A

FY 2014 Annual Report on Cost Assessment Activities

February 2015
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FY 2014 Annual Report on Cost Assessment 

Activities

Director, Cost Assessment and 

Program Evaluation

February 2015

The estimated cost of this report for the Department of 

Defense is approximately $67,500 in Fiscal Years 2014-2015. 

This includes $62,500 in expenses and $5,000 in DoD labor.
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Table of Contents

Foreword..............................................................................................................................1

Chapter I – Introduction.......................................................................................................3

Chapter II – Overview of Cost Analysis in DoD.................................................................7

Overview of Cost Analysis Organizations in DoD........................................................7

Procedures for Cost Assessments at Milestone Reviews and Other Events..................8

Cost Assessment Procedures for Major Defense Acquisition Programs 8

Cost Assessment Procedures for Major Automated Information Systems 9

Role of the Independent Cost Estimate 9

Component Cost Position and Full Funding Commitment 10

Multi-Year Procurement 10

Confidence Levels in Cost Estimates 11

Cost Estimates for Contract Negotiations 11

Cost Analysis Requirements Description 12

DoD Cost Data Collection Systems.............................................................................12

Summary......................................................................................................................12

Chapter III – DoD Cost Assessment Activities in FY 2014 ..............................................13

MDAP Milestone or Other Review Cost Assessment Activities.................................13

Remarks about Specific Programs 16

CAPE Cost Analysis for Multi-Year Procurement......................................................16

MDAP Critical Unit Cost Breach Cost Assessment Activities ...................................16

MAIS Critical Change Cost Assessment Activities.....................................................18

Assessment of Compliance, Quality, and Differences in Methodology......................20

SAR Improvement .......................................................................................................21

Areas for Improvement................................................................................................21

Other Cost Assessment Activities in FY 2014 ............................................................22

Missile Defense Agency Support 22

National Nuclear Security Administration Support 23

DoD Cost Analysis Symposium ..................................................................................23

Chapter IV – The Look Forward .......................................................................................25

Cost Leadership Forum................................................................................................25

Organizations and Human Resources..........................................................................26

Policies and Procedures ...............................................................................................26

Cost Indices..................................................................................................................28

Cost Data Systems .......................................................................................................28

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Cost Assessment Data Enterprise ................................................................................31

Tracking to Approved Estimate—Program/Budget Review and Acquisition.............33

Cost Analysis Education and Training ........................................................................34

Operating and Support Costs.......................................................................................36

Summary......................................................................................................................37

Appendix A. Cost Analysis Organizations in DoD ........................................................ A-1

Appendix B. Major Defense Acquisition Program Unit Cost Reporting ........................B-1

Appendix C. Major Automated Information System Reporting......................................C-1

Appendix D. DoD Cost Data Collection Systems ......................................................... D-1

Abbreviations...................................................................................................................E-1

FIGURES

Figure 1. CSDR Data Collection over Time......................................................................29

Figure 2. Cost Assessment Data Enterprise.......................................................................32

Figure D-1. CSDR Data Reports .................................................................................... D-2

Figure D-2. CSDR Compliance Rating Criteria ............................................................. D-3

TABLES

Table 1. MDAP Milestone or Other Review Cost Assessment Activities in FY 2014 .....14

Table 2. MDAP Critical Unit Cost Breach Cost Assessment Activities in FY 2014 ........17

Table 3. MAIS Critical Change Cost Assessment Activities in FY 2014 .........................19

Table B-1. Unit Cost Breach Thresholds.........................................................................B-1

Table D-1. MDAP CSDR Compliance (number of programs)....................................... D-4

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CHAPTER I – INTRODUCTION

The Director of Cost Assessment and Program Evaluation (CAPE), assisted by the 

Deputy Director for Cost Assessment and the entire CAPE team, is responsible for 

providing unbiased, independent cost estimates for major acquisition programs; ensuring 

that program cost and schedule estimates are properly prepared and considered in the 

Department’s deliberations on major acquisition programs; and providing guidance and 

oversight for Analyses of Alternatives (AoAs) to ensure that the Department considers 

the full range of program and non-materiel solutions. Additionally, CAPE is responsible 

for leading the development of improved analytical skills and competencies within the 

cost assessment and program evaluation workforce of the Department. Finally, the 

Director of CAPE manages the annual Program Review process and serves as a key 

advisor to the Secretary and Deputy Secretary of Defense for the programmatic 

development of the Department’s Future Years Defense Program (FYDP). 

This report is concerned with cost estimation and cost analysis for major acquisition 

programs (i.e., Major Defense Acquisition Programs (MDAPs) and Major Automated 

Information System (MAIS) programs).

Section 2334 of title 10, United States Code—Independent Cost Estimation and Cost 

Analysis— requires that CAPE submit an annual report to the Congress that includes:

(A) an assessment of the extent to which each of the military departments 

and Defense Agencies have complied with policies, procedures, and 

guidance issued by the Director with regard to the preparation of cost 

estimates for major defense acquisition programs and major automated 

information systems;

(B) an assessment of the overall quality of cost estimates prepared by each 

of the military departments and Defense Agencies for major defense 

acquisition programs and major automated information system programs; 

(C) an assessment of any consistent differences in methodology or 

approach among the cost estimates prepared by the military departments, 

the Defense Agencies, and the Director; and

(D) a summary of the annual review of the cost and associated information 

included in the program Selected Acquisition Reports (SARs), an 

identification of any trends in that information, an aggregation of the 

cumulative risk of the portfolio of systems reviewed, and 

recommendations for improving cost estimates on the basis of the review.

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The organization of this report is as follows:

• Chapter II provides an overview of cost analysis in the Department of Defense 

(DoD). It describes the range of cost analysis organizations throughout the 

Department and explains the process for preparing cost estimates that support the 

defense acquisition process. It also identifies the main DoD systems that collect 

actual information on the contract and government costs of programs. 

• Chapter III reviews the Department’s Fiscal Year (FY) 2014 cost estimation and 

cost analysis activities associated with MDAPs and MAIS programs. These 

activities include independent cost estimates (ICEs) as well as CAPE reviews of 

military department and Defense Agency cost estimates, which inform the DoD 

decision authorities at milestone reviews and at other acquisition decision points. 

This chapter also summarizes the degree to which DoD cost estimation and 

assessment activities in FY 2014 complied with established procedures, and 

discusses overall quality and any consistent differences in methodology among 

the cost estimates. Some of the notable highlights in this chapter are:

o MDAP Milestone Reviews. There were 12 MDAP milestone reviews or 

other review events supported by cost assessment activities. 

o Critical Unit Cost Breaches. There were two critical unit cost (NunnMcCurdy) breaches supported by cost assessment activities.

o MAIS Critical Change. There was one MAIS critical change certification 

supported by a cost assessment activity.

o Assessment of Compliance, Quality, and Differences in Methodology. 

The cost assessment activities complied with the requirements of WSARA 

and the established procedures described in Chapter II. The overall quality 

of the cost estimates prepared by the military departments has continued to 

improve due to increased rigor and better data. A recent CAPE analysis 

made a comparison between the CAPE ICEs and the service cost positions, 

and found that the difference between the two estimates since the 

enactment of WSARA in 2009 has narrowed significantly relative to the 

period between 1999 and the enactment of WSARA. The median 

difference since enactment of WSARA was 2.6 percent, compared to a 

median difference of 6.6 percent for the prior period.

• Chapter IV describes the status of several ongoing initiatives that will ensure the 

cost assessment and cost estimating functions for the Department will be 

modernized as required to meet the expanded roles and responsibilities 

established by WSARA and the needs of the Department. These initiatives 

address a wide range of issues and concerns, including organizations and human 

resources, cost estimating policies and procedures, cost tools and data systems, 

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and education and training opportunities for the DoD cost community. Some of 

the notable highlights in this chapter are:

o Cost Leadership Forum. CAPE has established a periodic meeting with 

the leaders and senior staff of the military department cost agencies to 

discuss issues of common interest to the community. The intent is to 

establish greater collaboration among CAPE and the military department 

cost organizations by sharing analytic best practices and developing a 

collective vision of the path forward for the cost community over the next 

five years in meeting WSARA objectives, improving cost analysis, and 

dealing with the challenges of the current constrained resource 

environment.

o Organizations and Human Resources. CAPE and the military 

department cost agencies will be undertaking a review of the organizational 

structure and staffing needs of the cost community. Given the significant 

statutory responsibilities under WSARA and the constraints placed on the 

staffing of the cost workforce, CAPE will need to be both an active 

manager of organizational resources and a strong advocate for the entire 

cost community. However, all headquarters functions across the 

Department are under pressure to reduce staffing and resources, and CAPE 

and the military department cost agencies will not be exempt from this 

pressure. This pressure will intensify if the Department is driven to a 

sequester level of resources.

o Policies and Procedures. CAPE completed a final draft of a new issuance 

that will replace DoD Manual 5000.04-M, Cost Analysis Guidance and 

Procedures, and placed the issuance into the formal coordination process. 

The formal comment period closed in October 2014, and the issuance will 

be available shortly. This issuance will be the primary vehicle for 

implementing the cost assessment provisions of WSARA throughout DoD 

components. This issuance is consistent with the newly issued DoD 

Instruction 5000.02, Operation of the Defense Acquisition System.

o Cost Data Collection. Based on feedback from government users about 

desired report enhancements, as well as advancements in information 

systems technology, CAPE and the Cost Leadership Forum have 

commissioned several government management teams and working groups 

to modernize business processes and improve data collection and reporting 

from contractor and government organizations. These efforts will improve 

data quality, reporting compliance and timeliness, and also reduce reporting 

burden.

o Cost Assessment Data Enterprise. CAPE initiated the development of the 

Cost Assessment Data Enterprise (CADE)—the Department’s unified 

initiative to collect, organize, and use data more efficiently. CAPE is 

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partnering with the military department cost agencies and the Under 

Secretary of Defense for Acquisition, Technology, and Logistics 

(USD(AT&L)) staff to incrementally work towards its CADE vision of the 

government cost analyst’s centralized database and virtual library, housing 

seamless integrated authoritative data sources that are easily searchable and 

retrievable. The goal is to reduce time spent on ad hoc data collection and 

validation, allowing more time for actual analysis at a much deeper level, 

and providing a quicker ability to see how a program is performing 

between major reviews. This initiative will increase analyst efficiency and 

will provide a way for analysts to build upon each other’s work, where 

historically analysts have typically engaged in separate efforts.

o Cost Analysis Education and Training. CAPE and the military 

department cost agencies formed an Education and Training Working 

Group that periodically reports its status to the Cost Leadership Forum. The 

Working Group found that there was no centralized cost community 

education and training standard. As a first step to remedy this situation, the 

Working Group developed a framework of desired core competencies—for 

apprentice, mid-level, and senior cost analysts—that will be used to guide 

education and training standards in the future. In addition, CAPE now 

co-chairs the oversight group responsible for approval of the curriculum 

associated with Defense Acquisition University (DAU) and other courses 

leading to professional certification in Acquisition Cost Estimating.

o Operating and Support Costs. CAPE established a new Operating and 

Support (O&S) Cost Analysis Division in the summer of 2012. The 

division is responsible for a wide range of O&S cost estimates and 

analyses, and for assessing the adequacy of current systems, methods, and 

data used for preparing estimates of O&S costs. The division also partners 

with the USD(AT&L) staff to make O&S costs more visible in the 

acquisition decision process, with increased emphasis on O&S cost 

affordability and management.

The report also includes appendices that provide background information relevant to cost 

assessment activities. Appendix A enumerates the cost analysis organizations in the 

Department. Appendix B describes MDAP unit cost reporting and unit cost breach 

thresholds. Appendix C describes MAIS reporting and criteria associated with program 

deviations that trigger notifications or certifications to the Congress. Appendix D 

provides additional information on DoD cost data collection systems. 

