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Truveris Vice President, National Security Stud ies, Anteon Corporation.

C O S T E S T I M A T I N G

Navy Develops Product Oriented Designand Construction Cost Model

PODAC Emerges as Critical Element in AchievingOperationally Superior, Affordable Naval Forces

D R . S C O T T C . T R U V E R

38

The Revolution in Business Af-fairs is just a catchy slogan un-less the tools are available to makeit happen. With innovation andchange hard upon the U.S. Navy

and all of the Armed Services in the

new millennium, it is more critical thanever to use technology to reshape thebusiness from cradle to grave fromthe keel to the mast of building theNavy-After-Next.

Estimating Ship ConstructionCosts Behind the TimesIn one highly critical area of naval analy-sis, the Navy seems to be bogged downin the early years of the last century. TheNavy's traditional approach and method-

ology for estimating the constructionand life cycle costs of new ships is outof step with the Revolution in Business

Affairs. The implications for not break-ing out of the business-as-usual box

when it comes to estimating ship con-struction costs are dire particularly ina continued era of squeaky-tight bud-gets. Getting it wrong at the outsetdooms a program to delays, cost over-runs, incessant oversight and realign-ment, accusations of mismanagement,

and perhaps even program cancellation and indictment.

PODAC Taking the LeadFortunately, the Carderock Division ofthe Naval Surface Warfare Center(NSWC) is rethinking the current para-digm of ship cost estimating, and theyhave a solution. Taking the lead in a jointNavy-industry initiative to reinvent the

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way ship costs are determined, Carde-rock and its teammates Avondale In-dustries, Bath Iron Works, Ingalls Ship-building, National Shipbuilding and SteelCompany, Newport News Shipbuilding,University of Michigan TransportationResearch Institute, Designers and Plan-ners, SPAR Associates, and the Naval Sea

Systems Command (NAVSEA) havedeveloped the Product Oriented Designand Construction (PODAC) Cost Model.

Up and running since 1997, the proto-type PODAC model has already provenitself to be a highly effective, accurate,and precise tool to assess the costs ofships being built in modern shipyardsand production facilities. And, once on-going ship upgrades are in place, PODAC

will be the leading-edge, off-the-shelf

tool for both commercial and govern-mental ship cost-estimation applications.

But We've Always DoneIt This Way The demands for innovation and changeare well recognized at the highest levelsof the Navy. According to Secretary ofthe Navy Richard Danzig, writing in his2000 Posture Statement, the Naval Ser-

vices continue to lay the groundwork forthe transition to the naval forces of the

future. Not only are the Navy and Ma-rine Corps addressing the strategic, tech-nological, and operational implicationsof today's and tomorrow's security en-

vironments, Secretary Danzig explainedthat We are working systematically totake advantage of the latest advances ininformation technologies Both Ser-

vices are significantly invested in orga-nizations and processes dedicated to fos-tering innovation and successful trans-formation on an ongoing basis. All these

efforts help drive the Department's mod-ernization and recapitalization efforts.

The Navy's Revolution in Business Af-fairs and Acquisition Reform initiativesare now being embraced by several new

warship acquisition programs, includ-ing the San Antonio (LPD-17)-class am-phibious warships, the Zumwalt(DD-21)Land-Attack Destroyer class, and thenext-generation CVNX nuclear-propelledaircraft carriers. To varying degrees, these

and other programs are focusing on thefollowing Acquisition Reform initiatives:

General performance statements thatreplace or streamline the highly de-tailed Military Specifications (MIL-SPECs) of the past.

Commercial-Off-The-Shelf (COTS)

technologies and systems that replaceService-unique equipment. Total Ship Engineering approaches

that address the design, engineering,and construction of new ships as anintegrated system-of-systems facili-tated by advanced modular con-struction techniques.

The introduction of Full-Service Con-tracting that promises far-reachingchanges in program managementstructures, organizations, processes,

and relationships. Total Ownership Costs and BestBusiness Practices that shape researchand development, acquisition, and lifecycle strategies, plans, and programs.

Unfortunately, the Navy's traditional shipcost-estimating methodologies and toolsare incapable of keeping up with the newrequirements potentially creatingmajor road blocks for effective program

management and budget projections.The traditional, outmoded approach fo-cuses on specific systems and ship con-tract design packages that are often thou-sands of pages long, include hundredsof drawings, and include even moreubiquitous Military Standards and Spec-ifications, or MILSPECs all of which

frustrate innovation and proposals forcost-savings.

The current Navy system is, moreover,an inefficient stove-pipe method thatuses pounds or tons of product e.g.,apound of computer systems aggre-gated throughout the entire ship to ar-rive at a cost estimate. In this awkwardand archaic manner, the Navy's engi-neers estimate the weight on a system-by-system basis for Hull, Mechanical and

Electrical Systems (HM&E), CombatSystems, and Supporting Systems. Theseweights are then translated usingclosely held, arcane data that are nottransparent to program managers andresource sponsors into a total con-struction cost on an approximate-at-bestper-pound-of-system basis. The resultcan be severe disconnects between theoriginal estimate and reality once theship is under construction.

