The Value of Time for the Department of Defense
The U.S. Department of Defense must improve its acquisition cycle times—to cut costs, increase flexibility, and reduce delays in delivering warfighters the capabilities they need.
The Joint Tactical Radio System (JTRS) was meant to be a centerpiece of U.S. military transformation—software-based electronic equipment that would "translate" different communications waveforms and enable different units to communicate seamlessly. However, the technical difficulties associated with using an immature, unproven technology, in this case moving from a radio to an ad hoc mobile network capability, proved formidable and time-consuming, and were made more so by constantly increasing requirement demands from the military. At the same time, the program lacked the necessary R&D funding. The program's difficulties forced extensive delays, prompting more oversight, affecting combat commanders, and raising costs. After 15 years and billions of dollars spent developing a system that constantly struggled with reliability and effectiveness, the Pentagon shut down the JTRS program office and transferred its acquisition functions to the Army.
As the JTRS experience makes clear, a disjointed approval process, the use of unproven technologies, ever-changing requirements, and a massive, complex regulatory burden mean wasted time and wasted money for the U.S. Department of Defense (DoD). Such an outcome is unacceptable for leaders of commercial projects—and should be for the military as well. The consequences are serious: delays in delivering necessary capabilities to warfighters, excessive costs, an inflexible supply chain, increased supply base uncertainty, stymied program workers, and increased government personnel costs for low-value-added activities.
The DoD and Congress must work together to limit the costly oversight and reduce product development time. To do this, they must look to the commercial sector's product development best practices to streamline acquisition cycle time.
Comparing Defense and Commercial Cycle Times
Unlike in the commercial sector—where product development decisions are made with all important parties "at the table" for the purpose of reaching a singular, common objective of maximizing shareholder value—in the military, a raft of decision-making authorities split the various tasks regarding setting requirements and managing program risks, from Program Executive Offices and Services Acquisition Executives to the DoD and Capitol Hill.
We recently compared acquisition cycle times for the DoD with product development times for companies that produce complex aircraft. The time disparity between the two approaches was stark. Comparing seven ACAT I aircraft programs with three separate commercial aircraft programs from leading companies, we found that target cycle times for commercial projects were more than 30 months shorter than government programs, and that actual cycle times (including delays) were 50 months shorter (see figure 1).1 A comparison of DoD and commercial satellite programs yields similar results—almost four years difference, more than double the time (see figure 2).
The prolonged cycle times are quite costly as bottlenecked prime contractor (and, often subcontractor) workers cannot proceed with projects until critical path delay issues are resolved. Reducing the defense acquisition cycle time to private-sector timelines, applied across all ACAT I programs, would bring annual cost savings of between $10 billion and $12.3 billion, according to our estimates.2 We aren't suggesting that all ACAT I programs can be compressed to private-sector timelines. However, the opportunity is still significant, especially in the context of the pending $55 billion in cuts from the Budget Control Act II. The fact is, significant inroads can be made by reducing cycle times.
The commercial sector is keenly aware of the value of time—that when development and production schedules go long, the value of their products drops as higher costs and delayed time-to-market lead to lost revenue and reduced profitability. This is why they implement streamlined product development to reduce schedule risks. Effectively employing invested capital to develop, produce, and deliver their goods to market as quickly as possible is the essence of survival and growth for these for-profit companies.
However, the DoD and Congress rarely consider that development and production cycle times carry opportunity costs when not completed as quickly as possible. There is a fundamental disconnect between the DoD's large program management system and Congressional oversight—competing values and objectives that often lead to a much longer acquisition process than necessary. Existing regulations create a continuously circling loop of "checkers checking the checkers," greatly adding to the cost and schedule overruns. As the process drags on, DoD and Congressional officials and staff at all levels often react by becoming even more involved—adding years of increased oversight that lead to budget, schedule, and requirement adjustments adding costs and further lengthening development and production cycles.
The DoD's Unique Obstacles
The DoD faces four main obstacles in its acquisition process that the commercial sector seldom sees.
- The use of immature and high-risk technology
- Changing requirements
- Regulatory burden
- Multiple, disjointed decision support systems
The first two obstacles relate directly to how the products are developed. The latter two reflect the burden of government bureaucracy.