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CHAPTER II – OVERVIEW OF COST ANALYSIS IN DoD

This chapter provides an overview of the current organizations, policies, procedures, and 

supporting data systems for cost estimation in place throughout DoD. Chapter IV of this 

report describes the efforts to continue to strengthen these institutions to meet the 

requirements of WSARA and the evolving needs of the Department.

This report assumes a modest familiarity with the defense acquisition process on the part 

of the reader. Readers in need of an introduction to the defense acquisition process are 

encouraged to refer to the Defense Acquisition Guidebook (https://dag.dau.mil).

Overview of Cost Analysis Organizations in DoD

There are cost organizations throughout DoD—in the Office of the Secretary of Defense 

(OSD), at the headquarters of the DoD Components (military departments and Defense 

Agencies), and in the Components’ field organizations. DoD has a wide range of cost 

organizations, with each group having a unique but complementary role in support of the 

defense acquisition process and the broad and diverse operations of the Department. 

At the OSD level, the Director, CAPE is responsible for providing ICEs for both MDAPs 

and MAIS programs when the Milestone Decision Authority (MDA) for a program is the 

USD(AT&L), under the specific circumstances explained later in this chapter. The 

Director, CAPE also provides policy for and oversight of preparation and review of DoD 

Component cost estimates for MDAPs and MAIS programs under other circumstances. 

Each military department headquarters has its own cost agency. These cost estimating 

agencies provide ICEs when acquisition oversight is delegated to the Component and the 

MDA is the Component Head or Component Acquisition Executive. Also, the military 

department cost agencies provide policy guidance and provide specialized cost analyses 

unique to each of the military departments. The military department cost agencies reside 

in the financial management organizations of their military departments, and are outside 

their military department’s acquisition chain of command.

There are also many field-level cost organizations. These organizations provide resources 

to support higher headquarters cost estimates and analyses, and they also provide 

assistance to support day-to-day operations of program offices and similar entities. 

Examples of such activities include evaluation of contractor proposals and should-cost 

analyses; support to competitive source selections; cost estimates in support of the 

programming and budgeting processes; and cost estimates used in specific analytic 

studies, such as systems engineering design trades or AoAs. Field-level and program 

office members of the cost community workforce often possess important specialized 

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cost and technical experience unique to specific system types or commodity groups—

such as satellites, submarines, or tactical missiles.

Appendix A provides a brief description of the military department cost agencies and 

field-level cost organizations. 

Procedures for Cost Assessments at Milestone Reviews and Other Events

This section provides a description of DoD cost assessment procedures for MDAPs and 

MAIS programs; many of these procedures were updated or added after enactment of 

WSARA.

Cost Assessment Procedures for Major Defense Acquisition Programs

Public law (section 2334 of title 10, United States Code) requires that an independent 

estimate of the life-cycle cost for an MDAP be prepared and presented to the MDA 

before the approval to proceed with Milestone A or B, or any decision to enter low-rate 

initial production or full-rate production.1 At these milestone or other reviews, when the 

MDA is USD(AT&L), the ICE is prepared by the Director, CAPE. When the MDA is 

delegated to the DoD Component, the ICE supporting a milestone decision is provided by 

the applicable military department cost agency or the defense agency equivalent, and 

subsequently reviewed by CAPE. In either case, an ICE for a program in practice is 

conducted by using a combination of historical precedence, results of extensive site visits, 

and the actual performance of that program to date. It is a careful and comprehensive 

analysis that looks at all aspects of a program, including risks.

The framework for DoD policy and procedures for such ICEs and associated cost 

assessment activities is prescribed in DoD Instruction 5000.02, Operation of the Defense 

Acquisition System. Additional guidance on the implementation of the prescribed policy 

and procedures is provided in DoD Manual 5000.04-M, DoD Cost Analysis Guidance 

and Procedures. The status of recent updates to these regulations is provided in 

Chapter IV.

WSARA also revised the procedures for the certification of an MDAP that experienced 

sufficient cost growth to trigger a critical unit cost breach2 (as defined in section 2433 of 

title 10, United States Code). Upon such a breach, USD(AT&L) can certify that the 

program meets certain criteria (set forth in section 2433a of title 10, United States Code), 

in which case the program can continue, or it may be terminated. One element of the 

1 Section 2334 also requires an ICE in advance of a certification of an MDAP in a critical unit cost breach 

status (see Appendix B); in advance of a certification of a MAIS program in a critical change status (see 

Appendix C); and at any other time considered appropriate by the Director, CAPE or upon the request of 

USD(AT&L/).

2 A unit cost breach is commonly referred to as a Nunn-McCurdy breach.

8

 
required certification is the reasonableness of the new estimates of program unit costs. 

The determination that new program unit costs are reasonable is made by the Director, 

CAPE, and certified by USD(AT&L). As part of a standard business practice, CAPE 

prepares its own ICE that is used as a benchmark to support the assessment of 

reasonableness of the new unit cost estimates. Appendix B provides a description of the 

procedures for unit cost reporting and the criteria for a critical unit cost breach.

Cost Assessment Procedures for Major Automated Information Systems

Section 2334 of title 10, United States Code specifies that CAPE is responsible for 

preparing an ICE for any MAIS program that has experienced a Critical Change (as 

explained in Appendix C) if the MDA is USD(AT&L). CAPE may also prepare an ICE 

for a MAIS program at any other time considered appropriate by the Director, CAPE, or 

upon the request of USD(AT&L). In addition, for the MAIS programs for which 

acquisition oversight has been delegated to the Component, CAPE is responsible for 

establishing policies for preparation and review of Component cost estimates at milestone 

reviews, and for revised program cost estimates in support of certification of a MAIS 

program that has experienced a Critical Change.

Currently, for the 35 MAIS programs, USD(AT&L) is the MDA for 20 programs; the 

DoD Chief Information Officer is the MDA for two programs; and the various 

Component Acquisition Executives are the MDAs for the remaining 13 programs.

Role of the Independent Cost Estimate

Both MDAPs and MAIS programs are supported by ICEs at milestone and other program 

reviews. At a minimal level, the purpose of the ICE is to allow decision makers to ensure 

that (1) current program cost estimates are reasonable, (2) initial program baselines 

established for cost and schedule are realistic and achievable, (3) subsequent program 

baselines remain realistic, and (4) sufficient funding is available in the FYDP to execute 

the program. However, CAPE experience is that the ICE should also support much 

broader program decisions. The ICE can provide decision makers with insights 

concerning:

• Unique challenges of each program, and options available to address them;

• Trade-offs to balance cost with capabilities and schedule;

• Alternative acquisition strategies to improve upon ways to do business, and avoid

risk-prone models; and

• Options to effect better program outcomes along the way, as circumstances 

change or unexpected events occur. 

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In short, the ICE adds value by being able to tell the program's story and provide decision

makers with a wide range of information necessary to make fully informed acquisition 

decisions. 

Component Cost Position and Full Funding Commitment

One important element of current DoD policy for major acquisition programs requires the 

Component to establish a formal position on the estimated cost of the program, and 

furthermore, to commit to fully fund the program in the FYDP consistent with the 

Component’s cost position. The Component and the military department cost agency (or 

defense agency equivalent) establish a documented Component Cost Position for all 

MDAPs and MAIS programs prior to the Milestone A, B, and C reviews and the FullRate Production Decision (for an MDAP) or Full Deployment Decision Review (for a 

MAIS program). The Component Cost Position is signed by the appropriate military 

department’s Deputy Assistant Secretary for Cost and Economics (or defense agency 

equivalent). Each Component has its own process to arrive at the Component Cost 

Position. In many cases, the Component establishes its cost position by performing a 

Component-wide corporate-level review, led by the military department cost agency (or 

defense agency equivalent), after consideration of a program office cost estimate and an 

assessment of that estimate by the military department cost agency.

At each milestone or other review, the Component must fully fund the program to the 

Component Cost Position in the current FYDP, or commit to full funding of the cost 

position in the next FYDP. The Component Acquisition Executive and the Component 

Chief Financial Officer endorse and certify in a Full Funding Certification Memorandum 

that the FYDP fully funds (or will fully fund) the program consistent with the Component 

Cost Position. This Certification Memorandum must be submitted prior to the Defense 

Acquisition Board (DAB) review.

Multi-Year Procurement

Public law (section 2306b of title 10, United States Code) establishes several criteria that 

must be satisfied and certified by the Secretary of Defense prior to the award of a 

multi-year contract for a defense acquisition program. Some of these criteria (concerning 

substantial savings, realistic cost estimates, and availability of funding) must be 

supported by a CAPE cost analysis of the proposed multi-year procurement (MYP) 

strategy and contract structure, which includes a comparison of the estimated costs of 

multi-year versus annual contract awards. The analysis is based on actual cost data and 

experience to date, as well as an evaluation of cost realism in the contractor’s proposals. 

Section 816 of the National Defense Authorization Act for Fiscal Year 2015, Public Law 

113-291, amended section 2306b to restate and revise the legal requirements, including 

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the role of CAPE, applicable to MYP contracts. CAPE is working with other DoD staff 

elements to determine how section 816 will be implemented. 

Confidence Levels in Cost Estimates

WSARA, as amended by section 811 of the National Defense Authorization Act for 

Fiscal Year 2011, Public Law 111-383 (section 2334 of title 10, United States Code), 

requires that cost estimates adopt a confidence level that provides a high degree of 

confidence that the program can be completed without the need for significant adjustment 

to program budgets. In general, CAPE satisfies this requirement by ensuring that all of its 

cost estimates are built on a product-oriented Work Breakdown Structure (WBS), based 

on historical actual cost information whenever possible, and most importantly, based on 

conservative assumptions that are consistent with actual demonstrated contractor and 

government performance for a series of acquisition programs in which the Department 

has been successful.

Cost Estimates for Contract Negotiations

Section 2334 of title 10, United States Code requires that for MDAPs and MAIS 

programs, cost estimates developed for baselines and other program purposes are not to 

be used for the purpose of contract negotiations or obligation of funds. Section 2334 also 

states that cost analyses and targets developed for the purpose of contract negotiations 

shall be based on the government’s reasonable expectation of successful contractor 

performance in accordance with the contractor’s proposal and previous experience. 

The procedures to implement these statutory requirements were developed as part of the 

Department’s “Should Cost” initiative, which is intended to proactively target cost 

reduction and drive productivity improvement into major acquisition programs. These 

procedures are contained in DoD Instruction 5000.02, Operation of the Defense 

Acquisition System. In this instruction, for MDAPs and MAIS programs, it is DoD policy 

to budget to the CAPE ICE unless an alternative estimate is specifically approved by the 

MDA. However, program managers are required to develop a “should cost” estimate as a 

management tool to control and reduce cost. The intention is that the ICE should not be 

allowed to become a self-fulfilling prophecy. The “Should Cost” initiative challenges 

managers to identify and achieve savings below budgeted most-likely costs. “Should 

Cost” analyses can be used during contract negotiations (particularly for sole source 

procurements) and throughout program execution, including sustainment. Further 

information on the “Should Cost” initiative is provided in the Defense Acquisition 

Guidebook, section 10.15.2 (“Should-Cost”).

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Cost Analysis Requirements Description

CAPE requires and provides guidance on the technical content and use of a document 

known as the Cost Analysis Requirements Description (CARD). The CARD provides 

information on the acquisition program that supports preparation of both the Component 

Cost Position and the CAPE ICE. The CARD describes the key technical, programmatic, 

and operational characteristics of an acquisition program. The foundation of a sound and 

credible cost estimate is a well-defined program, and the CARD is used to provide that 

foundation. 