Work Stage Work Type

Designing AdministrationPlanning EngineeringProcurement Hull OutfittingPurchasing HVACMaterial Management JoinerFabricating Materials

Sub-Assembly/Assembly MachineryOn-Unit/On-Block Outfitting Material HandlingGrand Block Construction Operations ControlErecting PaintOnboard Outfitting PipeSet-Up Production ServicesClean-Up Quality AssuranceFinishing StructureDelivery/Post-Delivery Unit ConstructionTest & Trials

FIGURE 1. PODAC Work Stage/Type Labor Cost EstimatingRelationships

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Innovation and change at the shipyardshave exacerbated the inefficiencies andpotential inaccuracies of the currentNavy approach. For example, industry'sProduction Work Breakdown Structuresare increasingly incompatible with theNavy's Work Breakdown Structures(WBS) and approach. Also, not only do

specific shipyard-developed detail de-signs and cost estimates reflect the yard'sunique WBS, the data relating to the

yard's build strategies, facilities, andprocesses tend to be proprietary. The re-sult is lack of consistency from shipyardto shipyard, and lack of transparency ofhow costs are derived. Thus the currentsystem has an aura of mystery that inthe long run is not good for shipbuildersand the Navy, and certainly does notsupport a positive team-building rela-

tionship between the two.

Today's technology will enable the en-tire system to be overhauled and broughtinto the 21stcentury to the benefit ofthe Navy and its ability to control shipcosts and to the benefit of our nationthat is stressed with ever-increasing de-mands on its naval forces. There hasbeen a growing potential for cost over-runs that become apparent only afterCongress approves funding, thereby cre-

ating challenges for Navy resourcesponsors and managers.

The Carderock-led PODAC develop-ment team directly addresses theseshortcomings. The PODAC cost modelhas proven its ability to determine costsaccurately and precisely and thereby tosupport critical program decisions earlyin the acquisition process. An impor-tant tool for maximizing cost efficiencyand management f lexibility from the

start, it has also been valuable in as-sessing the cost impacts of ship designand construction concepts and alter-natives, including alternative construc-tion methods. Upgrades in the PODACsystem are already focusing on life cycleand total ownership costs. This flexi-ble, adaptable, and responsive programcan be used for all surface ship typesand classes, from auxiliaries to nuclear-powered aircraft carriers. Some PODACapostles also believe that the model

could be modified for submarines andother weapons systems and platforms.

The PODAC model will thus enable theNavy to achieve DoDs Acquisition GoalNo. 10 in shipbuilding, as outlined inthe Secretary of Defense Annual Report tothe President and Congress, 2000:

Provide improved visibility of Total Own-

ership Costs. The system must deliver

timely, integrated data ... to: permit un-

derstanding of total weapon costs;pro-

vide a basis for estimating costs of fu-

ture systems; and feed other tools for

life cycle cost management.

In short, PODAC will be a critical ele-ment in achieving the government's ob-

jective to develop, test, acquire, and main-

tain modern, operationally superior, andaffordable naval forces.

Cost-Estimating InnovationPODAC is meeting the challenge of ac-curately and precisely estimating all el-ements of a ship's cost by approachingthe problem as an integrated system-of-systems and on a total ship engi-neering basis. The model uses a Prod-uct-oriented Work Breakdown Structure(PWBS) that is congruent with those

used in modern ship design, engineer-ing, and modular construction as wellas ship modification/repair/upgrade pro-grams. Reflecting the way that ships areconstructed today and sufficiently flex-

ible to adapt to tomorrow's shipbuildinginnovations the PODAC PWBS focuseson specific products that go into the ship,the stage of construction, and the spe-cific type of work being performed.

The principal distinction between thePODAC approach and the traditional

Navy methodology is the reliance byPODAC on explicit Cost Estimating Re-lationships (CER). The focus is onprocess-driven Labor and Material CERsgenerated from actual return-cost data not the weight-derived systems esti-mates that have been the basis for shipestimating for a century, if not longer.These empirical CERs relate the cost ofan item to its physical or functional char-acteristics, for example:

25 manhours-per-ton for a specifictype of steel block assembly. $25-per-foot for pipe material. 10 percent of construction hours for

shipyard support services.

