Transcript Presentation Title

Federal Value Engineering Policy Update and Its
Implications for DOD
Jeffery T Hooghouse, AIA, DBIA, CVS
ODASD, Systems Engineering
Jay Mandelbaum
Institute for Defense Analysis
Government Value Management Conference
June 14, 2012
SAVE Conference
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Outline
•
•
•
•
•
•
SAVE Conference
06/14/2012 Page-2
DoD’s VE Savings and Cost Avoidance
OMB A-131 Update
DoD Instruction
DoD Program Management
Defense Contract Management Agency
Conclusions
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
DoD VE SAVINGS and COST AVOIDANCE
5,000
TOTAL
4,500
(VEP)
$51B
$M (Then Year)
4,000
(VECP)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
80
83
85
87
89
91
93
95
97
99 00
02
04
06
Fiscal Year
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08
10 11
DoD VE SAVINGS and COST AVOIDANCE
$M (FY12 Constant $)
5,500
TOTAL
(VEP)
(VECP)
5,000
4,500
$69B
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
80
83
85
87
89
91
93
95
97
9900
02
04
06
Fiscal Year
SAVE Conference
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08
1011
DoD VE SAVINGS and COST AVOIDANCE
$M (FY12 Constant $)
5,500
TOTAL
(VEP)
(VECP)
5,000
4,500
$69B
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
80
83
85
87
89
91
93
95
97
9900
02
04
06
Fiscal Year
SAVE Conference
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08
1011
Enhanced Small Arms Protective
Inserts (ESAPI) Plate Repair
• Achievement
– All plates exhibiting external material defects (EMDs)
were being replaced because some of concerns that
the ballistic performance of the internal materials
could be reduced
– Through an examination of the protect soldier
function, an inspection process was implemented
and approved repair methods were developed
o For severely damaged plates, the old spall cover is removed and
recovered
o For small cuts or holes, new material is welded on
• Cost avoidance: $324.5M over 3 years
• Other benefits
– Re-spall and repair procedures allowed a majority of the plates to
be recovered and returned to service rather than discarded
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DDG 51 Procurement
• Achievement
– As part of its function to procure ships, the
Navy was faced with conflicting objectives
o Maintaining viable competition with decreasing
workload
o Maintaining common terms and conditions
across contracts
o Reducing cost
– VE was used to develop a contract negotiation approach to balance
these objectives
• Cost savings: $298M over 2 years
• Other benefits
– Sustains a viable industrial base allocating work to two shipbuilders
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P-8 Poseidon Program Production
Line
• Achievement
– The Navy needed a replacement for its old
fleet of P-3 land-based anti-submarine
warfare aircraft – these airframes were
suffering severe fatigue risks
– By using the commercial Boeing 737
fuselage for the P-8 Poseidon (P-3
replacement) program, the Navy avoided
building a separate production line
o VE was used to examine the function of the fuselage, hold equipment, to
help develop this option
• Cost avoidance: $1.8B over 6 years
• Other benefits
– P-8 fielding will be accelerated, reducing the risks faced by P-3
pilots
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Miniature/MicroMiniature Module
Test and Repair
• Achievement
– Failed electronic modules were being sent to depot for test and
repair
o This generated a requirement to procure spare modules to replace the
failed ones
– A systematic method was developed to perform the repair and test
functions at organizational and intermediate maintenance levels
o The method was also more reliable in that no-fault-evident modules
were no longer shipped to the depot
• Cost avoidance: $480M over 10 years
• Other benefits
– Improved operational readiness because of
quick turn-around testing and repair
– Field units become more self-sustainable
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DoD VE Awards
• Awards Program established in FY 1982 to
recognize exemplary in-house and contractor VE
achievements
• Each Service/Agency is eligible for one award in the
categories of: Program/Project, Individual, Team,
Organization, Contractor, and Special
• DoD VE MAG reviews and select award winners for
USD (AT&L) approval
• Ceremony held annually at the Pentagon
– FY 2011 awards to be presented June 27, 2012
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Outline
•
•
•
•
•
•
SAVE Conference
06/14/2012 Page-11
DoD’s VE Savings and Cost Avoidance
OMB A-131 Update
DoD Instruction
DoD Program Management
Defense Contract Management Agency
Conclusions
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
Updating OMB A-131 is like …
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OMB A-131 Update Published in
Federal Register (1 of 3)
• Preamble
– Changes made to update and reinforce policies associated with
the use of this management tool
– VE has been demonstrated to be an effective technique for
cutting waste and inefficiency -- helping agencies to save
