Funding Product Support Strategies (PSS)

Background

Program Managers (PM) and Product Support Managers (PSM) need to structure and conduct cost analyses to inform early life cycle decisions, to effect reliability trades, and to identify initiatives with the greatest impact on future costs.  As the system design matures, the PSM focus is on planning required to implement the PSS to ensure achievement of desired product outcomes during sustainment.  The PM and PSM need to provide support to meet operational and suitability requirements while minimizing Operating and Support (O&S) costs, which constitute a significant cost of DoD systems life cycle cost.

Requirements

Per DoD Directive (DoDD) 5000.01, The Defense Acquisition System, the PM must plan for product support, and that PSSs “will be informed by a business case analysis [BCA] conducted pursuant to Section 2337 of Title 10, U.S.C. The PSS is designed to facilitate enduring and affordable sustainment consistent with warfighter requirements.”

Additionally, DoD Instruction (DoDI) 5000.91, Product Support Management for the Adaptive Acquisition Framework, states that the “output of the PS [product support] BCA helps determine a best value solution for meeting the PSS. The PM uses recommendations from the PS BCA to support sustainment funding requirements in the programming, planning, budgeting, and execution process. The PM and PSM will revalidate the PS BCA based on changes (to systems, hardware or software, constraints, and operational environment) or every 5 years, whichever occurs first. The PS BCA provides O&S cost projections associated with the PSS, as reflected in the LCSP, which informs the PM’s program objective memorandum (POM) input, in time to allocate funds required for the PSPs [Product Support Providers] and the PSIs [Product Support Integrators] to execute sustainment activities.”

PPBE Process

Per DoDD 7045.14, The Planning, Programming, Budgeting, and Execution (PPBE) Process,the PPBE process is the primary resource allocation process of DoD. It is one of three major decision support systems for defense acquisition along with JCIDS and the Defense Acquisition System. The PPBE process is a formal, systematic approach for making decisions on policy, strategy, and the development of forces and capabilities to accomplish anticipated missions. It serves as the annual resource allocation process for DoD within a quadrennial planning cycle. Integrated Product Support (IPS) Elements are funded through this system with budgets covering one year and the program encompasses an additional four years.

Cost Analysis

DoDI 5000.73, Cost Analysis Guidance and Procedures, establishes policy, assigns responsibilities and provides procedures for the conduct of cost estimation and analysis and the collection of cost data in the DoD - including for product support costs throughout the life cycle. The instruction describes the points at which the Office of Cost Assessment and Program Evaluation (CAPE), DoD components and Service Cost Agencies (SCA) conduct cost analysis as well as the timelines and required documentation for the conduct of such analysis.  

The DoD O&S Cost Management Guidebook provides a method for mapping IPS Elements to cost elements in order to focus early life cycle analysis on the highest cost drivers and to help programs assess sustainment impact resulting from funding changes. Examples of typical high-cost product support drivers include manpower, fuel and parts. The guidebook provides methods for analyzing available data and identifying cost driving elements to reduce O&S costs across the life cycle. The tools enable better communication of O&S cost assumptions, comparisons and risks to support acquisition decisions and program reviews.

Program Life Cycle Cost Estimate (PLCCE)

The PLCCE as described in the O&S Cost Management Guidebook provides an exhaustive and structured process to account for all resources and associated cost elements required to develop, produce, deploy, and sustain a particular program. This entails identifying all cost elements that pertain to the program from initial concept all the way through operations, support, and disposal. The guidebook details a method for mapping IPS Elements to cost elements in order to focus early life cycle cost analysis on the highest cost drivers and to help programs assess sustainment impacts resulting from funding changes.  A PLCCE encompasses past, present, and future costs for every aspect of the program, regardless of funding source.

Aligning Systems Engineering (SE) with Funding Considerations

It is important to align SE processes with Program Management processes - especially those related to funding. A sustainability analysis is addressed as a tool to assist the systems engineer in designing more sustainable systems -- those that use fewer resources over the life cycle, have fewer impacts on human health and the environment and thus have a lower total ownership cost (TOC).

Balancing Readiness and Cost

When it comes to system readiness, the end goal is this:  deliver the best possible product support outcomes at the lowest O&S cost. Sustainment is a distributed and long-term activity that requires the alignment of the program office, requirements community, systems engineers, sustainment commands, logistics community, resource sponsors, and others. Sustainment planning begins before a material solution exists, to ensure that sustainment can be effectively executed when the first production quantities are fielded; it continues to evolve until disposal.

The backbone of the PSS are the IPS Elements and that they can be grouped into three buckets which cover the range of life cycle logistics functions: Life Cycle Management, Technical Management and Infrastructure management.  

