1

National Defense Industry Association (NDIA)Conference and Expo

San Diego, California

Keynote AddressThe Case for DoD Systems Engineering

Mr. John LandonDeputy to the ASD(NII) for C3ISR and IT Acquisition

Office of the Secretary of Defense

October 25th, 2005

2

Agenda

• Investment Funding Trends & Challenges

• Program Trends & Challenges

• Role of Systems Engineering in meeting thesechallenges

3

Investment Trends & Challenges

• Federal Budget Deficit Pressures

• Discretionary vs. Non-Discretionary Spending

• Trends in Defense Topline

• Projected Investment Challenges

4Source: FY 2006 President’s Budget

Federal Expenditures and the Budget Deficit

$0

$500

$1,000

$1,500

$2,000

$2,500

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

On

Bud

get O

utla

ys (T

Y $B

illio

ns)

-$450

-$300

-$150

$0

$150

$300

Tota

l Bud

get S

urpl

us/D

efic

it (T

Y $B

illio

ns)

Total Budget Surplus/Deficit On Budget Outlays

Federal Expenditures and the Budget Deficit

5Source: FY 2006 President’s Budget, CBO’s Budget Outlook, OMB’s Mid-Session Review, and White House Press Release

Recent Federal Budget Surplus/Deficit Projections

-800

-700

-600

-500

-400

-300

-200

-100

0

100

200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Calendar Year

The

n Y

ear

$Bill

ions

OMB July 2004

CBO September 2004

CBO January 2005

OMB February 2005

CBO January 2005 + No Sunset on Tax Cuts + AlternativeMinimum Tax Reform + Discretionary Spending Growth atRate of Nominal GDP Growth + 6 years of OEF/OIF then

phased-out

6Source: FY 2005 President’s Budget

Defense Discretionary

Non-Defense Discretionary

Mandatory

Net Interest

0%

5%

10%

15%

20%

25%

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Perc

enta

ge o

f GD

PFederal Spending by Category as a Percentage of GDP

FY 1962 - FY 2009

7

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

1945

1947

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Con

stan

t FY

200

5 $B

illio

ns

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

R,D,T&E

Procurement

Operations andMaintenance

Military Personnel

Department of Defense Budget Authority by Appropriations Title, FY 1945 - FY 2009

Source: FY 2005 DoD Greenbook

Department of Defense Budget Authority by AppropriationFY 1945 – FY 2009 (Constant FY05 $)

8

100

200

300

400

500

600

FY05 FY06 FY07 FY08 FY09 FY10 FY11

Fiscal Year

$BApproximately 5% Real Growth

Programmed FY06-11

Total DoD ToplineFY 2006 President’s Budget

FY06-11 Investment Averages 36% of ToplineFY06-11 O&M Averages 35% of Topline

FY06-11 Military Pay Averages 25% of Topline

Military Pay

RDT&E

O&M

Procurement

Other0

9

5

10

15

20

25

30

35

40

45

FY05 FY06 FY07 FY08 FY09 FY10 FY11

Fiscal Year

$B

BMDS

JSF

F/A-22

FCS

DD(X) Destroyer

SSN-774

C-17AF/A-18E/F

V-22

CVN-21

PB06 Top 10 Investment Programs

FY06-11 Cumulative Total = $231BApproximately 23% of total Investment consumed by Top 10 Programs

0

10

Conclusion

• Federal Budget seeks Equilibrium

• Mandatory Payments are Growing…..But Federal Topline remains at 20% GDP

• DoD Investment remains fairly stable

11

DoD Program Trends & Challenges

• Frequent Program Rebaselining

• Increasing Cycle Time

• Increasing Cost

• Loss of “Buying Power”

12

DOD Programs Frequently Rebaseline

• GAO found that 49 of the 81 major defense programs (60 percent)reporting in 2003, rebaselined more than once during the life of theprogram.

• Programs with largest number of rebaselinings:

Based on Analysis of DOD SAR Data

ProgramLatest

RebaselineNumber of

Rebaselinings

F/A-22

DDG 51

SM-2 Block V

SSN-21

April 2004

August 2002

August 1999

April 2000

14

11

11

10

1992

1988

1993

1988

Year ofProgram Start

Source: GAO Report 05-182, Defense Acquisition, March 2005

13

GAO Analysis of 26 DoD Acquisition Programs

Source: GAO Report 05-301, Assessments of Selected Major Weapons Systems, March 2005