DoD Cost Data Collection Systems

Systematic and institutionalized cost data collection and validation is critical to the 

preparation and support of credible cost estimates. DoD has three primary collection 

systems for cost data for MDAPs. The Cost and Software Data Reporting (CSDR) system 

serves as the primary source of cost data for major contracts and subcontracts associated 

with MDAPs and MAIS programs. The Earned Value Management (EVM) Central 

Repository is used to collect and archive EVM reporting documents (such as Integrated 

Program Management Reports). The three Visibility and Management of Operating and 

Support Costs (VAMOSC) systems (one system for each military department) collect 

historical O&S costs for fielded major weapon systems. 

Chapter IV discusses current CAPE efforts to improve the CSDR and VAMOSC 

systems, and Appendix D provides additional details concerning all of the cost data 

collection systems.

Summary

This chapter reviewed the cost assessment organizations, policies and procedures, and 

data collection systems in DoD. These provide the foundation on which the Department 

is building as it continues to implement WSARA and strengthen the cost assessment 

institutions. The initiatives that constitute this implementation and the vision of the 

changes that are being made are described in Chapter IV of this report.

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CHAPTER III – DoD COST ASSESSMENT ACTIVITIES IN FY 2014

This chapter provides a summary of the DoD cost estimates and cost analyses that were 

made in FY 2014 in support of MDAP milestone reviews and other acquisition decision 

points, award of MYP contracts, certifications of MDAP critical unit cost breaches, and 

certifications following MAIS critical changes. 

MDAP Milestone or Other Review Cost Assessment Activities

Table 1 provides a summary of the cost assessment activities in FY 2014 that supported 

milestone or other reviews. For each MDAP with a milestone review or other event, 

Table 1 identifies the program name and acronym, the responsible Component, the 

supporting cost estimate(s) or analyses presented to the MDA, and the review event being

supported. There were 12 MDAP milestone reviews or other events supported by cost 

assessment activities in FY 2014 (excluding any cost assessment activities associated 

with classified programs, which are not discussed in this unclassified report). 

13
14

Table 1. MDAP Milestone or Other Review Cost Assessment Activities in FY 2014

Program Name Acronym Component

Program 

Type

Cost Assessment 

Activity

Activity 

Date Supported Event

Event 

Date

Paladin Integrated 

Management

PIM Army Acquisition 

Category 

(ACAT) ID

CAPE Independent 

Cost Estimate

21-Oct-13 Milestone C 21-Oct-13

Army Cost Position 18-Oct-13

Indirect Fire 

Protection 

Capability 

Increment 2–

Intercept

IFPC Inc 2–I Army ACAT ID CAPE Independent 

Cost Estimate

21-Oct-13 Milestone A 24-Mar-14

Army Cost Position 20-Aug-13

P-8A Poseidon 

Multi-Mission 

Maritime Aircraft

P-8A Navy ACAT ID CAPE Independent 

Cost Estimate

12-Nov-13 Full-Rate Production 

Decision

3-Jan-14

Navy Cost Position 31-Oct-13

Ground/Air Task 

Oriented Radar

G/ATOR USMC ACAT IC Navy Cost Position 1-Jan-14 Milestone C 10-Mar-14

Navy Independent 

Cost Estimate

15-Dec-13

Patriot Advanced 

Capability-3 

Missile Segment 

Enhancement

PAC-3 MSE Army ACAT ID CAPE Independent 

Cost Estimate

24-Jan-14 Milestone C See below

Army Cost Position 8-Jan-14

Patriot Advanced 

Capability-3 

Missile Segment 

Enhancement

PAC-3 MSE Army ACAT ID CAPE Independent 

Cost Estimate

7-Mar-14 Milestone C update 27-Mar-14

Army Cost Position 25-Feb-14

Cooperative 

Engagement 

Capability

CEC Navy ACAT IC CAPE Review and 

Assessment

Navy Independent 

Cost Estimate

21-Mar-14

20-Mar-14

Full-Rate Production 

Decision

14-Apr-14
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Table 1. MDAP Milestone or Other Review Cost Assessment Activities in FY 2014 (cont.)

Program Name Acronym Component

Program 

Type

Cost Assessment 

Activity

Activity 

Date Supported Event

Event 

Date

Enhanced Polar 

System

EPS Air Force ACAT ID CAPE Independent 

Cost Estimate

31-Mar-14 Milestone B 30-Apr-14

Air Force Cost 

Position

28-Jan-14

Space Fence 

Ground-Based 

Radar System 

Increment 1

Space Fence Inc 1 Air Force ACAT ID CAPE Independent 

Cost Estimate

5-May-14 Milestone B 30-May-14

Air Force Cost 

Position

30-Apr-14

Excalibur 

Precision 155mm 

Projectiles

Excalibur Army ACAT IC Army Cost Position 22-May-14 Full-Rate Production 

Decision

6-Jun-14

Army Independent 

Cost Estimate

8-May-14

Combat Rescue 

Helicopter

CRH Air Force ACAT ID CAPE Independent 

Cost Estimate

17-Jun-14 Milestone B 18-Jun-14

Air Force Cost 

Position

14-May-14

Three-Dimensional 

Expeditionary 

Long-Range 

Radar

3DELRR Air Force ACAT ID CAPE Independent 

Cost Estimate

26-Aug-14 Milestone B 30-Sep-14

Air Force Cost 

Position

15-Aug-14

Notes: 

The term “ACAT ID” refers to an MDAP for which the MDA is USD(AT&L).

The term “ACAT IC” refers to an MDAP for which acquisition oversight has been delegated to the Component.

The term “pre-MDAP” refers to a program activity that is anticipated to result in an MDAP upon formal program initiation into the defense acquisition management process 

(which usually occurs at Milestone B).
Remarks about Specific Programs

• CAPE reviewed the Navy ICE prepared by the Naval Center for Cost Analysis 

(NCCA) for the Full-Rate Production Decision review of the Cooperative 

Engagement Capability program. CAPE found that the Navy ICE was developed 

using generally accepted cost analysis procedures suitable for an OSD milestone 

review.

• Both the CAPE ICE and the Army Cost Position for the Patriot Advanced 

Capability-3 Missile Segment Enhancement program were updated and provided 

to a second Milestone C DAB review. The milestone approval and associated 

contract award were delayed to allow for additional analysis. Updates to the cost 

estimates were made to account for revised programmatic content. In addition, 

analysis of assumed profit margins led to lower margins prior to contract award. 

Finally, there was considerable analysis to account for the effects of known and 

potential additional Foreign Military Sales (FMS), permitting a better 

understanding of the most likely costs for the United States.

CAPE Cost Analysis for Multi-Year Procurement

As noted in Chapter II, CAPE prepares an ICE for a proposed MYP strategy and contract 

structure to support the Department’s certification of substantial savings and other 

criteria, prior to the award of a multi-year contract for a defense acquisition program. In 

FY 2014, the Department made no MYP certifications, and so no new ICEs were 

developed. However, in 2014 CAPE updated several prior ICEs for MYP strategies to 

incorporate the latest cost information (in some cases, following contract award). During 

2014, updates of estimated MYP savings were made for the E-2D Advanced Hawkeye, 

the C-130J Super Hercules, the Virginia class submarine, and the DDG 51 destroyer. In 

addition, CAPE worked on an ICE to support a certification for the Standard Missile 3 

(SM-3) expected next year. A description of the SM-3 ICE will be provided in next 

year’s Annual Report. 

MDAP Critical Unit Cost Breach Cost Assessment Activities 

Table 2 provides a summary of the cost assessment activities supporting certification 

decisions associated with critical unit cost (Nunn-McCurdy) breaches in FY 2014. For 

each major acquisition program with a critical breach, Table 2 identifies the program 

name and acronym, the responsible Component, the supporting cost estimate(s) or 

analyses presented to the USD(AT&L), and the date of the critical breach certification. 

Descriptions of unit cost (Nunn-McCurdy) reporting and the certification process 

associated with unit cost breaches are provided in Appendix B.

16
17

Table 2. MDAP Critical Unit Cost Breach Cost Assessment Activities in FY 2014

Program Name Acronym Component

Program 

Type

Cost Assessment 

Activity

Activity 

Date Supported Event

Event 

Date

MQ-8 Fire Scout Vertical 

Takeoff and Landing 

Unmanned Aerial Vehicle

VTUAV Navy ACAT ID CAPE Independent Cost 

Estimate

December 2013 SAR

9-Jun-14 Critical Unit Cost 

Breach Certification

16-Jun-14

Joint Precision Approach 

and Landing System 

Increment 1A

JPALS Inc 

1A

Navy ACAT ID CAPE Independent Cost 

Estimate 

December 2013 SAR

13-Jun-14 Critical Unit Cost 

Breach Certification

15-Jun-14
Two critical breach certifications occurred in FY 2014. Both of them were supported by 

the appropriate cost estimates and analyses that complied with the requirements of 

WSARA and the established cost assessment procedures described in Chapter II. For the 

critical breach certifications, each event was supported by (1) a new estimate of program 

unit cost, as reflected in a revised SAR, and (2) the corresponding CAPE ICE for 

program unit cost.

MAIS Critical Change Cost Assessment Activities 

Table 3 provides a summary of cost assessment activities in FY 2014 supporting 

certification decisions associated with MAIS critical changes. For each major acquisition 

program with a critical change, Table 3 identifies the program name and acronym, the

responsible Component, the supporting cost estimate(s) or analyses presented to the 

USD(AT&L), and the date of the critical change certification provided to the Congress. 

Descriptions of MAIS reporting and the certification process associated with critical 

changes are provided in Appendix C.

Only one MAIS critical change certification occurred in FY 2014. It was supported by 

the appropriate cost estimates and analyses that complied with the requirements of 

WSARA and the established cost assessment procedures described in Chapter II. In 

particular, the critical change certification event was supported by a CAPE ICE and a 

Component Cost Position.

The critical change noted in Table 3 for the Consolidated Afloat Network Enterprise 

Services (CANES) program was due to the program exceeding the five-year limit on the 

time from the selection of the preferred alternative to the Full Deployment Decision. 

18
19

Table 3. MAIS Critical Change Cost Assessment Activities in FY 2014

Program Name Acronym Component

Program 

Type

Cost Assessment 

Activity

Activity 

Date Supported Event

Event 

Date

Consolidated Afloat Network 

Enterprise Services

CANES Navy ACAT 

IAM

CAPE Independent 

Cost Estimate

21-Feb-14 Critical Change 

Certification

10-Mar-14

Navy Cost Position 5-Feb-14
Assessment of Compliance, Quality, and Differences in Methodology

All of the events noted in Table 1 through Table 3 were supported by the appropriate cost 

estimates or analyses that complied with the requirements of WSARA and the established 

cost assessment procedures described in Chapter II. In particular, each MDAP and MAIS 

milestone or other review was supported by (1) a Component Cost Position and (2) the 

appropriate CAPE or military department cost agency ICE. 

The overall quality of the cost estimates prepared by each of the military departments has 

continued to improve due to increased rigor. As noted in Chapter II, DoD has instituted a 

policy―currently in place for all MDAPs—requiring that a signed, dated Component

Cost Estimate and a Component Cost Position be delivered to CAPE prior to delivery of 

an ICE, to support each milestone or other review of the DAB. Also, the military 

department’s financial and acquisition leadership must provide a statement affirming 

their commitment to fully fund the program to the Component Cost Position during the 

preparation of the next Program Objective Memorandum (POM) and President’s Budget 

FYDP. 