billions of dollars in program and acquisition costs, improve
performance, enhance quality, and foster the use of innovation
– Revisions designed to ensure agencies have the capabilities
and tools to consider and apply VE techniques, whenever
appropriate
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OMB A-131 Update Published in
Federal Register (2 of 3)
• Requirements for all Federal agencies
–
–
–
–
–
–
Designate a senior management official (SMO)
Develop VE policies, procedures, and guidelines
Assign waiver authority to the SMO
Develop VE guidance, tools, and training
Budget for VE efforts
Maintain files on projects that meet agency criteria for requiring
the use of VE techniques
– Use VE clauses as set forth in FAR Parts 48 and 52
– Develop annual VE plans
– Report annually
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OMB A-131 Update Published in
Federal Register (3 of 3)
• Performance based and service contracts
highlighted
– Senior management shall ensure that VE is used on all
appropriate programs, including projects and acquisition
programs that are supported by performance based and service
contracts
– Agency guidelines will include guidance and encouragement for
the use of VE on all appropriate contracts, including contracts
supporting major acquisitions as well as service and
performance based contracts
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Outreach to Federal Agencies for
OMB A-131
• Veterans Affairs
– Procurement
– Construction
– VA Academy
• Defense Acquisition University
– Center Directors for program management; business, cost
estimating, and financial; contracting; engineering and technology;
and logistics and sustainment
• Federal Acquisition Institute
– Program management FAB
– Webcast
• NCMA World Congress
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VE is not Engineering
• Also referred to as Value Management, Value
Analysis, Value Planning and other related terms
• VE is mandatory across the Federal Government
– Required by public law PL-111-350, Public Contracts,
updated in 2011
– Implemented by OMB Circular No. A-131, Value Engineering
• FAR Parts 48 and 52 establish two VE approaches
– Mandatory program
– Incentive approach requires VE clause in supply or service
contracts exceeding the simplified acquisition threshold
This is an important message to many communities
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Outline
•
•
•
•
•
•
SAVE Conference
06/14/2012 Page-18
DoD’s VE Savings and Cost Avoidance
OMB A-131 Update
DoD Instruction
DoD Program Management
Defense Contract Management Agency
Conclusions
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
DoD Instruction 4245.nn Policy
• Components shall:
– Implement a VE program to improve worth and reduce cost
o Within government
o With contractors
– Incorporate VE within continuous process improvement training
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DoD Instruction 4245.nn
USD(AT&L) Responsibilities
• Establish policy for the DoD VE program and provide
guidance on using VE to implement affordability, cost
controls, and incentivizing productivity and innovation in
accordance with better buying power
• Support the application of VE in finding ways to reduce
non-productive processes and bureaucracy
• Review DoD Components’ annual VE results and
management plans and continue the annual program
recognizing exemplary VE accomplishments by DoD
activities
• Assign an annual DoD VE goal applicable to all DoD
Components and subordinate organizations
• Establish and maintain the VE Executive Steering Group
(ESG), and the VE Management Advisory Group (MAG)
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DoD Instruction 4245.nn Next Steps
• Waiting for final (third) coordination from General
Counsel
• Security review
• Signature
This process started in September MMXI
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Outline
•
•
•
•
•
•
SAVE Conference
06/14/2012 Page-22
DoD’s VE Savings and Cost Avoidance
OMB A-131 Update
DoD Instruction
DoD Program Management
Defense Contract Management Agency
Conclusions
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
DoD VE Management Advisory
Group (MAG)
• VE Program Manager – Jeff Hooghouse
– Oversight resides in the Office of the Under Secretary of
Defense (Acquisition, Technology and Logistics) Systems
Engineering
• VE MAG – Act as agent across services and
agencies
–
–
–
–
Membership – one member per service/agency
Facilitate/Promote VE in services and agencies
Collect and report savings metrics
Select annual award winners and sponsor
annual
awards ceremony
– Maintain VE program management plan
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VE and Obtaining Greater Efficiency
and Productivity in Defense Spending
•
•
•
•
“The Department will obtain greater efficiency and productivity in
its spending by continuing to pursue … initiatives like VE …”
“VE complements other Department efforts to support
Warfighters by providing them with the best possible systems
through energy-efficient and effective solutions.”
