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Figure 10. Early Decisions Set the Course for Total Ownership Costs
(Boudreau, 2005)
LCC%
100
75
50
25
0
Percent of LCC Locked In By Design
LCC Effectively
Unchangeable
Actual Percent
of LCC
Expended
Concept Refinement
Technology Development
System Devel. & Demo.
Production Sustainment
MS A MS B MS C IOC Disposal
System Life Cycle
We suggest that perhaps it would be wise to separate capital and operating budgets
for the DoD. The current system is operable, but its overhead and administrative costs are
high, top-level people have to pay constant attention to it, and weapons systems are always
in danger of being delivered late or over-budget and under requirements. In fact, DoD has
already recognized this and begun the movement.
QDR Recommends Capital Budget
The 2006 Quadrennial Defense Review has recommended that DoD establish a
capital account for major acquisition programs. This recommendation mirrors the outcome of
the Defense Acquisition Performance Assessment study directed by Deputy Secretary of
Defense Gordon England. In its findings in December, 2005, this study recommended:
The Secretary of Defense should establish a separate Acquisition Stabilization
account to mitigate the tendency to stretch programs due to shortfalls in the
Department of Defense non-acquisition accounts that ultimately increases the total
cost of programs. This will substantially reduce the incidence of “breaking” programs
to solve budget year shortfalls and significantly enhance program funding stability.
(Defense Acquisition Performance Assessment, 2005, p. 10).
In effect, the panel recognized that acquisition account leaders could not protect the
acquisition accounts from acting as a bank for the operating accounts during budget
execution—thus the recommendation that DoD’s procurement, research and development
budget be separated from the overall defense budget. This separation:
would help prevent the kind of financial whiplash that causes cost overruns, said
retired Air Force Lt. Gen. Ronald Kadish, panel director and a vice president at Booz
Allen Hamilton, a government consulting firm in Fairfax, Va. The panel found that
every dollar taken from a program induces $4 of cost increases in later years…
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