The quality of the cost estimates for MDAPs provided by the military departments, as 

well as CAPE, has also continued to improve due to better data. This is largely 

attributable to improved availability of actual cost information for DoD programs as a 

result of the long-term initiative to collect contractor cost and software data reports, and 

the long-term efforts of each of the military departments to improve the collection of 

actual O&S cost information through the VAMOSC systems. Moreover, in cases in 

which required cost data are not being reported in a timely fashion (i.e., are more than six 

months late), CAPE now insists that the data be provided before it can complete its ICE. 

Recent efforts to strengthen the timeliness of cost data reporting are described in 

Appendix D.

Since enactment of WSARA, there are no consistent differences in methodology or 

approach between the cost estimates prepared by the military departments and CAPE. 

Generally, the approach employed by the military departments is evolving to become 

more similar to that employed in CAPE: collect actual cost information from ongoing and 

historical programs in a product-oriented taxonomy; use that information to prepare cost 

and schedule forecasts for new programs or programs proceeding to the next milestone in 

the acquisition process; and review the actual cost information collected, as each 

individual program proceeds, to update and adjust the cost and schedule forecasts for the 

program to reflect actual experience. The goal has been for the Department to improve 

the systematic collection of actual cost information over time, resulting in smaller 

20
differences between the cost and schedule forecasts of the military departments and 

CAPE.

A recent CAPE analysis made a comparison between the CAPE ICEs and the service cost 

positions, and found that the difference between the two estimates since the enactment of 

WSARA in 2009 has narrowed significantly relative to the period between 1999 and the 

enactment of WSARA. The median difference since enactment of WSARA was 2.6

percent, compared to a median difference of 6.6 percent for the prior period. In addition, 

the statistical variances have also significantly narrowed, meaning that the post-WSARA 

estimates are more tightly clustered thus reflecting that the service cost positions are now 

more closely aligning with the CAPE ICEs. Despite this narrowing of differences, there 

have been a few outliers where there was a significant discrepancy (greater than 10 

percent) between the service cost position and the CAPE ICE. In such a situation, CAPE 

and the military department cost agency will meet and assess the reasons for the

discrepancy, and determine if there are better data available to reconcile the difference. 

Failing that, CAPE and the military department will work together to assess how costs 

can be controlled in the future as the program goes forward.

SAR Improvement

The scope of this Annual Report will be expanded in accordance with section 812 of the 

National Defense Authorization Act for Fiscal Year 2014, Public Law 113-66, which 

calls for the inclusion of additional cost estimate and other associated information in

program SARs. This new information will be phased in incrementally. This new 

reporting will begin for five pilot MDAPs with the December 2014 SAR reporting 

period, submitted with the FY 2015 President’s Budget, and will apply to all MDAPs by 

the December 2019 reporting period. 

This year, CAPE worked with the USD(AT&L) staff to define specific requirements for 

the new information that will be incorporated into the SARs in order to facilitate future 

cost analyses. Beginning next year, CAPE will be required to review program cost and 

associated information in SARs, as each MDAP is phased in. The CAPE Annual Report 

will contain (1) a summary of the cost and associated information reviewed, (2) an 

identification of any trends in that information, (3) an aggregation of the cumulative risk 

of the portfolio of systems reviewed, and (4) recommendations for improving cost 

estimates on the basis of the review. 

Areas for Improvement

In a few cases, our cost estimates involved programs that had plans or the potential for 

FMS. FMS cases have significant possible benefits in lowering the costs of programs to 

the United States, since the procurement of additional systems will lead to unit cost 

reductions for all parties. In some cases, the foreign country may also contribute to the 

21
recoupment of prior development costs. However, quantifying these benefits in cost 

estimates can often be challenging, due to the complexities of issues such as 

coproduction, tie-ins with United States MYP contracts, and forecasting the effects on 

contractor business bases and rates. Nevertheless, assessing the implications of FMS 

provides a better understanding of the complete costs for the United States. For example, 

for the PAC-3 MSE program discussed earlier, the potential for FMS had a significant 

effect on the costs for the United States. CAPE is now evaluating how to improve the 

cost community tools, methods, and policies for cases involving FMS.

For MAIS programs, due to resource constraints, direct CAPE involvement in preparing 

cost estimates has been limited to those programs for which the MDA is USD(AT&L)

and that experience a critical change. For other reviews of MAIS programs, CAPE works 

closely with and relies heavily upon the military department cost agencies in the 

management and preparation of cost estimates. In addition, contract cost data reporting 

for the MAIS programs currently is poor, and both quality and compliance need to be 

improved. There remains much work to be done to improve the management and 

preparation of cost estimates for the approximately 35 programs now in the DoD 

portfolio of MAIS programs and automated information systems expected to become 

MAIS programs in the near future.

Other Cost Assessment Activities in FY 2014

Missile Defense Agency Support

CAPE received requests from the Missile Defense Agency (MDA) in 2014 to assess 

several MDA programs. As MDA operates largely outside of DoD 5000 regulations, 

CAPE’s cost assessment role is typically limited to supporting the agency’s production 

decisions as defined by the initial use of procurement funds. CAPE does not typically 

conduct cost assessments for MDA development efforts and systems acquired using 

Research, Development, Test and Evaluation funds. To support a production decision on 

the SM-3 Block IB initially planned for FY 2015, MDA requested that CAPE support the 

review by developing a cost estimate. CAPE initiated this analysis in FY 2014 and 

completed it in the first quarter of FY 2015.

In addition, MDA requested that CAPE perform cost analyses to determine if the use of a 

MYP strategy would result in substantial savings for an SM-3 Block IB missile contract 

and a Terminal High Altitude Area Defense (THAAD) interceptor contract. CAPE 

conducted these analyses during FYs 2014-2015 to support consideration for possible 

inclusion in the FY 2016 President’s Budget request. Although THAAD is no longer 

being considered for a MYP, CAPE’s analysis will be used as a basis for the FY 2015 

production decision.

22
The Congress has also requested that CAPE update its cost estimate for the United States 

European Phased Adaptive Approach and assess that the Tests and Targets Efficiencies 

that have been implemented at MDA. These assessments were started in FY 2014 and 

will be completed in the second quarter of FY 2015.

CAPE also worked closely with MDA’s Director of Cost Estimating and Analysis to 

improve the quality of CSDR data obtained from MDA contracts.

National Nuclear Security Administration Support

Section 3112 of the National Defense Authorization Act for Fiscal Year 2014, Public Law 

113-66, directed that CAPE work with the National Nuclear Security Administration 

(NNSA) leadership to develop a plan for the establishment of a Cost Estimating and 

Program Evaluation (CEPE) group within NNSA. During FY 2014, CAPE and NNSA 

formulated a plan that addresses the full range of capabilities required to successfully 

execute this function, including CAPE's roles for guidance and training of NNSA CEPE 

personnel over the next five years. NNSA implementation of this plan has only just 

begun. Additionally, CAPE provided summaries of assessments it performed of the 

NNSA budgets and projects to the Congressional Advisory Panel on the Governance of 

the Nuclear Security Enterprise established by Section 3166 of the National Defense 

Authorization Act for FY 2013, Public Law 112-239. 

Continued support of NNSA projects in future years is anticipated through requests from 

the Nuclear Weapons Council chaired by the USD(AT&L) and the development of the 

CEPE group. It is currently planned to have NNSA personnel embedded in the CAPE 

staff in preparation of future ICEs for NNSA activities. 

DoD Cost Analysis Symposium

For several decades, CAPE (and its predecessor organization) has sponsored an annual 

DoD Cost Analysis Symposium, known as DoDCAS, with attendees drawn primarily 

from government and private-sector cost research and analysis organizations. DoDCAS 

provides a valuable forum for the education, training, and improvement of 

communication within the DoD cost analysis community. The presentations made at 

DoDCAS facilitate discussion, instruction, and debate concerning cost estimating 

methods and models, data collection, and contemporary issues of interest to the DoD cost 

community. In this way, the event leverages the knowledge and experience of the 

community to increase individual and collective expertise in cost estimation and analysis. 

DoDCAS also provides members of the DoD cost community the opportunity to hear the 

insights of senior DoD and other government officials on important topics.

The symposium event that had been planned for February 2013 was cancelled due to 

guidance from the Office of Management and Budget (OMB) and the Deputy Secretary 

23
of Defense to reduce expenditures for all conferences and travel. Also, a major concern 

was that the potential DoD and other government agency attendees would not have travel 

funding available to attend the event. In 2014, CAPE was able to hold a limited one-day 

symposium at DAU that featured several high-level speakers who discussed topics of 

interest to the cost community. CAPE is now evaluating options for 2015 for a more 

robust three-day session, with presentations from speakers throughout the cost 

community, at a government training facility in a low-cost area in order to provide 

essential training while complying with continued restrictions on expenses for 

conferences and travel. 

24
CHAPTER IV – THE LOOK FORWARD

WSARA introduced major reforms to the DoD cost estimation processes. Since its 

enactment, CAPE has made and continues to make significant progress in implementing 

these reforms. This chapter discusses the status and future plans for several key initiatives 

that collectively constitute this implementation.

Cost Leadership Forum

The CAPE Deputy Director for Cost Assessment has established a periodic meeting 

(known as the Cost Leadership Forum) held with the leaders and senior staff of the 

military department cost agencies to discuss issues of common interest to the community. 

The intent is to establish greater collaboration among CAPE and the military department 

cost organizations by sharing analytic best practices, and developing a collective vision 

of the path forward for the cost community over the next five years in meeting the 

WSARA objectives, improving cost analysis, and dealing with the challenges of the 

current constrained resource environment. This collaboration and collective vision is 

being pursued to lead to more efficient business processes, while maintaining the 

independence of CAPE and Service ICEs, and protecting the internal deliberations within 

each military department and its respective cost agency.

The Cost Leadership Forum meets quarterly. Some of the major topics discussed at the 

Forum include:

• Organizational status and human resources

• Cost assessment policies and procedures

• Cost data collection

• CADE project

• Training and education for the cost community

• Collective vision for the cost community

The current plans and ongoing initiatives for each of these topics are described in the 

remainder of this chapter. The Cost Leadership Forum will continue to meet quarterly 

and provide executive oversight for these and other initiatives.

In addition, the Cost Leadership Forum has established a subordinate body—the Cost 

Research Board—to provide corporate management of DoD cost research and studies. 

The goals of the Board are to eliminate any duplication in projects, combine research and 

studies across organizations to promote integration within the cost community, and align 

research and studies with senior management priorities.

25
Organizations and Human Resources

To meet the statutory requirements of WSARA and the other needs of the Department, 

CAPE is responsible for assessing the staffing needs of its own organization, as well as 

the overall cost community. This assessment must consider the size, qualifications, and 

expertise of the civilian and military workforce, as well as the effectiveness of the overall 

management and organizational structure.

Efforts toward making this assessment began in 2013 with activities to gather data on the 

workforce size, grade, and demographics, as well as experience and education levels. 

Beyond that, there is interest in measuring projected workload volume and content (i.e., 

what the cost community is actually doing), to help determine whether scarce resources 

are properly focused on strategic priorities. However, these efforts were suspended in 

2014 due to the tremendous uncertainty in the projected DoD budget and manpower 

levels. 

CAPE is now resuming these efforts, and with the military department cost agencies, will 

be undertaking a review of the organizational structure and resource needs of the cost 

community. Given the significant statutory responsibilities under WSARA and the 

constraints placed on the staffing of the cost workforce, CAPE will need to be both an 

active manager of organizational resources and a strong advocate for the entire cost 

community. However, all headquarters functions across the Department are under 

pressure to reduce staffing and resources, and CAPE and the military department cost 

agencies will not be exempt from this pressure.

Policies and Procedures 

WSARA states that the Director, CAPE—in consultation with other officials of OSD, the 

military departments, and Defense Agencies—shall prescribe policies and procedures for 

the conduct of cost estimation and cost analysis for major acquisition programs of DoD. 

