Cost as an Independent Variable: Concepts and Risks

Abstract : In the past decade of tremendous changes in defense systems acquisition, the most significant factor is the dramatic drop in dollars available to buy new systems. This mandates new thinking on strategies and processes for acquisition. Part of this change in thinking is Cost as an Independent Variable (CAIV), a new initiative to reduce life-cycle costs of defense systems. CAIV was proposed in 1995 and implemented in March 1996 as a part of the new 5000 Series regulations on defense systems acquisition (DoD 5000.2R, 1996). Compliance with the principles of CAIV is required for all acquisition category (ACAT) I and IA programs. CAIV is a new DoD strategy that makes total life-cycle cost as projected within the new acquisition environment a key driver of system requirements, performance characteristics, and schedules. While the life-cycle cost performance requirements tradeoff process is the heart of CAIV, a broader definition is necessary to recognize the environment in which these trades take place. Programs are being aggressively managed to meet program objectives concomitantly with the implementation of reform initiatives such as use of commercial specifications and practices, use of integrated product and process development teams, and contractor enterprise reengineering. Acquisition reform initiatives have the potential to significantly reduce cost and change the baseline against which cost performance requirements trades are benchmarked. Eight flagship programs are currently sharing problems and solutions in implementing CAIV policy. This article examines the definitions, concepts, processes, and risks of CAIV, with examples from the eight flagship programs that are leaders in its use.