systems must show cost effectiveness in
briefings and reviews where successful demonstration depends in large part on the
quality of the cost estimates. Where a “micrometer on a dough ball” may have
been all that was possible at the earliest stage of a program, the later
presentations must be as accurate as humanly possible, and all doubtful areas
must be signaled with the appropriate caveats.
The moment of truth for the whole procurement planning cycle occurs before
the House and Senate Authorization and Appropriation Committees. It is here
that the changes in costs and schedules must be explained in depth and detail.
There must be a clear path from decision point to decision point. All the prior
efforts of the Air Force, the Department of Defense, and the Office of
Management and Budget must bear the examination of the seasoned experts of the
Congressional staff.
Not only must the proposed procurement program be explained and defended;
the rejected alternatives must also be described in detail, including the
rationale for their rejection. All of the voluminous supporting material must
be consistent and credible and must have a clear audit trail.
The procurement programming function, simple in concept, is complex in
execution, for it must provide forward planning and in addition maintain a
clear record of past decisions. It is the handle by which the Air Staff grips
the conglomerate mass of decision factors to arrive at orderly programs. It is
a prime factor in all procurement decisions, serving both as a data source and
as a communication link within the Headquarters.
Hq United States Air Force
Note
1. T. P. Wright, “Factors Affecting the Cost of Airplanes,” Journal of
Aeronautical Sciences, vol. 3, February 1936, pp. 122-28.
Contributor
Lieutenant Colonel Walter J. Boyne (M.B.A., University of
Pittsburgh) is a program analyst, Hq USAF. He has been a B-47, B-50, and B-52
pilot as well as a physiological training officer. He was Configuration
Management Officer for the KC-135 System Program Office, Wright-Patterson AFB,
Ohio. Other assignments have been in defense contract administration and as
C-47 pilot and squadron commander in Thailand. Colonel Boyne is the author of
numerous aviation articles.
Disclaimer
The conclusions and opinions expressed in this
document are those of the author cultivated in the freedom of expression, academic
environment of Air University. They do not reflect the official position of the
U.S. Government, Department of Defense, the United States Air Force or the Air
University.
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