The framework for DoD policy and procedures concerning cost assessment activities for 

defense acquisition programs is provided in DoD Instruction 5000.02, Operation of the 

Defense Acquisition System (see Enclosure 10: Cost Estimating and Reporting). This 

instruction was recently updated on January 7, 2015. 

DoD Manual 5000.04-M, Cost Analysis Guidance and Procedures, provides more 

specific guidance to implement the framework provided in DoD Instruction 5000.02. 

CAPE completed a final draft of a new issuance that will replace this Manual and placed 

the issuance into the formal coordination process. The formal comment period closed in 

October 2014, and the issuance will be available shortly. This issuance is the primary 

vehicle for implementing the cost assessment provisions of WSARA throughout DoD 

26
components. In particular, it provides guidance to the military departments and Defense 

Agencies concerning the preparation, presentation, and documentation of life-cycle cost 

estimates for major acquisition programs. It assigns roles and responsibilities, and 

describes the process and the timeline, for each of the following:

• Preparation of CAPE ICEs supporting a USD(AT&L) decision review,

• CAPE review of Component ICEs supporting a Component decision review,

• Preparation of CAPE cost analyses supporting a MYP contract award,

• CAPE cost analyses supporting a critical unit cost breach certification, and

• CAPE cost analyses supporting a MAIS critical change certification.

CAPE also completed the O&S Cost-Estimating Guide in March 2014. The guide is 

described later in this chapter.

In recent years, CAPE has also issued the following:

• DoD Directive 5105.84, Director of Cost Assessment and Program Evaluation

(issued May 11, 2012)

• DoD Manual 5000.04-M-1, Cost and Software Data Reporting (CSDR) Manual

(issued November 4, 2011)

• DoD Instruction 7041.04, Estimating and Comparing the Full Costs of Civilian 

and Active Duty Military Manpower and Contract Support (issued July 3, 2013)

These documents were described in previous editions of the Annual Report, and are 

available on the Defense Technical Information Center web site at 

http://www.dtic.mil/whs/directives/.

To support the DoD community in performing the numerous calculations required by 

DoD Instruction 7041.04, CAPE has made available a web-enabled tool for estimating 

the Full Cost of Manpower (FCoM), which will automatically calculate all cost elements 

required to maintain consistency with guidance in the instruction. The FCoM tool is 

available on the CAPE website (www.cape.osd.mil) and is usable by all personnel who 

possess a valid Common Access Card. A classified version of the tool is available on the 

DoD Secure Internet Protocol Router Network. The tool has already been used to 

compare the costs of military and civilian intelligence personnel, and in the future will be 

used to estimate manpower costs for the development and expansion of the cyber 

workforce.

In addition, CAPE has recently assumed responsibility for DoD Instruction 7041.3, 

Economic Analysis for Decisionmaking. This instruction prescribes the application of 

27
economic analysis concepts to the evaluation of costs and benefits of investment 

alternatives. The instruction will be updated and reissued in the near future.

Cost Indices

WSARA—as codified in section 2344 of title 10, United States Code—requires that 

CAPE periodically assess and update the cost indices used by the Department to ensure 

that such indices have a sound basis and meet the Department’s needs for realistic cost 

estimation. The Under Secretary of Defense (Comptroller), or USD(C), provides the DoD

military departments and Defense Agencies with guidance in the DoD Financial 

Management Regulation on how to prepare budget estimates that comply with guidelines 

issued by OMB; this guidance includes instructions on the use of USD(C)-provided 

deflators that are calculated from the OMB inflation forecast. 

Some DoD organizations—most notably the Naval Sea Systems Command (NAVSEA), 

Naval Air Systems Command (NAVAIR), and many Air Force program offices—have 

developed product-specific price escalation indices for use in their program cost 

estimates. These price indices include market price influences beyond just general 

inflation adjustments accounted for by the USD(C)/OMB deflators. 

Based on this experience, the current practice in the cost community is to encourage the 

use of product-specific price indices when there is significant evidence that the productspecific price indices reflect the most likely cost trends. In some cases, the cost estimates 

are made in base-year dollars and escalated to then-year dollars using the product-specific 

indices. In other cases, the estimate in then-year dollars may be built upon firm-fixedprice contracts. In any case, to establish a program baseline, the then-year dollars are 

returned to base-year dollars using the USD(C)/OMB inflation indices. Using this 

methodology, the final calculated program base-year dollar estimate will reflect any 

anticipated higher real price due to product-specific market influences beyond general 

inflation. This approach greatly improves the accuracy of projections of costs over long 

periods of time. Work in this area continued in 2014, and CAPE extended an earlier 

independent study to determine the best choice of a product-specific index for military 

aircraft. 

Cost Data Systems

The Defense Cost and Resource Center (DCARC) is the CAPE field office responsible 

for administering the CSDR system. An increased management emphasis throughout the 

Department concerning the importance of cost data reporting has resulted in significant 

increases in the quantity of cost data reports compared to the acquisition reform era of the 

1990s. Figure 1 shows the annual volume of CSDR data reports collected by the DCARC 

for each of the major system commodities

28
Figure 1. CSDR Data Collection over Time

29
The management emphasis on cost data reporting is not limited to the quantity of data 

reports collected. Based on feedback from government users about desired report 

enhancements, as well as advancements in information systems technology, CAPE and 

the Cost Leadership Forum have commissioned several government management teams 

and working groups to improve business processes and quality for data collection and 

reporting.

Today a large amount of costing data is collected in the many forms of CSDR report 

formats, which were first created in the 1960s. Contractors currently must make manual 

allocations from their financial and other accounting systems into these formats. CAPE,

partnering with the military department cost agencies, has commissioned a government 

team to modernize the reporting data structures in order to ensure that the cost 

community has the breadth and depth of data to support good cost analysis. Moreover, 

CAPE is working with industry to achieve more efficient and better data transfers by 

enabling the automated submission of low-level cost data directly from contractors’ 

accounting systems into the government systems. Instead of collecting data annually at 

best— and in some cases many years apart—the data collections will be available as 

needed and in some cases aligned with the monthly Earned Value submissions. CAPE is 

also working with USD(AT&L) to better align the CSDR and their Cost Performance 

Reports reporting structures. This means that contractors will no longer have to manually 

allocate one set of data into another structure, eliminating an inevitable source of data 

errors.

The emergence of modern Enterprise Resource Planning systems has enabled a 

transformation to accomplish this reform that will improve data quality, reporting 

compliance, and timeliness, and also reduce the reporting burden on contractors. A major 

focus for this reform will be to make sure the data collection process—quality checks and 

all—produces error-free results the first time, and to make sure that this authoritative data 

is easily available and accessible to all those in the government who need to use it. This 

project is colloquially known in the cost community as “moving to the X-Files,” a 

reference to the next generation of cost reports.

An additional working group is devoted to improved software data collection and 

reporting. This working group reviewed the current software data reporting and 

determined that there was insufficient standardization for the data reported pertaining to 

software development size, effort, complexity, productivity, and schedule. Moreover, the 

data that was reported often was not at the level of detail needed for cost analysis and 

estimates. The working group also is expanding the scope of the data reporting to include 

major software maintenance efforts. The working group is now developing revised data 

report formats and instructions for reporting contractors using state-of-the-art terms, 

30
definitions, and metrics for software development and maintenance. The working group 

has also assessed that the data being reported are not subjected to complete and rigorous 

quality control, and has recommended a specific plan for the creation of an 

institutionalized verification and validation process. Beyond the improvement of 

individual data reports, the long-term goal for the working group is to assemble the data 

into a comprehensive and authoritative software database with user-friendly tools 

available for cost analysts. 

Another working group is studying the addition of system technical (design and 

performance) data to the cost and software information already collected. Cost analysts 

often need technical data for legacy and new systems to make adjustments for complexity 

or develop cost estimating relationships used in estimates. However, the technical data 

working group determined that there is no standardized collection of technical data, and 

that the collection that does exist today is ad hoc with many different government 

organizations using their own unique terminology, definitions, and report formats. The 

technical data working group is now studying possible approaches to developing

standardized reporting for each weapon system commodity type (i.e., aircraft, electronic 

system, missile, etc. ) that complies with the DoD approved WBS format, maximizes the 

use of existing technical data, and can be efficiently integrated with the existing DCARC 

infrastructure for the CSDR system. 

While the data collection process is being transformed, the DCARC remains committed 

to the users of the data currently being collected. The DCARC hosts semiannual CSDR 

Focus Group meetings that provide a forum for DoD and industry stakeholders to discuss 

evolving CSDR policies and processes, and raise any issues or concerns. The DCARC 

continues to provide on-site training to users and data providers at various locations 

several times each year. This training addresses CSDR policies, CSDR plan construction 

and subsequent reporting requirements, and DCARC information technology systems and 

applications.

Cost Assessment Data Enterprise

CAPE initiated the development of the CADE—the Department’s unified initiative to 

collect, organize, and use data more efficiently. CAPE is partnering with the military 

department cost agencies and the USD(AT&L) staff to incrementally work towards its 

CADE vision of the government cost analyst’s centralized database and virtual library, 

housing seamless integrated authoritative data sources that are easily searchable and 

retrievable. The objectives and a high-level framework of the CADE architecture are 

shown in Figure 2.

31
Figure 2. Cost Assessment Data Enterprise

32
CAPE, with its partners in the military department cost agencies and USD(AT&L), 

through CADE is taking on the integration of cost and technical data including EVM 

reports, next-generation CSDR reports (building upon the X-Files data reform described 

in the previous section), and O&S data. This involves a major effort of consolidating an 

authoritative collection of historical data and ensuring that all future data collected is 

exactly what the cost community needs to best perform. CAPE is working with 

USD(AT&L) to capitalize on the acquisition data already collected in the Defense 

Acquisition Visibility Environment (DAVE) and to integrate it with our cost data for a 

full government analyst view of a weapon program or portfolio. 

CADE not only will store cost and acquisition data, it will also contain the Department’s 

own institutional knowledge for each of the programs, improving communication 

throughout our cost community and across OSD. This will allow tomorrow’s analysts to 

learn from the experiences of today’s analysts, and it will provide today’s analysts with a 

way to save their carefully produced analytics between milestones, so they can return 

years later and not have to start their analysis all over again with no prior information. It 

will provide a fuller history capturing prior work, enabling more holistic analyses to be 

developed.

The project will automate common views of data that help to begin telling a program's 

story, which previously took analysts months to create. The goal is to reduce time spent 

on ad hoc data collection and validation, allowing more time for actual analysis at a much 

deeper level, and quicker ability to see how a program is performing between major 

reviews. This initiative will increase productivity of analysts and will also provide a way 

for analysts to build upon each other’s work, whereas, historically, analysts typically 

engaged in separate efforts.

CADE offers the opportunity for cost analysts to spend less time gathering data and more 

time analyzing it. This will allow the cost community to become a more efficient and 

productive workforce, which will become more critical in an era of human resource 

constraints. 

Tracking to Approved Estimate—Program/Budget Review and Acquisition

The current acquisition process in the Department is event-driven and episodic in nature, 

and is driven primarily by the key milestone and other review events identified in statute 

and regulation. CAPE and the military department cost agencies are moving to a more 

continuous approach in following and tracking program performance, updating cost and 

schedule estimates, and evaluating new program risks and issues as they are identified.

As part of the Department's program and budget review process, CAPE—in conjunction 

33
with USD(AT&L)—reviews each major acquisition program with significant funding 

changes from the latest baseline or prior year's President's Budget to determine the source 

of the cost estimate supporting the revised program and to ensure that the program 

remains fully funded. In addition, this year the services contributed 24 revised program 

office or military department cost agency estimates that were used to support the 

preparation of the FY 2016-2020 POM. This process of tracking to the approved estimate 

will be even more important in the future, as the Department continues to face significant 

funding constraints and instability, resulting in more frequent and haphazard reductions 

in program quantities and annual procurement rates, and more pressures to budget 

programs at less than full funding.

