Why Do Programs Go Over Budget?

In my last post, I argued that programs that experience cost and schedule delays are going to come under increasingly heavy scrutiny in a post-sequestration world. But what causes programs to veer off course? And what can program managers do to avoid this fate? If you only have 10 minutes to research these questions, watch this YouTube clip from the unjustly ignored movie The Pentagon Wars.

If you have some more time, however, it might behoove you to dig into a recently released report from the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics (OUSD(AT&L)) entitled “Performance of the Defense Acquisition System.” The study is full of interesting data on which factors correlate with poor cost, schedule and test performance in defense programs. At well over 100 pages, there isn’t room for me to dig into every chart, regression and inference in a single blog post, but I’ve compiled a few particularly interesting findings below.

Interesting Finding No. 1:  Fixed-price contracts are no panacea.

Though congressional committees — and even the recent Better Buying Power initiative from OSD — have put a lot of emphasis on driving adoption of firm-fixed price contracting, the OUSD(AT&L) study looked at DOD programs from 1970–2011 and found that “analysis of historical MDAP (Major Defense Acquisition Program) contracts revealed no statistical correlation between the use of contract type (e.g. cost-plus and fixed-price types) and lower cost or schedule growth. In other words, the type of contract used in each case did not result in a statistically significant difference in cost growth.”

What did help a bit, DOD found, was a “well-understood and well-defined contract at the outset.” So it seems a closer relationship between the government and the contractor(s) made more difference than the formal structure of the contract.

Interesting Finding No. 2: Program managers carry more blame than outside forces.

For DOD programs that, since 2010, have experienced cost breaches significant enough to trigger congressional notification requirements (so-called Nunn-McCurdy breaches), the most frequent cause was “poor management performance.” In other words: The cause wasn’t changing requirements, immature technology, funding instability or changing procurement quantities; it was poor management. Poor management is defined as inadequacies in systems engineering, risk management, situational awareness and use of contractual incentives.

At GE, we know that our COTS products are important in helping our customers limit systems engineering challenges and manage risk — but the depth and breadth of our expertise and experience in customer support are perhaps even more important. It was good to see some outside confirmation that these are useful services for mankind.

Interesting Finding No. 3: DOD is out of pace with technology in the modern world.

OK, I said “interesting finding,” not “surprising finding.” It was neat to see this chart that breaks down the variables driving development timelines:

mil_aero blog

So, if you start an average ground or sea program today, and it experiences an average expansion of work content and average cost growth, it will take just under seven years to get through development and into production. An air or space program will take roughly 8–10 years, on average. What alarms me about these numbers is that they put defense development so far out of step with the pace of commercial technology. Think about it this way: Over the development cycle of a typical DOD program, CPU technology will go through seven or eight generations of upgrades. GPGPU technology designed for the commercial video gaming market may cycle even more quickly. Heck, we’ll probably be on the iPhone 13 by the time your program’s development stage is over!

From day one, programs need to be designed with the ability to accept insertion of next-generation technologies with minimal impact to the overall system. One of the real appeals of open architecture COTS technologies is that they allow for frequent technology insertion and technology refresh. Before GE even starts building a product, we actually work with our customers to define a technology upgrade and obsolescence management strategy. This way, the DOD isn’t left with technology that is out of date or unsupportable. We call this Product Lifecycle Management, or PLM, and — bold prediction coming — the service is only going to become more valuable as commercial technology cycles compress further and defense development cycles grow ever longer.

If you’re a big nerd like me, I strongly recommend perusing the DOD report. It’ll likely be driving a bunch of discussions over the next few years about how DOD can keep its technological edge in an increasingly budget-constrained environment. If, however, you only have time for the CliffsNotes version, I hope the above is a decent start.

We’d love to hear what you think: How can we at GE continue to help our customers navigate the pitfalls of defense systems development?

Todd Stiefler

Todd joined GE from the world of Washington politics, and in no time at all has moved on to his second assignment, which sees him managing business development for the services GE is increasingly looking to offer to customers, including the Proficy SmartSignal predictive analytics software.

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