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Monday, December 01, 2008
New Deloitte Aerospace & Defense Study finds Root Causes for Program Cost Overruns in USA
According to a news release from Deloitte on 18 November, a major new study on Major Defense Acquisition Programs indicates an imminent need for the Aerospace and Defense (A&D) industry to reexamine their acquisition process or risk facing cost overruns that may exceed 46 percent in 10 years, up from 26 percent today. To help the A&D industry keep their programs on schedule and within budget, Deloitte also announced some key best practices. According to Deloitte, these practices can help the industry address each of the five root causes that lead to cost overruns and schedule delays, which include technical complexity, talent shortage, supply chain challenges, politics, and program management challenges.
"Program management and execution problems have become too big to ignore," said Tom Captain (pictured), vice chairman, Global and U.S. Aerospace & Defense leader Deloitte LLP. "Countless reports and studies prove that the problem has worsened over time, and that significant, transformational changes need to be made so the A&D industry can afford its own future. This study identifies the root causes and outlines what changes need to be made in order to resolve the systemic challenges."
While technical advances make it possible to develop incredibly powerful and sophisticated weapons, this increased functionality also makes it extraordinarily difficult to manage the product development process. According to Deloitte, both industry and government can tackle the issue of technical complexity by doing a better job of specifying requirements, using mature technologies, dividing programs into simplified work packages with shorter durations and by creating budgets that reflect technical complexity, risk and realistic assumptions.
Talent shortage is another issue Deloitte's analysis has indicated is an underlying cause for cost overages and delays, and numerous studies suggest the talent shortage will likely get worse before it gets better. To help combat the critical talent shortage Deloitte recommends activities such as creating financial incentives for "baby boomer" engineers and technicians to stick around, fostering interest in math and science among middle school and high school students to create a sustainable pipeline and establishing mentorship programs to accelerate development for young workers.
Supply chain challenges are another common cause of problems in the A&D industry. A&D supply chains have undergone a major transformation in recent years and as a result have become multi-dimensional and complex. In order to overcome this, Deloitte suggests that companies should help their suppliers learn to be risk-sharing systems partners, should develop a supply chain strategy earlier in the program lifecycle and create a supply chain "architect" to drive integration across the supply chain's various dimensions. This will ultimately lead to streamlining supply chains, boosting efficiency and improved managed program performance.
Politics can also contribute to project overruns. Deloitte's research team supports Government Accountability Office (GAO reports indicating that politicians' penchant for cutting program numbers to reduce costs only increases unit fly away costs. Mitigation activities include developing and implementing a strategy to bring the Department of Defense's (DoD) current portfolio into balance, agreeing to multi-year budgets at the front end, requiring that all new programs have realistic and manageable plans and requiring that all program cost estimates be transparent.
Deloitte's detailed analysis of DoD data shows that the program management problem has also worsened, with certain activities such as planning, estimating, sourcing, staffing and finance playing an increasing role in driving budget overruns. According to Deloitte, the government as well as defense contractors can create more value and manage costs more effectively by becoming "risk intelligent" and following certain basic best practices, such as establishing clear performance goals prior to program startup and applying appropriate monitoring processes to report effectiveness and efficiency.
To access the Deloitte study in full, please visit: www.deloitte.com/us/aerospace&defense/ProgramManagement for more information about Deloitte's Aerospace & Defense group, please visit www.deloitte.com/us/a&d.
Source: Deloitte press release, November 18, 2008
While technical advances make it possible to develop incredibly powerful and sophisticated weapons, this increased functionality also makes it extraordinarily difficult to manage the product development process. According to Deloitte, both industry and government can tackle the issue of technical complexity by doing a better job of specifying requirements, using mature technologies, dividing programs into simplified work packages with shorter durations and by creating budgets that reflect technical complexity, risk and realistic assumptions.
Talent shortage is another issue Deloitte's analysis has indicated is an underlying cause for cost overages and delays, and numerous studies suggest the talent shortage will likely get worse before it gets better. To help combat the critical talent shortage Deloitte recommends activities such as creating financial incentives for "baby boomer" engineers and technicians to stick around, fostering interest in math and science among middle school and high school students to create a sustainable pipeline and establishing mentorship programs to accelerate development for young workers.
Supply chain challenges are another common cause of problems in the A&D industry. A&D supply chains have undergone a major transformation in recent years and as a result have become multi-dimensional and complex. In order to overcome this, Deloitte suggests that companies should help their suppliers learn to be risk-sharing systems partners, should develop a supply chain strategy earlier in the program lifecycle and create a supply chain "architect" to drive integration across the supply chain's various dimensions. This will ultimately lead to streamlining supply chains, boosting efficiency and improved managed program performance.
Politics can also contribute to project overruns. Deloitte's research team supports Government Accountability Office (GAO reports indicating that politicians' penchant for cutting program numbers to reduce costs only increases unit fly away costs. Mitigation activities include developing and implementing a strategy to bring the Department of Defense's (DoD) current portfolio into balance, agreeing to multi-year budgets at the front end, requiring that all new programs have realistic and manageable plans and requiring that all program cost estimates be transparent.
Deloitte's detailed analysis of DoD data shows that the program management problem has also worsened, with certain activities such as planning, estimating, sourcing, staffing and finance playing an increasing role in driving budget overruns. According to Deloitte, the government as well as defense contractors can create more value and manage costs more effectively by becoming "risk intelligent" and following certain basic best practices, such as establishing clear performance goals prior to program startup and applying appropriate monitoring processes to report effectiveness and efficiency.
To access the Deloitte study in full, please visit: www.deloitte.com/us/aerospace&defense/ProgramManagement for more information about Deloitte's Aerospace & Defense group, please visit www.deloitte.com/us/a&d.
Source: Deloitte press release, November 18, 2008
