4. COST ELEMENT STRUCTURE

4.1    INTRODUCTION

    This chapter discusses the cost element structures (CESs) used in producing O&S estimates. The elements included in each structure define the O&S functions and resource categories associated with particular categories of defense systems. The discussion begins by reviewing the basic CES framework for O&S estimates. It then identifies significant cost and non-cost elements to include in the estimates as well as some cost elements that may be excluded.

4.2    O&S COST ELEMENT STRUCTURE

    The CAIG is tasked by DoDD 5000.4 to establish substantive guidance on the preparation and presentation of cost estimates. This responsibility encompasses the development and definition of standard elements for O&S cost estimates. A standard cost element structure promotes consistency in preparing and displaying estimates, and enables the CAIG to focus on high-cost/high-risk areas that have the greatest bearing on future O&S costs.

    A generic cost element structure is presented in Exhibit 4-1. Cost element definitions are provided in Appendix B. Cost element structures and definitions for major categories of weapon systems are presented in Appendices C through G. The CES for each weapon system category is designed to meet the needs of most CAIG reviews. However, the basic structure may have to be modified to accommodate the special features of some weapon systems. If a change is required in the standard CES for a program requiring DAB review, the DoD component preparing the estimate should work with the CAIG to determine what cost elements to include. The CAIG must approve any changes to the standard CES structure before the costing work begins. (Note 1)


    GENERIC OPERATING AND SUPPORT

    COST ELEMENT STRUCTURE

    

1.0     MISSION PERSONNEL

    1.1    OPERATIONS

    1.2     MAINTENANCE

    1.3    OTHER MISSION PERSONNEL

2.0     UNIT-LEVEL CONSUMPTION

    2.1    POL/ENERGY CONSUMPTION

    2.2    CONSUMABLE MATERIAL/REPAIR PARTS

    2.3    DEPOT-LEVEL REPARABLES

    2.4    TRAINING MUNITIONS/EXPENDABLE STORES

    2.5    OTHER

3.0     INTERMEDIATE MAINTENANCE (EXTERNAL TO UNIT)

    3.1    MAINTENANCE

    3.2     CONSUMABLE MATERIAL/REPAIR PARTS

    3.3    OTHER

4.0     DEPOT MAINTENANCE

    4.1    OVERHAUL/REWORK

    4.2     OTHER

5.0     CONTRACTOR SUPPORT

    5.1    INTERIM CONTRACTOR SUPPORT

    5.2    CONTRACTOR LOGISTICS SUPPORT

    5.3    OTHER

6.0     SUSTAINING SUPPORT

    6.1    SUPPORT EQUIPMENT REPLACEMENT

    6.2    MODIFICATION KIT PROCUREMENT/INSTALLATION

    6.3    OTHER RECURRING INVESTMENT

    6.4    SUSTAINING ENGINEERING SUPPORT

    6.5    SOFTWARE MAINTENANCE SUPPORT

    6.6    SIMULATOR OPERATIONS

    6.7    OTHER

7.0     INDIRECT SUPPORT

    7.1    PERSONNEL SUPPORT

    7.2    INSTALLATION SUPPORT


Exhibit 4-1. GENERIC O&S COST ELEMENT STRUCTURE

    Depending on the system being investigated, the summary elements in the CES may need to be expanded to lower levels of indenture to provide an audit trail of the estimate for each element and to show the composition of the cost element roll-up subtotals. This indenture (where required) and the accompanying documentation make it easier for the estimate to be replicated by a third party. For example, under Mission Personnel, elements 1.1 (Operations) and 1.2 (Maintenance) might be indentured in the documentation as follows:

        1.0    Mission Personnel

            1.1    Operations

                1.1.1    Officer

                1.1.2    Enlisted

            1.2    Maintenance

                1.2.1    Officer

                1.2.2    Enlisted

                1.2.3    Civilian

    Several of the categories in the standard CES include an element labeled "Other." This element should be used to list costs that are not captured elsewhere. Since the cost structures of different systems may vary, this element may be tailored to the cost attributes of the system in question. For example, under the Unit-Level Consumption category, element 2.5 (Other) might be indentured to show such costs as:

        2.5    Other

            2.5.1.    Purchased Services

                2.5.1.1    Communications Leases/Charges

                2.5.1.2    Purchased Equipment Maintenance

                2.5.1.3    Purchased Utilities

            2.5.2    Transportation

                2.5.2.1    Unit Training Transportation

                2.5.2.2    Other Second-Destination Transportation

            2.5.3    TAD/TDY

     The levels of indenture for each element will depend on the operating and support requirements of the system and on the amount of data available at the time the estimate is prepared.

4.3    SIGNIFICANT COST ELEMENTS

    When developing an estimate, the greatest amount of effort should be expended on those cost elements that:

    For example, in estimating the O&S costs of weapon systems, the most significant elements are typically unit personnel, fuel, depot maintenance, reparables, and software. The category of software maintenance demands special mention. The increased use of software in primary operating systems and support equipment has resulted in significant costs for maintaining, modifying, and updating system and support software. All of the elements listed above are cost drivers in most weapons estimates and warrant detailed analysis. A potentially significant element that is specifically addressed at Milestone IV is the impact of a major upgrade or modification. Elements that may be potential cost drivers should not be estimated using planning factors when more appropriate or more accurate means are available. Indirect cost elements (such as base operating support) that may not be pertinent to distinguishing between alternatives can usually be addressed using planning factors.

4.4    SIGNIFICANT NON-COST DATA ELEMENTS

    In addition to presenting calculated costs (e.g., personnel costs), most O&S estimates include non-cost data elements (e.g., numbers of authorized personnel) as well as identify the assumptions used in deriving the estimated costs. Examples of potentially significant non-cost elements are listed below:

4.5    COST ELEMENTS TO EXCLUDE

    A number of costs that are incurred over a system's life cycle are not typically included in O&S estimates. Potential cost categories to exclude are:

    Those resources that can be related directly to a system, such as personnel requirements identified in the Manpower Estimate Report (MER), should be included in O&S estimates. DoDI 5000.2 and supplemental manpower reporting guidance define the scope of the manpower to be reported in the MER. MER data should be used in cost estimates beginning with Milestone II. For example, personnel to be reported in the MER should be identified for those units and organizations that will receive a new system, or that will be responsible for maintaining, supporting, or providing training for the system.

    Indirect support costs are addressed on a case-by-case basis. Certain types of units and manpower associated with defense systems fall outside the scope of MER reporting requirements and so are excluded from O&S estimates. Primary examples include infrastructure costs that cannot be directly related to the addition or operation of a new system. Examples of such costs are given below:


NOTE:
1. DoDD 5000.4, "OSD Cost Analysis Improvement Group" (revised edition forthcoming).

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