“… we can achieve an even higher level of performance by
emphasizing greater application of both in-house VE and
contractor-initiated VE change proposals.”
“…identify a VE senior manager for expanding VE activities …
and VE targets for FY12…”
• “I would like to track your
targets on a quarterly basis.”
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Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
DoD VE Status Reporting
• Report on status of nine VE areas of responsibility
per OMB Cir A-131
• OSD maintains a database of plans and goals
– Organizations report status quarterly to OSD
– USD(AT&L) gets quarterly and annual reports
• OSD report annually to OMB its previous fiscal year
VE metrics
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VE Program Management Plan
• Foster the expanded utilization of value
engineering throughout DOD to contribute to the
Better Buying Power Initiatives by achieving
greater affordability, increased efficiencies, and
improved cost control by:
– Creating a management framework for enabling compliance
with Public Law 111-350 Section 1711 and its implementing
instruction, Office of Management and Budget (OMB)
Circular A-131
– Overcoming barriers that discourage the application of value
engineering
• Activities organized around DODI 4245.nn
responsibilities of the USD(AT&L)
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VE and Continuous Process
Improvement (CPI)
• VE works synergistically with all other CPI initiatives
• It makes any project better by utilizing a unique
approach to problem solving that includes the
analysis of the functions of an item or a process to
determine best value
• VE systematically determines all of the necessary
functions of the item or process, identifies those
functions that cost more than they are worth, and
brainstorms alternative ways to perform those
functions for further evaluation
• This distinctive approach drives innovation because it
encourages people to think about the situation in
atypical ways
Need to embed VE in all CPI processes
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06/14/2012 Page-27
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
Outline
•
•
•
•
•
•
SAVE Conference
06/14/2012 Page-28
DoD’s VE Savings and Cost Avoidance
OMB A-131 Update
DoD Instruction
DoD Program Management
Defense Contract Management Agency
Conclusions
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
New Defense Contract Management
Agency (DCMA) Initiative (1 of 3)
• Objective
– Facilitate the submission of VECPs in lieu of ECPs to create a
win-win situation for the contractor and the government
• Background
– DCMA typically evaluates some level 1 and most level 2 ECPs
o Level 2 ECPs do not require government funding
– Because of its presence in the field, DCMA is in a good position
to evaluate ECP cost savings potential (which is not always
included)
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Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
New Defense Contract Management
Agency Initiative (2 of 3)
• Approach
– When proposed ECPs meet the FAR requirements for a VECP,
DCMA will recommend that the program office reject the ECP
and have it submitted as a VECP
– DCMA will also interface with the contracting officer to provide
the basis for the VECP from a government field representative
perspective
– Exploring the possibility of combining single changes to a
product that cut across multiple contracts
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New Defense Contract Management
Agency Initiative (3 of 3)
• Advantages for the government
– Cost savings assured for 3 to 5 years
– Some cost savings change proposals will no longer be rejected
because of the government’s inability to fund the non recurring
engineering
• Advantages for the contractor
– Opportunity to share savings on change proposals that might
not have been implemented
– Risks associated with keeping its share of the savings avoided
– Will be reimbursed for some non recurring engineering costs
that would have been paid from contractor resources
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Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
Outline
•
•
•
•
•
•
SAVE Conference
06/14/2012 Page-32
DoD’s VE Savings and Cost Avoidance
OMB A-131 Update
DoD Instruction
DoD Program Management
Defense Contract Management Agency
Conclusions
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
Conclusions
• This is a good start
• Barriers include to further gains include
– Lack of VE knowledge among DOD agencies and
contractors
– Lack of VE knowledge in the DOD contracting community
– VE culture and attitudes in DOD program offices
– Industry concerns about VECPs
– Stove-piping of efficiency initiatives
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Value Engineering (VE) in the DoD:
An Overview
Nicholas Torelli
Director, Mission Assurance
Systems Engineering
SAVE Conference
June 2012
SAVE Conference
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History of Value Engineering
in the Department of Defense
• The Value Engineering (VE) concept is a by-product
of the wartime need during WWII to address material
shortages
– Approaches were developed to explore alternative solutions
that could deliver equivalent or better capability at lower total
life-cycle cost.
