A Proposed Methodology to Characterize the Accuracy of Life Cycle Cost Estimates for DoD Programs

Abstract

For decades, the DoD has employed numerous reporting and monitoring tools for characterizing the acquisition cost of its major programs. These tools have resulted in dozens of studies thoroughly documenting the magnitude and extent of DoD acquisition cost growth. Curiously, though, there have been extremely few studies regarding the behavior of the other cost component of a system's life cycle: Operating and Support (O&S) costs. This is particularly strange considering that O&S costs tend to dominate the total life cycle cost (LCC) of a program, and that LCCs are widely regarded as the preferred metric for assessing actual program value. The upshot for not examining such costs is that the DoD has little knowledge of how LCC estimates behave over time, and virtually no insights regarding their accuracy. In recent years, however, enough quality LCC data has amassed to conduct a study to address these deficiencies. This paper describes a method for conducting such a study, and represents (to the authors’ knowledge) the first broad-based attempt to do so. The results not only promise insights into the nature of current LCC estimates, but also suggest the possibility of improving the accuracy of DoD LCC estimates via a stochastically-based model.