Best Practices:

Setting Requirements Differently Could Reduce Weapon Systems' Total Ownership Costs

GAO-03-57: Published: Feb 11, 2003. Publicly Released: Feb 11, 2003.

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For fiscal year 2003, the Department of Defense (DOD) asked for about $185 billion to develop, procure, operate, and maintain its weapon systems. This request represents an increase of 18 percent since 2001 for the total ownership costs of DOD weapon systems. Often, DOD systems need expensive spare parts and support systems after they are fielded to meet required readiness levels. DOD has been increasingly concerned that the high cost of maintaining systems has limited its ability to modernize and invest in new weapons. This report examines the best practices of leading commercial firms to manage a product's total ownership costs and determines if those practices can be applied to DOD.

Even though DOD has implemented several initiatives to reduce total ownership costs, some systems, such as the Apache helicopter or the Abrams tank, have experienced costly maintenance problems and low readiness rates, which persisted even after the systems were fielded. We found several reasons for these problems. First, DOD based requirements for weapon systems in product development almost exclusively on technical performance, with little attention to operating and support costs and readiness at the beginning of development when there is the greatest chance of affecting those costs positively. Second, using immature technologies to meet performance goals weakened DOD's ability to design weapon systems with high reliability. Finally, DOD's organizational structure is linear and limits collaboration and feedback among organizations charged with requirements setting, product development, and maintenance. In contrast, commercial companies that we visited considered operating and support costs to be integral to their new product development decisions. Studies have shown that by the time a product is ready for development, over 90 percent of the operating and support costs have been determined. As a result, these companies required their equipment be easy to maintain, ready when needed, and reliable at a low cost. These requirements were of equal importance to other performance characteristics. After setting requirements, product developers then designed products to meet established reliability rates, using technologies that were proven through past use or testing. At all of the companies we visited, customers and product developers alike, had very collaborative processes and practices that draw extensively on data from past operations to influence the design of new products.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To ensure that the user's requirements for a weapon system can be met within a reliable design, the Secretary of Defense should structure DOD contracts for major systems acquisitions so that at Milestone B the product developer has incentives to ensure that proper trades are made between reliability and performance prior to the production decision. One option is to provide specific clauses in the development contract to address reliability growth.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: DOD does not believe additional emphasis is needed to give incentives to product developers to ensure proper trades are made between reliability and performance. The Department believes that it encourages system design trades throughout development, and that other approaches they are using, including the Total System Support Responsibility approach, provides incentives to the developer to make the proper trades.

    Recommendation: To ensure that the user's requirements for a weapon system can be met within a reliable design, the Secretary of Defense should revise the current policy governing the operation of the defense acquisition system (currently under revision) to require that the product developer establish a firm estimate of a weapon system's reliability based on demonstrated reliability rates at the component and subsystem level no later than the end of the system integration phase, coinciding with the system-level critical design review, before proceeding into the system demonstration phase of product development; and at the system level no later than the full-rate production decision.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: DOD included this recommendation in its revised 5000 Series Acquisition Policies dated May 2003.

    Recommendation: To ensure that the user's requirements for a weapon system can be met within a reliable design, the Secretary of Defense should revise the Chairman of the Joint Chiefs of Staff Instruction 3170.01B on the requirements generation process to include total ownership cost, especially operating and support cost, and weapon system readiness rates as performance parameters equal in priority to any other performance parameters for any major weapon system before beginning the acquisition program.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: DOD is currently revising the supporting guidance in the Joints Chiefs of Staff Instruction 3170.01, and has not decided whether to clarify it with a more specific description towards weapon system readiness rates. In August, 2004, the guidance was revised, but did not include making Operating and support costs key5 performance parameters.

    Recommendation: DOD should take steps to make the cost to operate and support weapon systems at required readiness rates a priority when setting weapon system requirements for an affordable weapon system and finalizing the design of the selected system. To do this, its requirements and acquisition communities must collaborate to fully understand and control the costs to operate and support a weapon system prior to and early in product development, when it is possible to have significant impact on those costs. In establishing requirements for a weapon system, the requirements community should include the costs to operate and support the weapon system over its life cycle and the readiness rate for the weapon system. To establish an affordable design for the weapon system, the acquisition community and acquisition programs should be required to accurately estimate--based on demonstrated component and subsystem reliability testing--that portion of the costs that DOD plans to spend on operations and support of the weapon system throughout its life cycle before the design is finalized.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: The Department did not specifically address this global recommendation mentioned in GAO's report. Instead, the Department focused its response on the three more specific recommendations. However, in general, it is clear that DOD believes no further action is needed to lower its total ownership costs.

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