• DoD established a formal VE Program in 1963.
• VE has proven to be a successful DoD cost
reduction and product improvement tool for over 40
years.
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Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
Value Engineering in the DoD
• Value Engineering - An organized effort directed at analyzing the
functions of systems, equipment, facilities, services, and supplies for the
purpose of achieving the essential functions at the lowest life-cycle cost
consistent with required performance, reliability, quality, and safety.
OMB Circular A-131
• Application Areas:
 Improve/streamline operations
 Improve quality
 Increase the use of environmentally-sound and energy-efficient
practices and materials
 Simplify logistics
 Reduce maintenance
 Increase availability
 Improve durability
 Design/Redesign to eliminate cost drivers
VE Application at Enterprise-wide/Program Level Achieves
Cost Savings during Acquisition/Operations/Sustainment
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Definition of DoD Value
Engineering Terms
•
Value – Ratio of function to cost, where:
– function is a non-prescriptive representation of the intended purpose
of a component in a given systems operational context
– cost are assessed in a life-cycle context, which includes intrinsic and
extrinsic development, acquisition, operations, training, support and
disposal costs
– Systems operational context addresses a community and continuum
of use – develop, equip, train and employ
•
Value Engineering is a formal analytical process that examines
alternatives and attempts to maintain or improve function while
minimizing cost, yielding greater value to the customer community
•
Value Engineering Change Proposal (VECP) - A proposal submitted by a
vendor to the customer that proposes changes in design, manufacture,
service, maintenance or disposal that delivers increased value
•
Value Engineering Proposal (VEP) - A customer generated analysis that
directly proposes changes to a product or service to increase value
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Value Engineering Is Required by Law
•
41 USC 1711, Title 41, Subtitle I, Chapter 17 Public Contracts, Federal
Procurement Policy, Agency Responsibilities and Procedures, Value
Engineering
Each executive agency shall establish and maintain cost-effective
procedures and processes for analyzing the functions of a program,
project, system, product, item of equipment, building, facility, service,
or supply of the agency.
The analysis shall be –
(1) performed by qualified agency or contractor personnel; and
(2) directed at improving performance, reliability, quality, safety,
and life cycle costs.
•
Law requires all Agencies to:
– Establish and maintain a VE Program, supporting VEP and VECPs
– Develop annual VE plans
– Identify and report VE results
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Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
VE and Obtaining Greater
Efficiency/Productivity in Defense Spending
•
•
•
Increased usage of VE is a vehicle
to enable greater success
VE complements other
Department efforts to support
Warfighters
Need greater application of both
in-house VE and VECPs
–
•
Expand VE activities and VE
program targets
–
•
VECPs need greater focus
Identifies a VE senior manager for each
organization
Track progress toward these
targets on a quarterly basis.