OSD CAPE O&S Cost-Estimating Guide 

In the CAPE Cost-Estimating Guide, DoD defines life cycle cost as the sum of four major cost categories:

1. Research and Development (R&D) costs - includes development and design costs for system engineering and design, test and evaluation, and other costs for system design features. They include costs for development, design, startup, initial vehicles, software, initial spares, test and evaluation, special tooling and test equipment, and facility changes.
2. Investment costs, consisting of procurement and military construction costs - procurement and investment include total production and deployment costs of the prime system and its related support equipment and facilities. Also included are any related equipment and material furnished by the government and initial spare and repair parts.
3. O&S costs - includes all direct and indirect costs incurred in using the prime system-manpower, fuel, maintenance, and support-through the entire life cycle.
4. Disposal costs - includes disposal, or inactivation, includes the costs of disposing of the prime equipment and any associated support equipment after its useful life.

Figure 2-1, Illustrative System Life Cycle within the guide depicts a notional profile of annual program expenditures by major cost category throughout the system life cycle for a program acquired using the Major Capability Acquisition (MCA). The profile for an actual program will vary significantly by system type and the program’s Adaptive Acquisition Framework pathway. 

The PSS planning and implementation portions focus on the first two phases: R&D; procurement and investment. The sustainment portion of acquisition programs traditionally occur during the O&S and disposal phases but because it is highly impacted by the decisions made early in the cycle, the current DoDD 5000.01 has included the emphasis of product support and sustainment as one of its overarching policies throughout the entire life cycle.

PMs must consider different funding appropriation categories when developing a request for program funding, including those listed above, plus other Service-specific types, such as Shipbuilding and Conversion, Navy (SCN)). Affordability considerations require consideration of costs and associated cost reduction measures and trade off analyses both within each weapon system program as well as across the aggregated weapon system enterprise. This is an iterative process. Supportability Analysis, including the mapping of IPS Element cost drivers to cost categories, provide the program with information to determine and prioritize those should cost initiatives that will affect the largest drivers of O&S costs.  

Defense Working Capital Funds (WCF)

WCFs are rotating funds vice appropriated ones and are designated to allow DoD corporate structures the ability to minimize risk when executing maintenance and supply functions.  These funds exist:

• To encourage cross-servicing between DoD Services/Components/Agencies and their operating agencies or partners
• To provide WCF activity managers direct financial authority and flexibility to purchase and utilize personnel, materials, and services more effectively
• To establish a more effective process for managing the cost of goods and services for DoD entities
• To allow for contracts between WCF activities and DoD entities requiring the end products/services

Similar to a commercial business, the intent of WFCs is to allow for investments in the near term with a pricing structure that will allow the activity to recoup its investment costs from future year activities and collections.

Affordable System Operational Effectiveness (ASOE) Model

O&S costs consist of sustainment costs incurred from the initial system deployment through the end of system operations, including all costs of operating, maintaining, and supporting a fielded system. Programs can integrate O&S costs within the SE process by implementing the ASOE Model. The PM can address the return on investment of ‘up-front’ expenditures by designing for the optimal balance between performance (technical and supportability), life-cycle costs, schedule, and process efficiency using ASOE. 

O&S Cost Key System Attribute (KSA)

To identify design factors that drive O&S costs, the program must decompose the O&S Cost KSA into constituent cost elements into one of two categories: Design factors and non-design factors. Examples of both are addressed below:

Design factors examples include reliability, diagnostics, fuel efficiency, and maximum speed.  Design factors include Capability Development Document (CDD) requirements, as well as derived design parameters that may be in the proposal evaluation criteria, contract requirements, or lower-level cost allocation.

Non-design factors examples include core logistics capability requirements to include depot maintenance, supply chain performance, and transportation.

The O&S KSA costs are composed of lower-level elements as defined in the OSD CAPE O&S Cost Estimating Guide. The depth and breadth of the analysis done to determine cost drivers for the IPS Elements will depend on the maturity of the program and phase in the lifecycle; however, as the program progresses through the lifecycle the depth of identification of cost drivers should mature.

The PSS defines the sustainment of the system throughout the lifecycle. The end state PSS should achieve intended mission in most austere conditions balanced against affordability and the Sustainment Key Performance Parameter (KPP). The PSS helps better identify and quantify the drivers of O&S in cost estimates.

Funding the IPS Elements

To adequately fund the IPS Elements, PMs/PSMs must employ sound business, contracting and logistic tenets which may include use of performance-based product support arrangements (PSA). 

PM/PSMs need to ensure the PSS maps to the IPS Elements, the CAPE O&S Cost Element Structure (CES) and the appropriation categories. This is intended to help PMs and PSMs identify the areas of greatest opportunity to initiate 'should cost' initiatives, which focus on reducing initial estimates and controlling costs. The DoD IPS Element Guidebook provides detailed points the PMs and PSMs should consider in designing each IPS element. OSD CAPE O&S Cost Management Guidebook provides detailed considerations to stimulate critical thinking with reference to ensuring program costs estimates are as detailed as commensurate with the point in the program’s lifecycle.

The complexity of mapping IPS Elements to an effective funding strategy lifecycle cannot be underestimated, particularly in the sustainment phase when design modifications are not easily executed and impact multiple appropriations. The Product Support Manager (PSM) Guidebook addresses the interrelationship across the Program Management, Logistics, Engineering, Contracting and Financial management communities to enable affordable and effective programs in support of our warfighters.