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Affordability Analysis

ABUS 003

DAU GLOSSARY DEFINITION

Long-range planning and decision making that determines the resources a Component can allocate for each new capability by ensuring that the total of all such allocations - together with all other fiscal demands that compete for resources in the Component - are not above the Component's future total budget projection for each year.

General Information

The DoD Analysis of Alternatives Cost Estimating Handbook establishes the fundamental concepts and approaches for developing and applying affordability constraints to acquisition programs as part of life-cycle investment analysis, decision making, and management.

Affordability analysis is a DoD Component leadership responsibility that should involve the programming, resource planning, requirements, intelligence, and acquisition communities. Per DoDI 5000.84, AoAs must consider the affordability of proposed solutions, to include any Milestone Decision Authority (MDA)-established affordability goals.

The purpose of affordability analysis in the AoA is to avoid starting a program that cannot be produced or supported, given reasonable expectations for future funding levels. As an outcome of the AoA, affordability constraints can inform prioritization of program requirements and potential cost tradeoffs. This affordability analysis must occur within the context of the relevant commodity group, portfolio, and/or appropriation.

Affordability analysis and affordability constraints are not the same as cost estimation or cost reduction. The DoD Component determines its affordability constraints, in a top-down manner, based on its available resources, inventory objectives, and other fiscal demands. Constraints then provide a threshold for procurement and sustainment costs that Program Managers may not exceed.

DoD Components conduct their affordability analyses with the following basic constructs:

  • Future Budget: A Component's projected total budget provides the basis for allocating future resources to each portfolio. Budgets will cover all fiscal demands, including those outside acquisition and sustainment.
  • Time Horizon: Nominally, affordability analysis covers 30 to 40 years into the future.
  • Consistency: The total of all portfolio cost estimates for each year, combined with all other fiscal demands, cannot exceed the Component's anticipated future budget levels.
  • Fiscal Guidance: In the absence of specific guidance, each Component will project its budget beyond the FYDP using the average of the last 2 years of the current FYDP and the OSD inflator.
  • Inflators: The USD(C) will provide each Component the OSD inflator to inflate their cost estimates for comparison against affordability constraints.
  • Portfolios: Components will subdifide their accounts into portfolios to facilitate trade-off analysis.  The total cost for all portfolios and their elements cannot exceed the Component's total budget projection.

Based on the Component’s affordability analysis and recommendations, the MDA will set and enforce affordability constraints as follows:

  • At MDD: Tentative affordability cost goals and inventory goals help scope the AoA and provide targets around which to consider alternatives.
  • At MS A: Affordability goals for unit procurement and sustainment costs.
  • At MS B, and Beyond: Binding affordability caps.

Acquisition Decision Memorandums will document the affordability constraints for these decision points. The program's Acquisition Program Baseline will document the affordability caps at MS B and beyond.

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