OPERATING AND SUPPORT COST-ESTIMATING GUIDE

1 OPERATING AND SUPPORT . COST-ESTIMATING GUIDE . OFFICE OF THE SECRETARY OF DEFENSE. COST ASSESSMENT AND PROGRAM. EVALUATION. SEPTEMBER 2020. This page intentionally left blank. Contents 1. INTRODUCTION .. 1. 1. Applicability .. 1. 1. 2. OVERVIEW OF LIFE-CYCLE COSTS .. 3. Life-Cycle Cost Categories .. 3. Cost Categories as a Percentage of Life-Cycle Cost .. 4. Overview of O&S Cost Scope and Definitions .. 6. 3. OSD COST ELEMENT STRUCTURE .. 7. Introduction .. 7. 9. 4. DIFFERENT METRICS OF O&S COSTS .. 19. Introduction .. 19. O&S Cost Categorizations .. 19. O&S Cost Metrics .. 25. 5. ROLE OF O&S COSTS .. 33. Acquisition Milestone and Other Reviews.

2 33. Sustainment Reviews .. 34. Other Roles of O&S Cost Estimates and Analyses .. 34. Selected Acquisition Report .. 34. 6. SOURCES OF O&S COST DATA .. 37. VAMOSC Program .. 37. Cost Reporting for Sustainment Contracts .. 39. 7. O&S COST ESTIMATING PROCESS .. 47. Introduction .. 47. Program Definition .. 48. Cost Estimating Plan .. 50. Cost 56. Cost Estimate .. 58. iii Appendices APPENDIX A Software Maintenance Cost 69. APPENDIX B Indirect SUPPORT Cost Elements .. 73. APPENDIX C Definitions for Acquisition Logistics SUPPORT Cost Elements .. 77. APPENDIX D Mapping from O&S Cost Elements to Budget Appropriations .. 81. APPENDIX E Analytic SUPPORT for Sustainment Reviews.

3 85. APPENDIX F DoD Maintenance and Supply .. 101. APPENDIX G Product SUPPORT Cost Estimate at the Component Level of Detail .. 109. APPENDIX H Relevant Statutory Requirements .. 123. APPENDIX I Rates for Military and Civilian Manpower .. 135. APPENDIX J References .. 137. Abbreviations .. 139. Glossary .. 143. Figures Figure 2-1. Illustrative System Life Cycle ..3. Figure 2-2. Major Cost Categories as % of Total Life-Cycle Cost for Selected System Types ..5. Figure 3-1. Second/Third Level of Cost Element Structure ..8. Figure 4-1. O&S Cost Elements ..19. Figure 4-2. O&S Cost Categorizations ..24. Figure 4-3. O&S Cost Categorizations (cont.)..25.

4 Figure 4-4. Examples of Aircraft O&S Cost Metrics ..26. Figure 4-5. Examples of Aircraft O&S Cost Metrics (cont.) ..27. Figure 4-6. Effect of System Usage on O&S Cost Metrics ..28. Figure 4-7. Example of Normalization of $/Flight Hour Metric ..29. Figure 4-8. Example of Various $/Flight Hour Metrics ..30. Figure 6-1. Flexfile Report for Sustainment Data Figure 6-2. CSDR Sustainment WBS for Figure 6-3. CSDR Standard Functional Categories for Sustainment ..43. Figure 6-4. Maintenance and Repair Parts Report Data Elements ..44. Figure 6-5. Software Maintenance Report Data Elements ..45. Figure 7-1. Recommended O&S Cost Estimating Process ..48. Figure 7-2.

5 Typical System Characteristics and Program Content ..49. Figure 7-3. Nominal System Life Figure 7-4. Nominal System Life Durations (cont.) ..53. iv Figure 7-5. Example of O&S Phasing Convention ..54. Figure 7-6. Inflation/Escalation Index Selection GUIDE ..55. Figure 7-7. Example of Analogy Cost Estimate ..59. Figure 7-8. Example of Cost Estimate by CER ..61. Figure 7-9. Example of Sensitivity Analysis ..63. Figure 7-10. Second Example of Sensitivity Analysis ..64. Tables Table 4-1. Cost Element Composition of O&S Categorizations ..20. Table 4-2. Cost Element Composition of O&S Categorizations (cont.) ..21. Table 4-3. Cost Element Composition of O&S Categorizations (cont.)

6 23. Table 7-1. Comparison of Replacement Systems to Antecedents ..60. Table E-1. Track of Aircraft Fuel Table G-1. Avionics Components Input Table G-2. Avionics Components Input Data (continued) ..112. Table G-3. SUPPORT Equipment Input Data ..114. Table G-4. Technical Data Input Data ..115. Table G-5. Training and Training Devices Input Data ..116. Table G-6. Total Acquisition Logistics Table G-7. Total O&S v This page intentionally left blank. 1. INTRODUCTION. Purpose This GUIDE was prepared by the Office of the Secretary of Defense (OSD) Director of Cost Assessment and Program Evaluation (DCAPE) for use by the Department of Defense (DoD).

7 Military departments and defense agencies in developing estimates of system OPERATING and SUPPORT (O&S) costs. Applicability This GUIDE is focused on analytic methods and data for O&S cost estimates and analyses for a wide variety of DoD weapon systems. Outline The remainder of this GUIDE is organized as follows: Chapter 2 provides an overview of the concepts of system life-cycle cost and system O&S cost. Chapter 3 provides the standard OSD O&S cost element structure. The cost element structure is an organized and defined taxonomy of O&S cost elements. Chapter 4 describes various categorizations of O&S cost elements, and associated O&S. cost metrics, that are used for a variety of different purposes.

8 Chapter 5 discusses the uses of O&S cost estimates and analyses in SUPPORT of the defense acquisition process throughout the program life cycle. Chapter 6 provides a summary of the O&S cost and related data systems that are available to the DoD cost community, including contractor cost data reporting for major sustainment contracts. Chapter 7 provides a tutorial on the best practices for planning, conducting, presenting, and documenting O&S cost estimates. This GUIDE also has several appendices: Appendix A provides an optional, more detailed cost element structure for software maintenance. Appendix B provides terms and definitions for O&S-related indirect costs.

9 Appendix C provides terms and definitions for acquisition cost elements associated with system product SUPPORT . 1. Appendix D provides a mapping from OSD O&S cost elements to budget appropriations. Appendix E provides a recommended analytic approach that can be used to SUPPORT sustainment reviews of major weapon systems after initial operational capability. Appendix F provides background on DoD maintenance and logistics for major weapon systems. Appendix G provides an example of an O&S cost estimate at the component or black box level of detail. Appendix H describes the extensive and demanding statutory and regulatory requirements associated with O&S cost estimates and analyses, weapon system sustainment, and life-cycle product SUPPORT .

10 Appendix I provides information on rates for military and civilian manpower. Appendix J provides the references used throughout this GUIDE . This GUIDE also has a list of abbreviations and a glossary. 2. 2. OVERVIEW OF LIFE-CYCLE COSTS. Life-Cycle Cost Categories Life-cycle cost is defined as the sum of four major cost categories: (1) research and development costs; (2) investment costs, consisting of procurement and military construction costs; (3) O and (4) disposal costs. Figure 2-1 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 pathway.