The use of immature and high-risk technology. Occasionally, the acquisition cycle for weapons includes the simultaneous development of new technology, an approach that significantly increases overall risk. Too often, the program begins with a set of untradeable technical requirements that induce risk, the value of which is not understood either in time or money. With both technology and products being developed simultaneously, some DoD programs move forward with much less knowledge about the products being developed than desired, and a lot more risk revolving around required technologies, design capability, and manufacturability.
Such was the case in the development of both the C-17 and the F-22 aircraft. For these programs, the DoD did not know the design's ability to perform or be produced until late in development or early in production. Additionally, the DoD did not know whether it could match product design with customer requirements until testing was completed late in development. Neither practice is acceptable in commercial product development.
Delays brought about by the use of immature technologies can also prompt changes or additions to requirements during the lengthened program, while at the same time placing budgetary pressures due to underperformance. The JTRS is an example of this.
Changing requirements. The DoD frequently makes changes to main performance requirements of ACAT I programs after development is under way, which increases costs and schedule delays. The more requirements change, the longer development and production will take, and the likelier more new requirements will be added on—further increasing costs and schedule delays. Requirement changes create instability, which in turn adversely affects program outcomes. In some cases, programs experiencing poor results may have their requirements cut, as steps are taken to prevent further cost growth. Whether changes add requirements or reduce them, programs with modifications to performance requirements experience four times more growth in R&D costs and three to five times greater schedule delays compared to programs with unchanged requirements (see figure 3).
Regulatory burden. The regulatory environment's sheer volume and complexity are so overwhelming that it is difficult for most experts to identify the regulations that have the greatest impact—positive or negative—on weapon system programs.
The DoD's acquisition process is usually "one-size-fits-all," reflecting long development and production and slow approval processes—a remnant of the Cold War era, when the principal adversary was a slow-moving, centrally planned economy. Today's adversaries use non-traditional tactics, such as low-cost and rapidly developing "commercial off-the-shelf"-derived technology and weapons. As such, the DoD acquisition process is no longer adequate for today's demand.
Of course, many of these regulations must exist to prevent fraud and abuse, such as the Boeing KC-767 scandal, which would have resulted in the DoD paying Boeing $11 billion more than market value for the price of the 100 planes on contract. Nevertheless, the burden of regulations must be weighed against their costs.
The DoD management model is based principally on providing oversight to ensure rules compliance. For example, program managers do not have accountability and authority to make crucial development and production decisions without first running the gauntlet of approvals. In the private sector, program managers typically have a large degree of managerial latitude within prescribed and stable cost, schedule, and performance boundaries.
Many studies have emphasized the cost of regulation. One by the Lexington Institute identified a DoD regulatory cost premium of between 13 percent and 40 percent in the programs it examined.3 A RAND Corporation study looked at how DoD costs would be affected if a selected set of R&D and production programs were restructured along commercial lines. It identified potential savings ranging from 3 to 34 percent for R&D programs and from 7 to 60 percent for production programs.4
Although these regulations are well intended, leaders must consider their costs—and overall value. Decades of audits and reports have shown that the vast majority of companies are honest and that waste, fraud, and abuse constitute a relatively small "tax" on defense spending. What leaders need to understand now is where the cost of compliance is greater than this tax. It's time to scrutinize the cost of compliance as an area to find potentially significant budget savings.
Multiple, disjointed decision support systems. Three important decision-support systems share roles in the Defense acquisition process: requirements, acquisition, and budgeting (see figure 4). These three sub-systems neither report to or fall under a single overarching "system," nor do they operate in a manner similar to a "system of systems." Instead, they function for the most part independently, each pursuing its own goals without considering the impact on the others. As a result, there is no integrated investment process where requirements are checked against financial, technical, or programmatic risk. To exacerbate the problem further, resources can and do change annually without regard to programmatic effect. The differences in organizational values among the various process owners and participants, including those who oversee these decision-support systems, cause incompatible actions.
Although these different sets of values are legitimate, pursuing one without consideration of its impact on other processes adds instability to the overall acquisition process. The lines of responsibility, accountability, and authority must be aligned. However, in the DoD each different warrant holder can delay the program or stop it altogether.
