understanding the true cost of delaying mod major ... -...
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Understanding the true cost of delaying MOD major programmes Chris Watson 30th July 2013
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Contents
• Background
• Why cost of delays?
• Studies completed to date
• Methodology used
• Route map
• An illustrative example
• Scenario
• Potential costs
• Summary
• What did we find?
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• The MOD budget isn’t large enough to cover the range of programmes under consideration, so individual programmes frequently need to be delayed
• Effective prioritisation requires a full understanding of the impact of delaying each programme
• Inflationary impact
• Impact on connected activities
• Impact on downstream activities
• A Cost of Delays calculator can provide this understanding
Why is Cost of Delays Important?
Skills Sustainment (MOD and Industry)
Impact on related programmes
Direct impact of delay
Sustaining MOD organisation
Covering capability gaps
Maintaining existing capability
Cost of
Delays
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Studies Completed to date
• Funded by Dstl via the Centre for Defence Enterprise
• Phase 1: Develop the approach
• Taking Terrier and Type 45 as examples
• Develop a Cost of Delays Calculator
• based on available data
• Phase 2: Prove the concept further
• Taking Typhoon and Watchkeeper as examples
• Examine the validity of the approach
• Is the required data available?
• Do the relationships identified in the previous phase still apply?
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Methodology
• Combines cost of delay elements into a single calculator
• Uses NAO data to categorise historical impacts (time and cost)
• Analyses historic data on DLOD interaction to predict impact of future delays
• Proposes a standard approach to calculating add-in effects driven by available data
Skills Sustainment (MOD and Industry)
Impact on related programmes
Direct impact of delay
Sustaining MOD organisation
Covering capability gaps
Maintaining existing capability
Cost of
Delays
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Summary of key data required
Source Data
NAO Time / cost impacts
Dstl Programme data
DE&S Programme data MOD Sustainment data DLoD Mappings Impacts on related programmes Commercial mechanisms
Industry Costs of sustaining industry Commercial mechanisms
DASA Inflation rates DLoD information
DIO Infrastructure costs
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Cost of Delays Calculator Route Map
DASA/DESA CAAS PTs FinMilCap FLCs
Specific General
Potential
Stakeholders and Uses
DSTL
Increasing complexity
Initial Scoping
Study
4 – 6
Multi-domain
and Depth
Revision
Adjustment
Expand to a
complete Top
20 (NAO Major
Projects)
Revision
Adjustment
MOD Wide
Approach
Revision
Adjustment
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Illustrative Scenario
Short term savings are eroded over the long term
Additional sustainment costs within Industry and MOD are incurred
Existing infrastructure needs to be sustained
The existing fleet of aircraft is run-on to cover capability gap
The capital cost is reduced over the short term
A fast-jet delivery programme is delayed
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Baseline Cost Profile
Cost in early years dominated by production.
Steady growth in support costs due to inflation.
Cost saving measure:
• Reduce the peak cost in the early years by slowing production
Capital cost of production
Support costs through life
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Slowing down production
Peak costs reduced over the first 10 years.
Production continues for longer.
Fleet life extended.
Reduction in production costs
Fleet life extended
Production catch-up
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Running on Existing Capability
Additional Costs incurred
• During slow-down, and
• During catch-up
Existing Capability Run-on
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Sustaining MOD Estates
Additional estates costs incurred to sustain
• existing airfield
• existing base infrastructure
MOD Estates Costs
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Sustaining MOD & Industry Organisation
Additional organisational costs include:
• Sustaining industry (production, engineering etc.)
• DE&S Project Teams
Additional organisation sustainment costs
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Total vs. direct cost impact comparison
The total cost of delay can be significantly more than the direct, easily calculated costs
Direct cost impact of delay
Total cost impact of delay
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Are all initial savings eroded?
1. Initial savings
Break-even point
2. Savings Eroded
3. All savings lost
4. Additional cost incurred
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Summary
• The concept works, but…
• …there are challenges with some areas of data
• DLoD mappings
• Complex commercial arrangements
• Obtaining data within tight timescales
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Questions?