Unlike traditional methods, these Laborand Material CERs are focused on spe-cific products that relate to levels ofconstruction, from individual parts as-sembly to the ship as a whole. The modelexplicitly addresses eight levels of prod-

ucts:

Level 1 Ship Level 2 Construction Zone Level 3 Outfitting Zone

Shipyards Ship Programs

Avondale Auxiliary Oiler (T-AO)Bath Iron Works Arleigh Burke (DDG-51) Aegis

Guided Missile Destroyer

Ingalls Shipbuilding Wasp (LHD-1)Amphibious AssaultShip

National Steel and Fast Combat Support Ship (AOE),Shipbuilding Company Large Medium-Speed RO/RO

(LMSR)Newport News Shipbuilding Nimitz (CVN-68) Aircraft Carrier

Navy Activities

NSWC Carderock DivisionNAVSEA (SEA-017)

FIGURE 2. PODAC Users, 2000

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dertake alternative analyses of cradle-to-grave life cycle costs and total own-ership costs life cycle costs plus relatedtraining and support infrastructures' es-timates.

When these are in place, and the modelis routinely used throughout the Navy and the Coast Guard, too, under theNational Fleet concept, for its Deepwa-

ter Maritime Security Cutter project the PODAC cost model will almost cer-tainly, as Secretary Danzig has called out, fundamentally improve the support-ing business practices of the Depart-ment, achieving the Service's goal todeliver state-of-the-art capability fromequally modern and creative acquisitionand support organizations.

Editors Note: The author welcomesquestions or comments on this article.

Contact him at struver@anteon.com.

PM : JANUARY-FEBRUARY 2001 41

Level 4 Block and Unit Level 5 Assemblies Level 6 Sub-assemblies Level 7 Manufactured parts Level 8 Component

In a similar fashion, the model takes intoclear account the work stages and the

type of work being performed at eachstage and each level, a highly complexyet rigorous matrix of empirical data(Figure 1).

For example, at Level 4-Block and UnitProducts, Labor CERs can be calculatedfor the entire spectrum of work type from steel fabrication and assemblythrough on-block outfit and erection and the various stages of construction from Design through Test and Trials.

For the Material CERs, PODAC focuseson most specific measures for individ-ual products, for example, the actual costof tons of steel for a hull section, the totalnumber of fasteners for overhead wiringin a compartment, and gallons of intu-mescent paint for bulkheads and pas-sageways.

Moreover, specific CERs can be devel-oped to determine the following spec-trum of costs and cost-related parame-

ters:

Labor hours Material costs Overhead, General and Administra-

tive costs Productivity and learning-curve en-

hancements Design and complexity factors Economic inflation factors Multi-ship contract economies of scale

By focusing on specific labor and mate-rial elements, the PODAC model ac-commodates multiple units of measure,resulting in much better cost estimatesthan previously possible.

Experimentation by the shipyard andNavy users of the model has already re-alized numerous benefits for several shiptypes (Figure 2). Experience has shownthat the model delivers comprehensiveand accurate data, and has allowed de-

sign and engineering trade-offs to be

made quickly and effectively. The tech-nical, material, and process innovationsto date have included the ability to dorisk assessments and schedule impact-analysis of design and production alter-natives.

Unlike the traditional Navy way, the

PODAC model's integrated relationaldatabase of empirical CERs offers trans-parent visibility for cost estimating andprogram planning for numerous uses,

yet safeguards business-sensitive pro-prietary data. The model has shown thecapability to pinpoint design, engineer-ing, and construction cost drivers controllable design characteristics ormanufacturing processes that have a pre-dominant effect on cost. And, once thesedrivers have been identified, the model

has been used to analyze cost impactsof engineering trade-offs, new tech-nologies, and innovative productionprocesses, which include the cost of in-termediate products and processes, as

well as the cost impacts of design alter-natives and technology insertion, of pro-duction processes and facility changes,and of program instability relating toquantities, acceleration, or stretch-out.

From a financial-management perspec-

tive, moreover, the shipyards' experiencewith PODAC indicates that it can sup-port a variety of commercial and gov-ernment cost strategies and approaches:

Return on Investment Alternatives Cost as an Independent Variable Design-to-Cost Negotiated Production Rates Affordability through Commonality

TheReal Bottom Line

The PODAC cost model is the one pre-cision cost-estimating instrument thatbelongs in every program manager's tool-box. Accurate and precise, PODAC pro-

vides the Navy and its industry partnerswith invaluable data, information, andknowledge of important cost driversof critical shipbuilding programs.

Real-world use through the summer of2000 has identified several valuable en-hancements to the model. These include

the capability to derive estimates and un-

PLAN NOW TOATTEND!

17th AnnualDoD Logistics

Conference

The 17th Annual DoD Lo-

gistics Conference, spon-

sored by the National De-

fense Industrial Association

(NDIA) will be held March 5-

8, 2001, in San Antonio, Texas.

This annual event, focusing on

a trilogy of logistics, acquisition,

and financial reform, has be-

come the premier national-level

forum for exchanging ideas and

sharing insights into supporta-

bility of our nation's warfight-

ers. To register online, visit

the NDIA Web site at

http://register.ndia.org/

interview/register.ndia .