Cost Analysis Education and Training

CAPE is leading several initiatives to improve the education and training of the DoD 

civilian and military workforce in cost assessment, in accordance with the assigned 

responsibilities and goals of WSARA—namely, improved analytical skills and 

competencies for the cost community workforce.

Toward that end, CAPE and the military department cost agencies formed an Education 

and Training Working Group that periodically reports its status to the Cost Leadership 

Forum. The Working Group found that there was no centralized cost community 

education and training standard. As a first step to remedy this situation, the Working 

Group developed a framework of desired core competencies—for apprentice, mid-level, 

and senior cost analysts—that will be used to guide education and training standards in 

the future. In addition, CAPE now co-chairs the oversight group responsible for approval 

of the curriculum associated with DAU and other courses leading to professional 

certification in Acquisition Cost Estimating.

CAPE and the military departments are also working to establish more specialized 

technical training. CAPE is developing a training program to teach best practices for 

incorporating inflation and price escalation into cost assessments. The training will 

illustrate how approaches for normalizing price data can affect cost estimating 

relationships, learning forecasts, resource decisions, and budgeting. The training will 

target both new and experienced analysts.

CAPE and the military departments are working with the USD(AT&L) Director of 

Defense Pricing, the Defense Contract Management Agency, and the Defense Contract 

Audit Agency to increase the collaboration among cost analysts and contract price 

analysts, including the sharing of tools, methods, and data. As a recent example, the Cost 

and Systems Analysis office at the U.S. Army TACOM Life Cycle Management 

Command initiated a professional development effort in 2014 to bring Government cost 

34
estimators and contract pricing analysts together to educate each other on respective 

missions, products and timelines and to identify opportunities for data sharing and 

collaboration between the two disciplines to enhance contract negotiations and datadriven decision support. In addition, the professional development efforts included 

bringing in a speaker from the automotive private sector to understand how the 

automotive sector develops cost estimates and how it uses models and estimates to 

support negotiations with suppliers. 

A significant challenge for the education and training of the workforce is current 

restrictions on travel and conferences; the cost community is largely dependent on 

education and training funding provided by the Defense Acquisition Workforce 

Development Fund (section 852 of the National Defense Authorization Act for Fiscal 

Year 2008, Public Law 110-181). 

CAPE has supported the Navy and the Naval Postgraduate School in establishing an 

accredited Master’s Degree Program in Cost Estimating and Analysis (MCEA) that 

began in April 2011. This two-year, distance-learning program is a vital element of the 

education of the cost estimating community and improving cost estimates in both DoD 

and the defense industrial base. The program is part-time and consists of two courses per 

quarter, for eight quarters, with courses taken from operations research, systems 

engineering, and business and public policy. The program blends web-based, online 

instruction with video-televised education, and is tailored to students whose careers will 

not allow them to participate in a full-time, traditional, on-campus program. Tuition may 

be paid through the use of the Defense Acquisition Workforce Development Fund. The 

first cohort graduated in March 2013, and the second cohort graduated in March 2014. 

The third cohort commenced in Spring 2013 and is scheduled to graduate in March 2015; 

the fourth cohort commenced in Spring 2014 and is scheduled to graduate in March 2016; 

and the fifth cohort is now accepting applications for the degree program starting 

30 March 2015.

The Air Force, which had been a partner in the MCEA program, has recently established 

its own Master’s Degree Program in Cost Analysis (MCA) at the Air Force Institute of 

Technology (AFIT). This full-time graduate program is designed to advance the 

knowledge and creative problem-solving skills needed to effectively estimate program 

resources within the global military, DoD, and Air Force environments. The program 

curriculum integrates a strong foundation in quantitative concepts and techniques with 

specific military cost-related topics to prepare students to contribute effectively in a 

variety of complex and challenging roles in the global military arena. Besides the weapon 

system cost sequence, the curriculum includes courses in mathematical methods, 

quantitative decision making, economics, cost management, risk, finance, econometrics, 

35
contract management, computer programming, and maintenance and production 

management. Program graduates are well grounded in course work related to follow-on 

assignments within the financial management field of cost estimating at the base, major 

command, and higher levels. Although the program has historically been focused on 

educating military members, it has recently begun to admit civilians. 

Operating and Support Costs

For major weapon systems, O&S costs can often constitute the largest portion of the total 

life-cycle cost. Depending on the type of system, O&S costs can make up anywhere from 

45 to 70 percent of total life-cycle cost. A careful examination of the O&S costs for the 

major systems in the Department is therefore appropriate and important. Optimistic 

forecasts of these costs can contribute to instability in the acquisition programs by 

resulting in a demand for more resources than originally expected, thereby undermining 

acquisition plans. Realistic funding of these accounts, and control of cost growth where 

possible, can help stabilize mid- and long-term plans for acquisition programs as well as 

the overall defense budget. 

To help the Department deal with these issues, CAPE established a new O&S Cost 

Analysis Division in the summer of 2012. The division is responsible for a wide range of 

O&S cost estimates and analyses, and for assessing the adequacy of current systems, 

methods, and data used for preparing estimates of O&S costs. The division also partners 

with the USD(AT&L) staff to make O&S costs more visible in the acquisition decision 

process, with increased emphasis on O&S cost affordability and management.

The CAPE O&S cost division completed the O&S Cost-Estimating Guide in March 2014 

and provided the document to the military departments and other OSD organizations. 

This guide explains and illustrates how O&S cost estimates and analyses can support key 

program decisions throughout the life cycle. The guide provides a tutorial on the best 

practices for preparing, presenting, and documenting O&S cost estimates. The guide also 

addresses legislative requirements for major weapon system O&S costs. The National 

Defense Authorization Act for Fiscal Year 2012, Public Law 112-81, established a 

provision concerning “Assessment, Management and Control of O&S Costs” that 

mandates several ambitious requirements intended for DoD to take specific steps to 

improve its processes concerning cost estimating and management of major system O&S 

costs. In particular, the provision requires the Department to periodically update 

estimates of program O&S costs, and track and assess these estimates relative to prior 

estimates. The guide describes how the Department has implemented this legislative 

provision in various DoD instructions and regulations, and provides recommended 

approaches and analytic methods for dealing with these new requirements. The guide is 

36
now available on the CAPE web site at 

http://www.cape.osd.mil/files/OS_Guide_v9_March_2014.pdf.

CAPE is responsible for executive oversight of the military department VAMOSC 

programs. In this capacity, the CAPE O&S cost division—in coordination with the 

military departments, USD(AT&L), the Under Secretary of Defense for Personnel and 

Readiness (USD(P&R)), and the Joint Staff—is leading a task force to recommend 

specific improvements to the Naval VAMOSC system. The team is developing a plan to 

correct known deficiencies in ship and ground system data, incorporate long-term 

integration of Navy Enterprise Resource Planning information, and provide additional 

user training requirements. The plan will be completed by June 2015 and its 

recommendations will be incorporated into the Navy FY 2017-2021 POM submission. 

The CAPE O&S cost division is working with the DCARC to improve the current 

collection and reporting of contractor actual costs for major sustainment, logistics and 

maintenance contracts. The division and the DCARC are working with other stakeholders 

to recommend changes to the current reporting that will improve data quality and 

streamline data reporting. This team is working with the software data reporting working 

group mentioned earlier to establish weapon system software sustainment data collection 

and reporting. The team is monitoring the sustainment cost reporting for the F-35 aircraft, 

and is working to establish sustainment cost reporting for the F117 engine, a commercialderivative engine that powers the C-17 airlift aircraft. The division is also working to 

establish cost reporting standards and processes for government depots. 

Summary

CAPE is continuing to develop and refine plans for the Department’s cost estimating and 

cost analysis functions. Implementation of these plans will ensure that the cost 

assessment organizations, workforce, policies and procedures, data collection systems, 

and training and education programs will be strengthened and improved as necessary to 

meet the expanded roles and responsibilities established by WSARA.

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Appendix A.

Cost Analysis Organizations in DoD

Independent Cost Assessment Organizations

There are four key offices for the preparation of ICEs. Within OSD, the office 

responsible for ICEs reports to the Director, CAPE. Within the military departments, 

these offices all report to their Assistant Secretary for Financial Management and 

Comptroller. The following paragraphs give a brief description and overview of these key 

offices responsible for ICEs.

OSD – Deputy Director for Cost Assessment

The CAPE Deputy Director for Cost Assessment prepares ICEs for all MDAPs and 

MAIS programs when acquisition oversight has not been delegated to a military 

department or Defense Agency, and reviews all cost estimates and cost analyses prepared 

by the military departments and Defense Agencies in connection with other MDAPs and 

MAIS programs. The Deputy Director for Cost Assessment provides leadership to the 

entire DoD cost community with regard to workforce development and management, 

policy and procedures, cost data collection, cost analysis education and training, and cost 

research. 

Army – Deputy Assistant Secretary of the Army for Cost and Economics 

The Deputy Assistant Secretary of the Army for Cost and Economics (DASA-CE) 

develops ICEs and Component cost analyses for Army weapon and information systems. 

DASA-CE conducts independent reviews and validation of business case analyses, 

economic analyses, and special cost studies of major weapon and information systems, 

force structure, and O&S costs. DASA-CE serves as the Cost and Economics advisor for 

Army Study Advisory Groups. It chairs and oversees the Army Cost Review Board, 

develops and approves the Army Cost Position for all major acquisition programs, and 

conducts in-depth risk analyses of major Army programs and associated costs. 

Navy – Naval Center for Cost Analysis

NCCA advises the Secretary of the Navy, Chief of Naval Operations, and Commandant 

of the Marine Corps on cost and economic issues. NCCA leads the Department of the 

Navy cost community in issues of cost policy and policy implementation, with the goal of 

increasing the capability and efficiency of the Naval cost community. NCCA prepares 

independent cost analyses for Department of the Navy MDAPs and MAIS programs, and 

also conducts economic analyses and special studies to support relevant defense issues. 

NCCA coordinates all Department of the Navy cost research. The Executive Director of 

NCCA is the Deputy Assistant Secretary of the Navy (Cost and Economics).

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Air Force – Deputy Assistant Secretary of the Air Force for Cost and Economics / Air Force 

Cost Analysis Agency

The Air Force develops life-cycle cost ICEs and non-advocate Component cost analyses 

of Air Force aircraft, space, weapons, command and control, and automated information 

systems to support acquisition, programming, and budgeting decisions. The Air Force 

also conducts non-advocate business case analyses, economic analyses, and special cost 

studies of major systems, force structure, and O&S costs supporting multiple Air Force 

and DoD stakeholders. It maintains the Air Force Total Ownership Cost (AFTOC) 

database mandated by the Congress, and develops annual aircraft cost per flying hour 

estimates to support planning, programming, and budgeting decisions. The Deputy 

Assistant Secretary of the Air Force for Cost and Economics develops the Air Force Cost 

Position for all major acquisition programs; conducts and coordinates cost research to 

develop analytical databases, methods, and tools; and advocates for and manages the Air 

Force cost analysis workforce ranging from tactical to headquarters levels.

Additional Field-Level Cost Organizations and Activities

There are several field-level cost organizations. These typically are located at a major 

product center such as NAVAIR or the Air Force Life Cycle Management Center

(AFLCMC). This section provides a summary of these important organizations.

