The way DOD develops and produces its major weapons systems has had disappointing outcomes. There is a vast difference between DOD’s budgeting plans and the reality of the cost of its systems. Performance, if it is defined as the capability that actually reaches the warfighter, often falls short, as cost increases result in fewer quantities of produced systems and schedule slips. Performance, if it is defined as an acceptable return on investment, has not lived up to promises. Table 1 illustrates seven programs with a significant reduction in buying power; we have reported similar outcomes in many more programs. For example, the Air Force initially planned to buy 648 F/A-22 Raptor tactical aircraft at a program acquisition unit cost of about $125 million (fiscal year 2006 dollars). Technology and design components matured late in the development of the aircraft, which contributed to cost growth and schedule delays. Now, the Air Force plans to buy 181 aircraft at a program acquisition unit cost of about $361 million, an almost 189 percent increase. Furthermore, the conventional acquisition process is not agile enough for today’s demands. Congress has expressed concern that urgent warfighting requirements are not being met in the most expeditious manner and has put in place several authorities for rapid acquisition to work around the process. The U.S. Joint Forces Command’s Limited Acquisition Authority and the Secretary of Defense’s Rapid Acquisition Authority seek the ability to get warfighting capability to the field faster. According to U.S. Joint Forces Command officials, it is only through Limited Acquisition Authority that the command has the authority to satisfy the unanticipated, unbudgeted, urgent mission needs of other combatant commands. With a formal process that requires as many as 5, 10, or 15 years to get from program start to production, such experiments are needed to meet the warfighters’ needs. Today we are at a crossroad. Our nation is on an unsustainable fiscal path. Long-term budget simulations by GAO, the Congressional Budget Office, and others show that, over the long term, we face a large and growing structural deficit due primarily to known demographic trends and rising health care costs. Continuing on this unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security. Federal discretionary spending, along with other federal policies and programs, will face serious budget pressures in the coming years stemming from new budgetary demands and demographic trends. Defense spending falls within the discretionary spending accounts. Further, current military operations, such as those in Afghanistan and Iraq, consume a large share of DOD resources and are causing faster wear on existing weapons. Refurbishment or replacement sooner than planned is putting further pressure on DOD’s investment accounts. At the same time DOD is facing these problems, programs are commanding larger budgets. DOD is undertaking new efforts that are expected to be the most expensive and complex ever and on which DOD is heavily relying to fundamentally transform military operations. And it is giving contractors increased program management responsibilities to develop requirements, design products, and select major system and subsystem contractors. Table 2 shows that just 5 years ago, the top five weapon systems cost about $291 billion combined; today, the top five weapon systems cost about $550 billion. If these megasystems are managed with traditional margins of error, the financial consequences can be dire, especially in light of a constrained discretionary budget. Success for acquisitions means making sound decisions to ensure that program investments are getting promised returns. In the commercial world, successful companies have no choice but to adopt processes and cultures that emphasize basing decisions on knowledge, reducing risks prior to undertaking new efforts, producing realistic cost and schedule estimates, and building-in quality in order to deliver products to customers at the right price, the right time, and the right cost. At first blush, it would seem DOD’s definition of success would be very similar: deliver capability to the warfighter at the right price, the right time, and the right cost. However, this is not happening within DOD. In an important sense, success has come to mean starting and continuing programs even when cost, schedule, and quantities must be sacrificed. DOD knows what to do to improve acquisitions but finds it difficult to apply the controls or assign the accountability necessary for successful outcomes. To understand why these problems persist, we must look not just at the product development process but at the underlying requirements and budgeting processes to define problems and find solutions. Over the last several years, we have undertaken a body of work that examines weapon acquisition issues from a perspective that draws upon lessons learned from best product development practices. Leading commercial firms expect that their program managers will deliver high- quality products on time and within budget. Doing otherwise could result in the customer walking away. Thus, those firms have created an environment and adopted practices that put their program managers in a good position to succeed in meeting these expectations. Collectively, these practices comprise a process that is anchored in knowledge. It is a process in which technology development and product development are treated differently and managed separately. The process of developing technology culminates in discovery—the gathering of knowledge—and must, by its nature, allow room for unexpected results and delays. Leading firms do not ask their product managers to develop technology. Successful programs give responsibility for maturing technologies to a science and technology organizations, rather than the program or product development managers. The process of developing a product culminates in delivery, and, therefore, gives great weight to design and production. The firms demand—and receive—specific knowledge about a new product before production begins. A program does not go forward unless a strong business case on which the program was originally justified continues to hold true. Successful product developers ensure a high level of knowledge is achieved at key junctures in development. We characterize these junctures as knowledge points. These knowledge points and associated indicators are defined as follows: Knowledge point 1: Resources and needs match. This point occurs when a sound business case is made for the product—that is, a match is made between the customer’s requirements and the product developer’s available resources in terms of knowledge, time, money, and capacity. Achieving a high level of technology maturity at the start of system development is an important indicator of whether this match has been made. This means that the technologies needed to meet essential product requirements have been demonstrated to work in their intended environment. Knowledge point 2: Product design is stable. This point occurs when a program determines that a product’s design is stable— that is, it will meet customer requirements, as well as cost, schedule and reliability targets. A best practice is to achieve design stability at the system-level critical design review, usually held midway through development. Completion of at least 90 percent of engineering drawings at the system design review provides tangible evidence that the design is stable. Knowledge point 3: Production processes are mature. This point is achieved when it has been demonstrated that the company can manufacture the product within cost, schedule, and quality targets. A best practice is to ensure that all key manufacturing processes are in statistical control—that is, they are repeatable, sustainable, and capable of consistently producing parts within the product’s quality tolerances and standards—at the start of production. A result of this knowledge-based process is evolutionary product development, an incremental approach that enables developers to rely more on available resources rather than making promises about unproven technologies. Predictability is a key to success as successful product developers know that invention cannot be scheduled and its cost is difficult to estimate. They do not bring technology into new product development unless that technology has been demonstrated to meet the user’s requirements. Allowing technology development to spill over into product development puts an extra burden on decision makers and provides a weak foundation for making product development estimates. While the user may not initially receive the ultimate capability under this approach, the initial product is available sooner and at a lower, more predictable cost. There is a synergy in this process, as the attainment of each successive knowledge point builds on the preceding one. Metrics gauge when the requisite level of knowledge has been attained. Controls are used to attain a high level of knowledge before making additional significant investments. Controls are considered effective if they are backed by measurable criteria and if decision makers are required to consider them before deciding to advance a program to the next level. Effective controls help decision makers gauge progress in meeting cost, schedule, and performance goals and ensure that managers will (1) conduct activities to capture relevant product development knowledge, (2) provide evidence that knowledge was captured, and (3) hold decision reviews to determine that appropriate knowledge was captured to move to the next phase. The result is a product development process that holds decision makers accountable and delivers excellent results in a predictable manner. A hallmark of an executable program is shorter development cycle times, which allow more systems to enter production more quickly. DOD itself suggests that product development should be limited to about 5 years. Time constraints, such as this, are important because they serve to limit the initial product’s requirements. Limiting product development cycle times to 5 years or less would allow for more frequent assimilation of new technologies into weapon systems, speeding new technology to the warfighter, hold program managers accountable, as well as make more frequent and predictable work in production, where contractors and the industrial base can profit by being efficient. DOD’s policy adopts the knowledge-based, evolutionary approach used by leading commercial companies that enables developers to rely more on available resources rather than making promises about unproven technologies. The policy provides a framework for developers to ask themselves at key decision points whether they have the knowledge they need to move to the next phase of acquisition.