Furthermore, this disconnect lengthens the decision-making process and increases the number of acquisition-related activities, many of which add little value (such as inspections and reviews) compared to commercial best practices. As figure 5 shows, the number of activities in a typical DoD acquisition program is 228, more than quadruple the activities in a similar best-practice commercial program.
Commercial Best Practices Provide Useful "Lessons Learned"
Facing these obstacles, the DoD would be wise to consider commercial best practices as it seeks to reduce technology risks, limit product changes, and minimize bureaucratic hurdles.
The DoD, as we noted, occasionally includes the use of immature or high-risk technology in its product development. Commercial firms, on the other hand, typically learn as much as they can about a product's needed technology, its projected performance, and manufacturability very early in the product development process (see figure 6).
For example, Boeing initially decided to use aluminum lithium, a new, unproven alloy, for its 777-200 aircraft. The program favored this metal for its strength and weight savings. However, Boeing rejected the alloy early in development because it was expensive, its manufacturing processes were not well understood, and its availability was limited. The company would not simply assume these issues would improve during the aircraft's development.
Occasionally, a commercial firm will develop technology in parallel with product development, but the technology is developed in a separate process. In such cases, the firm launches an initial product using a mature technology that meets initial customer needs. Then, as other technologies are proven on a separate track, they can be incorporated into the product, meeting even greater customer requirements. When developing the HS-702 satellite, Hughes Space and Communications used separate technology and product development processes, and it was able to move new technologies from concept into product development, making notable performance increases along the way.
The DoD and commercial enterprises have different criteria for judging a product's success. The success of a commercial product is determined by whether the company can produce and sell it at a reasonable profit. Therefore, before a company begins developing a product, it first develops a business case that considers production realities and builds in natural barriers to overreaching for performance, cost, and schedule. This business case provides a solid decision-making framework from the outset to use throughout the program.
Best-practice companies use a stage-gate product development process that is more streamlined and better geared to making faster decisions, and to move quickly and effectively through the process than the DoD's approach. Boeing, for example, put the 777-200 into production less than five years after development began—a highly favorable timeframe compared to the more than 11 years the DoD needed to develop the E-2D Advanced Hawkeye aircraft. Furthermore, Boeing was able to reduce its 777-200 development time by 40 percent when it developed the next version, the 777-300.
The DoD's process focuses more on compliance with documentation and other requirements. Numerous statutory, regulatory, and policy documents are required at each stage. Add to that the various approval processes needed at the Secretary of Defense, Joint Chiefs of Staff, Service Secretary, and Under Secretary of Defense levels, and the approval process through the Defense Acquisition Board can take more than a year. Commercial enterprises, on the other hand, rely on a single process, such as a product approval committee (PAC), a core team, and a project team, to work closely to drive the stage-gate process and reduce the time needed to complete product development (see figure 7).
As the commercial examples indicate, the value of time is a critical element driving management decisions around product development. Leading companies understand the value of quickly completing development programs and getting products in the market, where they can generate revenue and prove their worth. That's why these companies build relatively short cycle times into their decisions as they begin development. Such time frames encourage program managers to identify risks and enable them to say "no" to pressures to accept unknowns.
Applying Commercial Best Practices to ACAT I Programs
Today, the DoD has several commercial-like initiatives under way—such as using cost or price to force technology tradeoffs—that it believes show promising results. These initiatives are indeed a welcome start to applying commercial best practices to ACAT I programs. Now, the DoD must continue down this path.
To do so, it will have to implement commercial best practices as a way to reduce acquisition cycle times. For such practices to work on a broad scale, however, the DoD mindset needs to change to become open to such practices and encourage their use. The best way to do that is to begin by applying commercial best practices to a handful of ACAT I programs that can serve as pilots— proof of concept. This gradual introduction can help break the traditional mode and open the door to further changes.