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Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
VE Supports DoD’s Better Buying
Power Initiatives
Better Buying Power Efficiency
Initiative
Potential VE Contribution
1. Mandate affordability as a
requirement
Critically examine the value of every requirement and specifications
derived from it by comparing cost
2. Drive Productivity growth
through “will cost / should cost
“management
Improve what the product or service does in relation to the money
spent on it as a systematic and creative approach for attaining ROI,
VE
3. Eliminate redundancy within
warfighter portfolios
Aids in decisions through function analysis by achieving only the
necessary functions at a minimum overall cost
4. Promote Real Competition:
Remove obstacles to
competition
In re-procurement, Government can provide technical data describing
required functions of sole source components, enabling multiple
companies to bid
5. Incentivize Productivity and
Innovation in Industry: Reward
contractors for successful
supply chain and indirect
expense management
VECPs provide businesses with an incentive to reduce DoD’s costs;
contractor receives a share in the savings accrued if implemented.
There is direct VE application to all five Efficiency Initiatives.
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Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
DoD VE Savings and Cost Avoidance
$M (FY12 Constant $)
5,500
TOTAL
(VEP)
(VECP)
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
80
83
85
87
89
91
93
95
97
9900
02
04
06
Fiscal Year
FY 11 Savings and Cost Avoidance $4.7B
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08
1011
Systems Engineering:
It’s Role for Program Success
Innovation, Speed, and Agility
http://www.acq.osd.mil/se
SAVE Conference
06/14/2012 Page-42
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
Evolved Sea Sparrow Missile
(ESSM)
The Problem:
The ESSM is an advanced radar-guided missile
with a high explosive warhead used for surfaceto-air anti-missile defense. A now-obsolete
mechanical safe and arming fuze prevents an
unintended missile launch and, once launched,
arms the warhead when the proper stimuli are
received. Suppliers for this obsolete component
were limited and costs were high since highly
skilled personnel were needed for the complex
manufacturing process and a new fuze design
was cost prohibitive.
The Solution:
The Result:
The function of the fuze was analyzed by the
contractor and compared with alternative
electronic fuzes being manufactured on other
programs. An existing fuze was identified from the
sidewinder missile that could be adapted to the
ESSM. A VECP was submitted to adapt the
Sidewinder electronic fuze to the ESSM
application.
• Up front investment to achieve life cycle
savings: Development and implementation
costs were $1,873,911; Payback met in 2 years
• Total recurring cost savings equaled
$6,832,000, which, when spread over the 1,600
units, resulted in a net savings per unit of
$4,270
• Aligned incentives: Savings shared equally
between the Navy and the contractor
SAVE Conference
06/14/2012 Page-43
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
Common Digital Sensor
Architecture
The Problem:
Currently deployed Legacy Ship-based Air
Search and Target Acquisition Radars
• Stand-alone / stovepipe development,
maintenance, and support architectures
• Unique engineering, sparing, and training
requirements
• Significant engineering redesign in order to
address obsolescence issues and sustain
readiness
Before
After
The Solution:
The Result:
Navy analysis identified an opportunity to create a
Common Digital Sensor Architecture that could be
retrofitted into multiple radars to:
• Value-centric analysis identified opportunities for
commonality across multiple systems; justified
development and installation of common digital
architecture
• Eliminate required sensor unique reengineering
efforts through planned modernization
• Eliminate redundant support infrastructure
• Stabilize funding requirements in out years
• Consolidate redundant contracts and
engineering overhead costs
SAVE Conference
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• Over 20 year lifespan, total estimated life-cycle
cost avoidance of $950M
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.
Summary
• Value Engineering has been utilized successfully within
the DoD for almost 50 years
– $69B* direct savings and cost avoidance identified
• Successful VE programs require engineering staff to
reexamine products in a larger systems context
– To identify essential function independent of implementation and
– To identify factors of cost in context of a holistic life-cycle
* FY12 Constant Dollars
SAVE Conference
06/14/2012 Page-45
Distribution Statement A – Cleared for public release by OSR on 06/08/2012, SR Case # 12-S-2289 applies.