Cost and Cycle Time Growth for 26 Selected DoD Weapons Systems

FY05 $ Billions

Total Cost

RDT&E Cost

First FullEstimate

Latest FullEstimate Percent Change

$479.6

$102.0

$548.9

$144.7

14.5

41.9Simple Average

Cycle Time 94.9 Months 114.7 Months 20.8

26 Programs Assessed: AESA, AEHF, APKWS, C-5 AMP, C-5 RERP, CH-47F, CEC, E-2 AHE,EA-18G, Excalibur, EFV, ERGM, F/A-22, FCS, Global Hawk, JASSM, JSOW, JSF, JTRS Cluster 1,

Land Warrior,NPOESS, Tomahawk, SDB, V-22, WIN-T, and WGS

Weighted Average Cycle Time: weighted estimate of average acquisition cycle time for the26 programs based on total program costs for first and latest estimates.

Weighted AverageCycle Time 146.6 Months 175.3 Months 19.6

14

Total Cost Growth Distribution

Source: OSD Cost Analysis Improvement Group (CAIG) Study: Cost Growth ofMajor Systems

OSD CAIG Study January 2003Cost Growth Summary

142 Systems

0

5

10

15

20

25

30

<= -20% -20% to -10%-10% to 0% 0% to 10% 10% to 20% 20% to 30% 30% to 40% 40% to 50% 50% to 60% 60% to 70% > 70%

Cost Growth Percent Ranges

Num

ber

of S

yste

ms

0%

15

Total Cost Growth by Fiscal Year

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

1969 1974 1979 1984 1989 1994 1999

Fiscal Year of Milestone II

Perc

ent

Cost

Gro

wth

CopperheadFMTV

StingerBradley

JSTARS

TITAN IV CELV JTIDS

SADARM

142 Systems

Source: OSD Cost Analysis Improvement Group (CAIG) Study: Cost Growth ofMajor Systems

Have we beendoing better?

16

Total Cost Growth by Program Size

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

0 10 20 30 40 50 60 70 80

Milestone II Estimate (Constant FY00$ Billion)

Perc

ent

Cost

Gro

wth

F-22

F/A-18

B-1B

Trident II Missile

C-17

F/A-18E/F

TITAN IV-CELV

SSN 774

V-22

JTIDS142 Systems

SADRAM

Source: OSD Cost Analysis Improvement Group (CAIG) Study: Cost Growth of MajorSystems

Larger Programs appear todo better! But they’re under

more pressure!

17

$42.1 B$47.9 B

Additional investmentneeded under FY 2005plan for completing the8 programs

FY 1998 plan for completingdevelopment of 8 programs

FY ’05: $89.95 billion total

Source: GAO Analysis of SAR data (12/31/96 and 12/31/03) on the 8 weapon systems among the highest R&D budget requests for FY 2003.Note: All dollars are in constant FY 2005 dollars.

$ billions

$0

$50

$100

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

FY 1998 Plan FY 2005 Plan8 Programs: JSF, Comanche, SBIRS-H, F/A-22,V-22, EFV, DDG-51, SSN-774

Cumulative Effect of R&D Cost Growthon Developing Weapon Systems1

18

Importance of Systems Engineering

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Causes of Program Cost and Schedule Growth

• Technology Maturity

• Design Stability

• Production Readiness

• Funding Stability

• Workforce Experience

• Requirements Stability

• Contractor Performance

• Parts Reliability

• Supporting System Readiness

• Configuration Control

20

The System Engineering Process Adds Value

• The Systems Engineering process is crucial to DoDAcquisition Programs for meeting challenges “head-on”

• Competition for Resources• Increasing Cycle Time• Cost Growth• Restoring our “Buying Power”

• By providing technical rigor via a disciplined andproven process that helps us:

• Avoid those “mistakes” that drive cost/schedule growth• Inform “decisions” that contribute to cost/schedule growth

21

The Defense Acquisition Executive’s Imperatives

• “Provide a context within which I can makedecisions about individual programs.”

• “Achieve credibility and effectiveness in theacquisition and logistics support processes.”

• “Help drive good systems engineering practicesback into the way we do business.”

Mr. Michael WynneFebruary 2004

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Summary

Services, Agencies, and Industry must takeownership of SE and institutionalize it

• While Investment Funding is projected to grow, historictrends suggest that it actually might be reduced

• Programs are taking longer and costing more– Completing for Available Funds– Reducing the Department’s Flexibility– Reducing the Number of New Initiatives– Reducing our Buying Power

• Systems Engineering is a major tool for mitigating theseeffects

– Restoring Technical Rigor to Programs– Avoiding Mistakes and Informing Decisions that affect Programs– Tracking Progress from Planning to Execution