Army

TACOM Life Cycle Management Command (LCMC)

The TACOM LCMC Cost and Systems Analysis organization is responsible for 

preparation of program office estimates, life cycle cost estimates, economic analyses, and 

combat effectiveness modeling that support the development of combat and tactical 

vehicles. It manages the tools and databases to support cost and systems analysis 

processes for the TACOM LCMC. The major cost analysis activities are life cycle cost 

estimating, cost reporting and EVM, O&S cost baselines, support to AoAs, source 

selection evaluations, and cost analyses associated with multi-year procurement

contracts. 

Aviation and Missile Command (AMCOM)

The AMCOM Cost Analysis Division provides cost estimation and analysis support to 

Aviation, Missiles and Space Program Executive Offices and their Program/Project 

Offices. It manages the AMCOM Cost Analysis Program and develops, updates, or 

obtains cost estimating relationships, cost factors, and mathematical and computerized 

cost models for estimating purposes. It develops cost estimates to support AoAs, tradeoff 

studies, and force structure cost estimates. It develops and prepares life cycle cost 

estimates, and it conducts other related studies in support of weapon system cost 

analyses. It performs cost risk analyses and cost risk assessments to support weapon 

A-2
system program decisions. It also provides validation/review for cost estimates, economic 

analyses, and business case analyses.

Communication-Electronics Command (CECOM)

The CECOM Cost Analysis Division provides cost estimation and analysis support to 

CECOM Program Executive Offices and their Program/Project Offices. It provides 

several cost analysis services, including life cycle cost estimating, EVM, economic 

analysis, modeling and simulation, computer software and database support, and review 

and validation of business case analyses and other cost analyses.

Navy

Naval Air Systems Command (NAVAIR)

The Cost Department of NAVAIR provides a wide variety of cost analysis products and 

services. Its primary focus is to provide a clear and comprehensive understanding of life 

cycle cost and attendant uncertainties to be used in developing, acquiring, and supporting 

affordable naval aviation systems. Besides life cycle cost estimates, the Cost Department 

provides source selection cost evaluation support, EVM analysis, cost research and 

databases, and various cost/benefit studies.

Naval Sea Systems Command (NAVSEA)

The Cost Engineering and Industrial Analysis Division of NAVSEA provides cost 

engineering and industrial base analysis for ships, ship-related combat systems, and 

weapons. It provides cost estimates in support of the DAB review process, including 

AoA studies. It also participates in contract proposal evaluations and the source selection 

process for builders and suppliers of ships and weapon systems, and it conducts analysis 

and forecasting of labor, industrial, and technical trends as they affect the overall 

acquisition of ships, combat systems, weapons, and other equipment. 

Space and Naval Warfare Systems Command (SPAWAR)

The Cost Estimating and Analysis Division (SPAWAR 01-6) may—depending on a 

program’s acquisition category—provide assistance to ACAT I program offices, perform 

an ICE for ACAT II programs prior to a Milestone B or C review, or independently 

review a program office cost estimate upon the request of the Program Executive Officer 

(C4I and Space). SPAWAR 01-6 also provides more general cost analysis support to the 

Program Executive Officer (PEO) as needed.

Naval Surface Warfare Center

The Cost and Affordability Group resides within the Warfare Analysis Branch of the 

Requirements Analysis and Advanced Concepts Division of the Warfare Systems 

Department at the Naval Surface Warfare Center, Dahlgren Division. The Group 

produces cost estimates, cost-risk assessments, and affordability analyses for Combat 

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Systems. The Group also develops cost-estimating methodology in support of systems 

development and production, AoAs, and strategic planning. Particular areas of expertise 

include model development and maintenance, cost-research databases, technology 

assessments, life cycle cost estimates, budget and force-level analyses, performancebased cost models, product-oriented cost models, proposal evaluation, and source 

selection reviews.

Marine Corps Systems Command (MCSC)

The Cost and Analysis Branch (C&AB) is the MCSC authority in the field of cost 

analysis. The C&AB conducts and oversees the development of cost estimates for MCSC 

weapon, information technology, and non-standard training systems programs. The 

C&AB advises the Commander, MCSC and PEOs on the historic, current, and emerging 

trends in all elements of cost estimating and cost analysis. The Branch works for the 

MCSC Commander as an independent agent that provides cost products to Program 

Management Offices (PMOs) and PEOs. The Branch is organized into analytical teams in 

direct cost support of the PMOs and PEOs and a general support studies team for 

conducting AoAs and other operations research studies and analyses. Through its 

processes, the C&AB delivers life-cycle cost estimates to satisfy the “Will-Cost” 

estimate, whereas PMOs perform the “Should-Cost” analysis. 

Air Force

Air Force Life Cycle Management Center (AFLCMC)

In 2012, the Air Force combined cost estimating activities from three product centers 

under AFLCMC: Aeronautical Systems Center, Electronic Systems Center, and Air 

Armament Center. AFLCMC leads estimates for program milestone decisions, manages 

the annual cost estimate process, supports pre-award activities and source selections, and 

participates in policy discussions resulting in high-quality cost estimates and analysis 

across the Center. 

Air Force Space Command, Space and Missile Center (SMC)

The SMC Cost Estimating Division supports cost estimates and cost analyses associated 

with Air Force Space Command and the SMC’s mission of satellite acquisition, launch, 

and control.

Air Force Sustainment Center (AFSC)

The AFSC Cost Estimating Division supports cost estimates and cost analyses associated 

with the AFSC’s mission to provide depot maintenance, supply chain management and 

installation support to Air Force weapon systems.

A-4
Air Force Nuclear Weapons Center (AFNWC)

The AFNWC Cost Estimating Division supports cost estimates and cost analysis for all 

nuclear weapon systems activities. The responsibilities of the AFNWC include 

acquisition, modernization, and sustainment of nuclear system programs for both DoD 

and the Department of Energy.

Other

National Reconnaissance Office (NRO) Cost Analysis Improvement Group

The NRO Cost Analysis Improvement Group provides independent cost estimating 

support to the NRO. This support covers milestone decisions, budget submissions, EVM, 

ad hoc program support, data collection, methods development, and model/tool 

development.

Defense Information Systems Agency (DISA)

The DISA Analysis and Internal Controls Division guides, directs, and strengthens cost 

analyses within DISA; and prepares cost estimates for the development, procurement, 

and sustainment of automated information systems and information technology 

capabilities. The Division provides independent support for DISA program/project 

costing efforts, and publishes DISA policies, practices and templates for cost estimation, 

cost/benefit analysis, and economic analysis.

Missile Defense Agency (MDA)

The MDA Director of Cost Estimating and Analysis (DOC) is responsible for ensuring 

the quality of cost estimates, providing direction on cost estimating processes, and 

working with the service cost organizations, CAPE, and the Government Accountability 

Office on all cost-related matters. In recent years MDA/DOC has worked closely with 

CAPE on preparing cost estimates for MDA programs and responding to Congressional 

and Missile Defense Executive Board inquiries and tasks. 

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Appendix B.

Major Defense Acquisition Program Unit Cost Reporting

Since 1982, the Congress has required DoD to track and report on the unit cost for most 

MDAPs. The requirement for unit cost reporting may be waived if the program has not 

entered Engineering and Manufacturing Development (EMD), a reasonable cost estimate 

has not been established for the program, and the system configuration is not well 

defined. The provisions of the law concerning unit cost reporting, commonly referred to 

as the Nunn-McCurdy provisions, are found in section 2433 of title 10, United States

Code. A complete description of the Department’s implementation of these provisions is 

provided in the Defense Acquisition Guidebook): see section 10.9 (“Acquisition Program 

Baseline”) and section 10.10.1.5 (“Unit Cost Reports”).

There are two unit cost metrics subject to reporting, Program Acquisition Unit Cost 

(PAUC) and Average Procurement Unit Cost (APUC). PAUC is defined as the total 

program acquisition cost (sum of research, development, test, and evaluation; 

procurement; military construction; and acquisition-related Operations and Maintenance 

(O&M) appropriations) divided by the total program quantity of fully configured end 

items from both the EMD and Production and Deployment Phases. APUC is defined as 

the program procurement cost divided by the procurement quantity. Both unit cost 

metrics are tracked in constant dollars of a base year established for each program.

The most current cost estimate for each unit cost metric is tracked relative to two baseline 

cost estimates. The current baseline estimate refers to the most recent baseline approved 

by the MDA. The original baseline estimate refers to the baseline approved at program 

initiation (usually Milestone B). A program is declared to have a unit cost breach when 

the current unit cost estimate exceeds either baseline unit cost estimate by more than 

certain specified percentages. Specifically, as shown in Table B-1, a unit cost breach 

takes place when any of the following criteria are met, for either version of program unit 

cost (APUC or PAUC):

Table B-1. Unit Cost Breach Thresholds

“Significant” Breach “Critical” Breach

Current Baseline Estimate +15% +25%

Original Baseline Estimate +30% +50%

Note that there are two degrees associated with the severity of the unit cost breach. For 

significant unit cost breaches, the Department notifies the Congress of the breach within 

45 days of the unit cost report and subsequently submits a program SAR with additional, 

breach-related information. For critical unit cost breaches, in addition to notifying the 

Congress and submitting the SAR, the Department is required to conduct a complete 

B-1
assessment of the program, led by USD(AT&L), and determine if it should be terminated 

or continued. The Department is required to terminate the program unless a letter signed 

by USD(AT&L), providing the certification that the program currently meets certain 

criteria established in law (section 2433a of title 10, United States Code), is submitted to 

the Congress within 60 days of the SAR submission. Among other things, USD(AT&L) 

must certify that the Director, CAPE has determined the new unit cost estimates are 

reasonable. A complete description of the critical unit cost breach certification process 

can be found in the Defense Acquisition Guidebook, section 10.10.1.5.2.2 (“Critical Cost 

Breach Certification Requirements”).

B-2
Appendix C.

Major Automated Information System Reporting

Public law (section 2445c of title 10, United States Code) requires annual and quarterly 

reports from MAIS programs, pre-MAIS (now referred to as unbaselined MAIS) 

programs, and any other investment in automated information system products or 

services that is expected to exceed the MAIS thresholds. Details about the MAIS 

reporting requirements may be found in the Defense Acquisition Guidebook), section 

10.11 (“Major Automated Information System Statutory Reporting”). Briefly, a MAIS 

Quarterly Report is used internally within the Department, and a MAIS Annual Report is 

provided to the congressional defense committees 45 days after submission of the 

President’s Budget. The formats of the quarterly report and annual report are similar. The 

reports provide a program description, a summary of the program status, and the latest 

estimates regarding schedule, performance characteristics, acquisition cost, and life-cycle 

cost.

The reports compare the latest estimates of schedule, performance, and costs relative to 

the program baseline approved at the previous acquisition milestone. This comparison is 

used to determine if the program has a deviation known as either a significant change or a 

critical change. A significant change occurs when a program has a schedule delay of 

more than six months, but less than one year; there is a significant, adverse change in the 

expected performance of the system; or the estimated acquisition cost or life-cycle cost 

has increased by at least 15 percent but less than 25 percent. For a program with a 

significant change, the Department is required to notify the congressional defense 

committees of the change within 45 days after receiving the report that identified the 

deviation. 

A critical change occurs when a program has a schedule delay of one year or more or 

fails to achieve a full deployment decision within five years of when funds for the 

program were first obligated;

3 there is a change in expected performance that will 

undermine the ability of the system to perform its intended functions; or the estimated 

acquisition cost or life-cycle cost has increased by 25 percent or more. For a program 

with a critical change, the Department must conduct an evaluation of the program, and 

then submit a report and a formal certification to the congressional defense committees 

within 60 days after receiving the report that identified the deviation; otherwise,

appropriated funds may not be obligated for any major contract under the program until 

the certification is submitted. The certification must affirm the following:

3 A recent legislative change (section 802 of the National Defense Authorization Act for Fiscal Year 2015, 

Public Law 113-291) was made so that beginning this year a failure to achieve a full deployment decision 

within five years results in a MAIS significant change, and not a critical change. This legislative change 

will be reflected in the activities reported in next year’s Annual Report. 

