OPERATING AND SUPPORT COST-ESTIMATING GUIDE

1 OPERATING AND SUPPORT COST-ESTIMATING GUIDE OFFICE OF THE SECRETARY OF DEFENSE COST ASSESSMENT AND PROGRAM EVALUATION MARCH 2014 This page intentionally left blank Contents 1. INTRODUCTION .. 1- 1 Purpose .. 1- 1 Applicability .. 1- 1 Overview .. 1- 1 2. OVERVIEW OF LIFE-CYCLE COSTS .. 2- 1 Life-Cycle Cost Categories .. 2- 1 Life-Cycle Cost Category Definitions .. 2- 3 Life-Cycle Cost Categories and Budget Appropriations .. 2- 5 3. ROLE OF O&S COST INFORMATION .. 3- 1 Introduction .. 3- 1 O&S Cost Information and Program Decision Points .. 3- 1 Trade-Off Studies.

2 3- 4 Analysis of Alternatives .. 3- 5 Affordability .. 3- 6 Early Influence on System Design .. 3- 11 Business Case Analysis for LIfe-Cycle Sustainment Plan .. 3- 12 Reliability and Maintainability Specification and Tracking .. 3- 13 Tracking and Assessing O&S Cost Estimates .. 3- 16 Assessing Resources for SUPPORT .. 3- 19 Manpower Estimates .. 3- 20 O&M Budget Reports .. 3- 22 Assess and Manage Trends for Legacy Systems .. 3- 24 AT&L Decision SUPPORT Report Formats .. 3- 27 4. O&S COST DATA .. 4- 1 VAMOSC Program .. 4- 1 Background .. 4- 1 Policy.

3 4- 2 Cost Reporting for Sustainment Contracts .. 4- 3 5. O&S COST ESTIMATING PROCESS .. 5- 1 Introduction .. 5- 1 Develop Approach .. 5- 1 Establish Requirements and Sources for Data and Information .. 5- 2 Establish Ground Rules and Assumptions .. 5- 2 Define Program and System Content .. 5- 5 Select Cost Element Structure .. 5- 6 Prepare Estimate .. 5- 7 iii Collect, Validate, and Adjust Data .. 5- 7 Select Methods or Models .. 5- 8 Assess Program Status and Identify Risk Areas .. 5- 9 Estimate Costs .. 5- 10 Conduct Sensitivity 5- 10 Document Results.

4 5- 11 Present Results .. 5- 11 6. OSD COST ELEMENT STRUCTURE .. 6- 1 Introduction .. 6- 1 Definitions .. 6- 3 Unit-Level Manpower .. 6- 3 Operations .. 6- 6 Unit-Level Maintenance .. 6- 6 Other Unit-Level .. 6- 6 Unit Operations .. 6- 7 OPERATING Material .. 6- 8 SUPPORT Services .. 6- 8 Temporary Duty .. 6- 9 Transportation .. 6- 9 Maintenance .. 6- 9 Consumable Materials and Repair Parts .. 6- 10 Depot Level Reparables (DLRs) .. 6- 10 Intermediate Maintenance (External to Unit-Level) .. 6- 10 Depot Maintenance .. 6- 11 Other Maintenance.

5 6- 11 Sustaining SUPPORT .. 6- 11 System-Specific Training .. 6- 11 SUPPORT Equipment Replacement and Repair .. 6- 12 Sustaining/Systems Engineering .. 6- 12 Program management .. 6- 13 Information Systems .. 6- 13 Data and Technical Publications .. 6- 13 Simulator Operations and Repair .. 6- 14 Other Sustaining 6- 14 Continuing System Improvements .. 6- 15 Hardware Modifications .. 6- 15 Software Maintenance .. 6- 15 Indirect SUPPORT .. 6- 16 Installation 6- 16 Personnel SUPPORT .. 6- 17 General Training and Education .. 6- 18 iv APPENDICES Appendix A.