To be successful, these select programs must be given waivers to adjust the acquisition process and reduce cycle times. Such authorization would not be new to the DoD; the military acquisition reform initiatives in the 1990s afforded early statutory and regulatory relief for such moves, including those of the Defense Acquisition Pilot Programs. One was the Joint Direct Attack Munition (JDAM), which significantly reduced the amount of military specifications and standards. JDAM has eliminated all 87 of the military specifications and standards that were in its baseline contract in favor of commercial practices. It has been one of the more successful acquisition reform programs.
Beginning with those few ACAT I programs, the DoD should next implement three of the many commercial best practices. Although there are many important practices, these three could have the most impact on DoD acquisition cycle times:
Establish the technology maturity threshold. Though the DoD has introduced a new approach to developing new weapon systems called evolutionary acquisition with spiral development, it has done so on a somewhat limited basis.
To achieve shorter production cycle times, the DoD must apply spiral development more broadly, separating technology development from weapon system development and aggressively pursuing new technologies outside the realm of the broader program. Doing so will enable the DoD to move ahead more quickly with development using mature technologies (for example, commercial off-the-shelf) or incorporating incremental technology advancement throughout the weapon system development.
Along with these separate programs, DoD should establish higher standards for knowledge about each weapon system program—standards such as release of engineering drawings, identification of key production processes, demonstration of risky or new production processes, and achievement of statistical process control—that will lead to better results when the development program transitions to production. Also, it should take steps to ensure that standards are put in place for applying knowledge of production-related timing and quality, and that this knowledge is used for assessing production risks.
Freeze requirements at a decision point. Performance requirements need to be frozen much sooner in development if the DoD is to curb cost growth and schedule delays and prevent changes to major performance requirements after development.
To do this, DoD must employ a disciplined process to match requirements with the available technological capability before the weapon system development process begins. And it needs to bring to this requirement process proven technological knowledge from sources such as:
- Current information from predecessor programs
- People with firsthand experience on those programs
- New technologies deemed mature as a result of having "graduated" from a disciplined technology development and screening process
To make sure these requirements are set and not changed, the DoD must communicate extensively with customers to match their wants and needs to contractors' available technology and their ability to manufacture the desired products.
Establish milestones and rewards. To improve acquisition decision making, the DoD must recognize that time is directly associated with increasing costs. The current decision-support disconnects are contributing to weapon system cost overruns and schedule delays. It must re-examine with a "lean" mindset the approval authorities and timing along the Major Defense Acquisition Programs (MDAP) process.
Furthermore, the DoD should reestablish the links between requirements, budgeting, and acquisition decision-making systems, which, as mentioned earlier, act now as practically independent systems. It should modify the planning phase of its PPBE process.5 Then, within the timeframe of that phase, it should make the necessary decisions on weapon system requirements, multiyear budgeting, and acquisition program continuation or termination.
Also, both government and contractor program managers need real incentives for compressing cycle times, while still being given reasonable oversight and fiduciary control constraint. In effect, they should be given latitude to manage programs while being held accountable for results (see figure 8).
Finally, and most importantly, to translate top-level policy and dialogue into tangible actions, it is essential for both government (Congress and the DoD) and contractors to establish trust-based, transparent, and collaborative relationships at the program manager level. Program managers on both sides need this top-level guidance and authority. In addition, joint process improvements and joint solutions occur at the working level, so collaborative working relationships at this level need to become the norm, not the exception.
This fundamental change in buyer-supplier relationships cannot be accomplished by writing new policies. Rather, it requires top-level commitment to working together differently and to empowering both sides at the working level. The DoD could make this happen by implementing a selective pilot—with an actual product or service acquisition, or sustainment program—to demonstrate the process and benefits, and to provide a "template" for broader adoption.
Understanding the Value of Time
By using a streamlined stage-gate process and taking advantage of other time- and cost-saving actions, best-practice companies develop large, complex products—comparable in many aspects to those developed by the DoD—in a fraction of the time needed by DoD, saving them and their customers a significant amount of money, while getting their products to market much sooner. DoD can gain a lot by adopting the way these companies approach and execute product development. Furthermore, DoD and the Congress must recognize that they must connect their requirements, acquisition, and budgeting to reduce costly oversight and the time to product development.
These changes would make an immediate impact—lower costs and faster time to completion—and a growing advantage for our warfighters as they succeed on the battlefield.