1. 16 - 1 Time Phasing Development and Production Chapter 16

2. 16 - 2 Time Phasing Development Say you are estimating the cost of the next Navy long- range, carrier-based bomber. Your development program is projected to last 8 years, and the production run is expected to occur over 12 years. Your development CERs have provided you with the total development cost. Now, for programming and budgeting purposes, you must identify your resource requirements by fiscal year. How will you allocate the development costs over the eight years? Note: Whenever dollars are being spread across two or more fiscal years, the calculations must be performed in base year or constant year dollars.

3. 16 - 3 Incremental Funding While PRODUCTION can be said to be product oriented in its funding approach, DEVELOPMENT is more process oriented. This means cost has to be tied to the process of development which includes system requirements review, preliminary design review, critical design review, software coding, system tests, etc. Incremental Funding is the process of breaking a development effort down into fiscal year increments and funding one increment at a time.

4. 16 - 4 Fiscal Spread Procedures Assume we want to estimate the Engineering and Manufacturing Development (EMD) cost for the Automated Information Management System (AIMS). Using CERs, analogies, etc., we have come up with a point estimate representing the cost of the system. This may be exactly what is needed to allow the decision maker to select an alternative, but in order to be useful as a management tool it is necessary to spread the cost across the applicable fiscal years of the effort. We will look at various techniques for the fiscal year spreading of incremental costs. We begin with the WBS indicated on the next page. The estimate was arrived at using CERs and cost factors.

5. 16 - 5 Work Breakdown Structure 20002001200220032004

6. 16 - 6 Fiscal Spread by Program Schedule This technique involves the following process of developing schedules and milestones: – Determine the milestones. – Time phase milestones based on the program schedule. – Estimate percent of total cost required to complete each milestone. – Allocate cost to appropriate fiscal year(s).

7. 16 - 7 Step 1 - Determine Milestones Select those milestones which are most quantifiable. In our example we will use:

8. 16 - 8 Step 2 - Time Phase Milestones

9. 16 - 9 Step 2 - Time Phase Milestones

10. 16 - 10 Step 3 - Estimate Cost Percentages

11. 16 - 11 Step 4 - Allocate Costs by Fiscal Year

12. 16 - 12 Results of Fiscal Spread Procedure Since this method is tied to the program schedule it can be fairly easily defended. However, if the program is not yet developed to any level of detail, then the analyst must either pursue development of the schedule or look for another methodology.

13. 16 - 13 Time Phasing Production Until now we have focused on time-phasing an estimate in the development stage. The next step is to address spreading the production estimate over time. The production CERs yield a T1 for recurring hardware. In addition, you have factors for data, support equipment, training and other non-recurring costs. If production spans 12 years, where in the 12 year production schedule do you allocate costs for data or support equipment?

14. 16 - 14 Outlay Profile Method The outlay profile method can be used to fiscally spread a cost estimate for a production program. In a production program where multiple lots are being produced over multiple years, this has the effect of converting a cost estimate into a budget estimate. Consider a missile production program which produces 1000 air-to-air missiles over five years. Historically, it takes six years to spend all of the funds obligated in a missile production contract. So, for a five year production run, the program office can plan on providing funding for 11 years. See example, next page.

15. 16 - 15 Outlay Profile Method

16. 16 - 16 Outlay Profile Method