6 References .. A-1 Appendix B. An Example of a Comparative Life-Cycle Cost Appendix C. Evaluating the Life-Cycle Cost of Deferring Legacy System Replacement through System Upgrade ..C-1 Appendix D. Sample Presentation Formats .. D-1 Appendix E. Section 832, FY 2012 National Defense Authorization Act .. E-1 Appendix F. Abbreviations .. F-1 FIGURES Figure 2-1. Illustrative System Life Cycle .. 2- 1 Figure 2-2. O&S Costs as Percentage of Total Life-Cycle Cost for Selected System Types .. 2- 2 Figure 3-1. Role of O&S Cost Estimates by Acquisition Event .. 3- 3 Figure 3-2. Example O&S Cost Analysis Supporting a Trade-Off Study.

7 3- 5 Figure 3-3. Nominal Long-Range Modernization Plan .. 3- 8 Figure 3-4. Nominal Long-Range O&S Projection .. 3- 9 Figure 3-5. Notional O&S Affordability Comparison .. 3- 10 Figure 3-6. Notional Life-Cycle Cost Comparison of Design Alternatives .. 3- 12 Figure 3-7. Track of Aircraft Reliability Metric .. 3- 14 Figure 3-8. Track of Aircraft Maintainability Metric .. 3- 15 Figure 3-9. Unit Maintenance Manpower as a Function of Reliability and Maintainability .. 3- 16 Figure 3-10. Track of O&S Cost Estimates .. 3- 17 Figure 3-11. Normalized Assessment of O&S Cost Growth .. 3- 19 Figure 3-12.

8 Assessment of Approved Ship Manning .. 3- 22 Figure 3-13. Key O&M Budget Justification Reports .. 3- 23 Figure 3-14. Sample Budget Assessment for an O&M Cost Element .. 3- 24 Figure 3-15. Sample System O&S Trend Analysis .. 3- 25 Figure 3-16. Sample System O&S Trend Analysis for Individual Elements .. 3- 26 Figure 5-1. Recommended Analytic Approach for O&S Cost Estimate .. 5- 1 Figure 5-2. Nominal System Life 5- 3 Figure 5-3. Example of O&S Phasing Convention .. 5- 4 Figure 5-4. Typical Program and System 5- 6 Figure 6-1. Second/Third Level of Cost Element Structure Hierarchy.

9 6- 2 Figure B-1. Sensitivity Analysis for Component B Reliability ..B-4 Figure C-1. Projected Annual Life-Cycle Cost for Alternative 1 ..C-3 Figure C-2. Projected Annual Life-Cycle Cost for Alternative 2 ..C-3 Figure C-3. Sensitivity Analysis for Replacement System Annual Unit O&S Cost ..C-5 v Figure D-1. Sample Ground Rules and Assumptions .. D-2 Figure D-2. Sample O&S Cost Summary .. D-3 Figure D-3A. Sample O&S Cost Methods .. D-4 Figure D-3B. Sample O&S Cost Methods (cont.) .. D-5 Figure D-4. Sample O&S Cost Sensitivity D-6 Figure D-5. Sample O&S Cost Time-Phasing .. D-7 Figure D-6. Sample O&S Cost Typical Unit Comparison.

10 D-8 Figure D-7. Sample O&S Cost Track .. D-9 TABLES Table 3-1. Acquisition Decision Points .. 3- 2 Table B-1. Results of LCC Analysis Comparing Two Alternative Components ..B-2 Table C-1. Summary of Major Cost Input Data ..C-2 Table C-2. Life-Cycle Cost Comparison ..C-4 vi 1. INTRODUCTION PURPOSE This GUIDE was prepared by the Office of the Secretary of Defense (OSD) Director of Cost Assessment and Program Evaluation (CAPE) for use by the Department of Defense (DoD) Components ( , military departments and defense agencies) in developing estimates of system OPERATING and SUPPORT (O&S) costs.