C-1

 
(1) the program is essential to the national security or to the efficient management of 

DoD;

(2) there is no alternative to the system or information technology investment which 

will provide equal or greater capability at less cost;

(3) the new estimates of the costs, schedule, and performance parameters with 

respect to the program have been determined, with the concurrence of the 

Director, CAPE, to be reasonable; and

(4) the management structure for the program is adequate to manage and control 

program costs.

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Appendix D. 

DoD Cost Data Collection Systems

Three primary data collection systems are used by DoD as the major sources of cost data 

for major acquisition programs:

• CSDR system – serves as the primary source of actual cost information reported 

for major contracts and subcontracts associated with MDAPs and MAIS 

programs

• EVM Central Repository – used to collect and archive EVM reporting 

documents

• VAMOSC systems – collect historical O&S costs for major weapon systems

Both the CSDR and EVM reporting use a common, product-oriented taxonomy known as 

a WBS that follows the guidelines of the DoD Standard Practice, Work Breakdown 

Structures for Defense Materiel Items (MIL-STD-881C). The WBS is a hierarchy of 

product-oriented elements (hardware, deliverable software, data, and services) that 

collectively constitute the system to be developed or produced. Further information about 

the use of the WBS in cost reporting and cost estimating can be found in the Defense 

Acquisition Guidebook, section 3.7.1.1 (“Work Breakdown Structure”).

Cost and Software Data Reporting System

System Description

The CSDR system is the primary means that DoD uses to collect actual cost and related 

data on major defense contracts and subcontracts. Defense contractors support the CSDR 

system, under contractual agreements, by reporting data on development, production, and 

sustainment costs incurred in executing contracts. The two principal components of the 

CSDR are contractor cost data reporting (CCDR) and software resources data reporting 

(SRDR) systems. These systems are hosted on a secure web-based information repository 

known as the Defense Automated Cost Information Management System.

CCDR is the primary means within DoD to systematically collect data on the 

development, production, and sustainment costs incurred by contractors. DoD Instruction 

5000.02, Operation of the Defense Acquisition System, establishes the CCDR 

requirements for major contracts and subcontracts (regardless of contract type) associated 

with MDAPs and MAIS programs.

The SRDR system collects software cost metrics data to supplement the CCDR cost data,

to provide a better understanding and improved estimating of software-intensive 

programs. DoD Instruction 5000.02 establishes SRDR requirements for major contracts 

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and subcontracts (regardless of contract type) associated with MDAPs and MAIS 

programs. Data collected from applicable contracts include type and size of the software 

application(s), schedule, and labor resources needed for the software development. 

The CSDR data that is collected today is illustrated in Figure D-1. Access to CSDR data 

is provided by the DCARC to authorized and approved users. There are currently over 

1,800 approved users. Detailed procedures and other implementation guidance for both 

CSDR systems are found in DoD 5000.04-M-1, Cost and Software Data Reporting 

(CSDR) Manual. This manual (as well as downloadable report formats and definitions, 

specific report examples, and other related information) can be found on the DCARC 

website at http://dcarc.cape.osd.mil. 

Figure D-1. CSDR Data Reports

The CSDRs provide essential cost information based on actual cost experience not found 

in other data sources. The reports provide labor hours, material dollars, and overhead 

dollars by WBS element and cost estimating functional category. The data may also be 

used to investigate fixed-variable direct and indirect cost behavior, and to segregate 

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nonrecurring and recurring costs. The data from these reports can be used to construct 

learning curve projections for labor hours and other recurring costs at various levels of 

the WBS.

Cost and Software Data Reporting Compliance

The DCARC continually monitors each MDAP for compliance with CSDR requirements 

where applicable. CSDR reporting is not required when (1) the program is in preMilestone A status, with no prototypes, or (2) the CSDR requirements have been waived 

by CAPE. Waivers for CSDR requirements may be granted when (1) a program is a 

procurement of a commercial system, or (2) a program is purchased under competitively 

awarded, firm fixed-price contracts, as long as competitive conditions continue to exist.

The CSDR compliance rating criteria for programs, which were recently revised, are 

provided in Figure D-2 below.

Note: RFP – Request for Proposal.

Figure D-2. CSDR Compliance Rating Criteria

The program compliance for all MDAPs using the revised criteria for the last two 

quarters of 2014 is provided in Table D-1.

D-3
Table D-1. MDAP CSDR Compliance (number of programs)

Q3 2014 Q4 2014

Green/Green Advisory 139 135

Yellow

Red

Not Rated

39

0

48

21

21

37

The CSDR compliance data shown in previous editions of the Annual Report were based 

on the earlier criteria, and are not directly comparable to the more recent data shown 

above.

Earned Value Management Central Repository

In support of the USD(AT&L) staff, the DCARC hosts the EVM Central Repository. The 

central repository supports the centralized reporting, collection, archiving, and 

distribution of key EVM data reports (such as Integrated Program Management Reports) 

for MDAPs and MAIS programs. Information about the central repository is available on

the DCARC website at http://dcarc.cape.osd.mil/EVM /EVMOverview.aspx. More 

general information about EVM reporting is available in the Defense Acquisition 

Guidebook, section 11.3.1 (“Earned Value Management”), and on the DoD EVM website 

at http://www.acq.osd.mil/evm.

The central repository supports complete, timely, and secure transfer of electronic data 

from the contractor to the repository; secure and controlled warehousing of the data; and 

controlled, timely, and secure access to the data by authorized users. The main purpose of 

these data is to provide a consistent and timely situational awareness of acquisition 

execution. 

Visibility and Management of Operating and Support Costs Data System

DoD requires that each military department maintain a system that collects historical data 

on the O&S costs for major fielded weapon systems. The CAPE Deputy Director for Cost 

Assessment provides policy guidance on this requirement, known as the VAMOSC 

program; specifies the common format in which the data are to be reported; and monitors 

its implementation by each of the military departments. The National Defense 

Authorization Act for Fiscal Year 2012, Public Law 112-81, contains a provision that 

calls for strengthened CAPE oversight of the VAMOSC program.

Each department has its own unique VAMOSC data system that tracks actual O&S cost 

experience for major weapon systems. The data can be displayed by timeframe, at 

various levels of detail, and by functional elements of cost (such as depot maintenance, 

fuel, consumable items, and so forth). Each VAMOSC system provides not only cost 

data, but related non-cost data (such as system quantities and operating tempo) as well. 

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VAMOSC data can be used to analyze trends in O&S cost experience for each major 

system, as well as to identify and assess major cost drivers. VAMOSC data systems are 

managed by each military department as follows: 

• The Navy’s VAMOSC management information systems (known as Navy 

VAMOSC and Marine Corps VAMOSC) collect and report US Navy and US 

Marine Corps historical weapon system O&S costs. VAMOSC provides the 

direct O&S costs of weapon systems; some indirect costs (e.g., ship depot 

overhead); and related non-cost information such as flying hour metrics, 

steaming hours, age of aircraft, and personnel counts for ships. It is managed by 

NCCA. See page 37 for details on the Department’s efforts to correct known 

deficiencies in this system and the business processes that support it.

• The Army’s VAMOSC system, called the Operating and Support Management 

Information System (OSMIS), tracks operating and support information for over 

1,400 major Army weapon/materiel systems and is maintained by DASA-CE. 

OSMIS-tracked systems include combat vehicles, tactical vehicles, artillery 

systems, aircraft, electronic systems, and miscellaneous engineering systems.

OSMIS provides cost data for these systems, as well as non-cost information 

such as aircraft flying hours or vehicle miles, fuel consumption, demand for 

parts, and number of end-item overhauls. 

• The Air Force’s VAMOSC system, AFTOC, is managed by the Deputy Assistant 

Secretary of the Air Force for Cost and Economics. It provides O&S cost 

information on all Air Force aircraft, space systems, and missiles. The O&S cost 

information collected includes unit-level manpower, fuel, depot maintenance 

overhaul costs, depot-level reparable costs, and other costs of major US Air Force 

aircraft and engines. AFTOC also provides data on aircraft quantities and flying 

hours, numbers of personnel, and other non-cost information

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Abbreviations

ACAT Acquisition Category

AFIT Air Force Institute of Technology

AFLCMC Air Force Life Cycle Management Center

AFNWC Air Force Nuclear Weapons Center

AFSC Air Force Sustainment Center

AFTOC Air Force Total Ownership Cost

AMCOM Aviation and Missile Command

AoA Analysis of Alternatives

APUC Average Procurement Unit Cost

C&AB Cost and Analysis Branch

CADE Cost Assessment Data Enterprise

CANES Consolidated Afloat Network Enterprise Services

CAPE Cost Assessment and Program Evaluation

CARD Cost Analysis Requirements Description

CCDR Contractor Cost Data Reporting

CEC Cooperative Engagement Capability

CECOM Communication-Electronics Command

CEPE Cost Estimating and Program Evaluation

CRH Combat Rescue Helicopter

CSDR Cost and Software Data Reporting

DAB Defense Acquisition Board

DASA-CE Deputy Assistant Secretary of the Army for Cost and Economics

DAU Defense Acquisition University

DAVE Defense Acquisition Visibility Environment

DCARC Defense Cost and Resource Center

DISA Defense Information Systems Agency

DOC Director of Cost Estimating and Analysis

DoD Department of Defense

DoDCAS Department of Defense Cost Analysis Symposium

EMD Engineering and Manufacturing Development

EPS Enhanced Polar System

EVM Earned Value Management

FCoM Full Cost of Manpower

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FMS Foreign Military Sales

FY Fiscal Year

FYDP Future Years Defense Program

ICE Independent Cost Estimate

IFPC Inc2-I Indirect Fire Protection Capability Increment 2 - Intercept

G/ATOR Ground/Air Task Oriented Radar

JPALS Joint Precision Approach and Landing System

LCMC Life Cycle Management Command

MAIS Major Automated Information System

MCA Master’s Degree Program in Cost Analysis

MCEA Master’s Degree Program in Cost Estimating and Analysis

MCSC Marine Corps Systems Command

MDA Milestone Decision Authority

MDA Missile Defense Agency

MDAP Major Defense Acquisition Program

MSE Missile Segment Enhancement

MYP Multi-Year Procurement

NAVAIR Naval Air Systems Command

NAVSEA Naval Sea Systems Command

NCCA Naval Center for Cost Analysis

NNSA National Nuclear Security Administration

NRO National Reconnaissance Office

O&M Operations and Maintenance

O&S Operating and Support

OMB Office of Management and Budget

OSD Office of the Secretary of Defense

OSMIS Operating and Support Management Information System

PAC Patriot Advanced Capability

PAUC Program Acquisition Unit Cost

PEO Program Executive Officer

PIM

PMO

Paladin Integrated Management

Program Management Office

POM Program Objective Memorandum

RFP Request for Proposal

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SAR Selected Acquisition Report

SM-3 Standard Missile-3

SMC Space and Missile Center

SPAWAR Space and Naval Warfare Systems Command

SRDR Software Resources Data Reporting

THAAD Terminal High Altitude Area Defense

3DELRR Three-Dimensional Expeditionary Long-Range Radar

USD(AT&L) Under Secretary of Defense (Acquisition, Technology and Logistics)

USD(C) Under Secretary of Defense (Comptroller)

USD(P&R) Under Secretary of Defense (Personnel and Readiness) 

VAMOSC Visibility and Management of Operating and Support Costs

VTUAV Vertical Takeoff and Landing Unmanned Aerial Vehicle

WBS Work Breakdown Structure

WSARA Weapon Systems Acquisition Reform Act of 2009

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