Cost and Schedule Overruns in NASA Programs - Analysis and Recommendations

Cost and Schedule Overruns in NASA Programs Analysis and Recommendations AGENDA • Prologue: Insights from the class • Project Background: Congressional Frustrations • Problem: Cost and Schedule Overruns • Insights: Layers of Influence and Control • Recommendations Insights from the Class • Standard Method Prologue Background – correct definitions help – “less is more” – genius is simple • Process Consultation Problem – permanent feedback is key – 10 “mini-clients” vs. 1 “mega-client” – rule of diminishing returns Insights • Systems Dynamics and Modeling Rec’s – process vs. result – start with simple and add complexity – one loop at time Donald Peterson Colonel, USAF, Ret. & NASA astronaut, STS-6 Prologue Background Problem Insights Rec’s “...contrary to publicly released findings, it's becoming clear that the Challenger and Columbia accidents were not caused by careless preflight processing or poor real time decisions in Mission Control, but rather by intrinsic, serious design flaws built in from the beginning, that made the Shuttle vulnerable and are proving extremely hard to fix... ...I am getting the feeling that NASA is like a high strung, poorly conditioned, racehorse; strong out of the gate but not a good finisher. You seem to be very interested in starting out the gate to create new, exciting programs and build impressive high performance vehicles, but lacking in stamina and often stopping before you reach a satisfactory finish line. Your philosophy seems to be "...let's build something exciting and figure out what to do with it later..." There is no continuity in your programs; they have all been "giant leaps" followed by cancellations. And don't try to sell me on "spin-offs"; that's like keeping a high priced racehorse to get fertilizer. ...if you feel all the things that humans have done in the past on the moon and in low earth orbit are not worth continuing, why do you believe that humans on Mars will accomplish things that are worth the cost?” Congressional Frustrations Prologue Background Problem Insights Rec’s • Our client: Bill Adkins, Staff Director for U.S. Congress House of Rep. Subcommittee on Space • NASA programs involving manned spaceflight have historically fallen short in meeting promises • Fear for new space initiative involving the Crew Exploration Vehicle (CEV) aka Project “Constellation” • General concern in Congress regarding NASA’s management capabilities for all programs, not just CEV. Cost & Schedule Overruns in NASA Programs Are the Norm, Not the Exception Prologue Background Problem Space Shuttle Program PLAN Insights Rec’s Expected to fly 50x per year @ $50 million per flight. ACTUAL Peaked at 9 flights in 1985, costs $500 million per flight Cost & Schedule Overruns in NASA Programs Are the Norm, Not the Exception Prologue Background Problem RLV (X-33) PLAN Goal: reduce launch cost by order of magnitude Insights Spent $1 billion on development. Rec’s ACTUAL Cancelled before first prototype was completed Cost & Schedule Overruns in NASA Programs Are the Norm, Not the Exception Prologue Background Problem International Space Station PLAN Insights Rec’s Original 1984 plan: fully operational by 1992 at cost of $8 billion. ACTUAL Today: hope to reach full operations by 2008, est cost of $100 billion What’s Causing These Overruns? Prologue Background Problem Insights Culture of field-center “fiefdoms” Poor financial management systems Lack of consensus on program goals Cultural aversion to failure Inadequate attention to iterative testing Cost-plus contract structures Commercial market draws away best talent Incumbent power of legacy programs Poor cost analysis & estimation capabilities Inadequate lessons learned process Focus on development vs operations Aging workforce - declining experience base Misaligned incentive systems Union rules & Federal regulations limit workforce flexibility Election cycles & changing priorities Rec’s Changes in the marketplace Complexity of international cooperation Managerial myopia creates long-term problems Political drivers supersede rational management Key Insight: Layers of Influence & Control Prologue Planning Background Problem Insights Rec’s PLANNING • Cost analysis capabilities • Past lessons learned • Acquisition strategy • Duopoly factors • Incumbent’s curse • Legacy program power • Budget expectations • Managing optimism EXECUTION • Requirements controls • Phase-level optimization • Managerial incentives Execution • Stovepipe organizations • Measurement systems EXTERNALITIES • Human resources Externalities • Election cycle instability • Cultural Issues • Political drivers • Multi-party process • Market volatility Everything has to align for projects & programs to succeed. Inadequate project cost and schedule estimation capabilities • Lack of accurate cost estimates – question of both ability to make good estimates and incentives to make them accurate • Inadequate project cost and schedule estimation capabilities -- lack the skills and/or resource base necessary to generate accurate estimates • Inadequate support infrastructure – esp. financial management and lessons learned / knowledge management systems – hinder effective project management, esp. over long-term multi-year efforts • Genuine but misinformed optimism leads to underestimation of technical challenges and overestimation of RDT&E capabilities Prologue Background Problem Insights Rec’s Planning “Willful Ignorance” towards target achievability Prologue Background Problem Insights Rec’s Planning • Cost-plus contract structure allows firms to underbid up front and make up for it through later contract additions and modifications • Culture encourages “liar’s club” behavior; everyone wants to hit aggressive targets, no one wants to say it can’t be done • Legacy programs absorb resources in essentially flat budget environment; new programs must accept low budget just to get started Program Myopia: Short-Term Optimization Drives Long-Term Overruns Execution • Each phase carries associated Cost, Schedule, Requirements, and Risk Prologue Background Problem Insights Rec’s • Managing cost, schedule and requirements at the phase level may (and often does) increase risk at the project level • For example, controlling development costs may increase production and/or operations costs • Furthermore, controlling costs may increase risk of failure, and failure carries a cascade of associated costs (investigation, redesign, testing, new production, etc) Need for Measuring the “Right Things” Prologue Background Execution • When it’s not measured, it can’t produce feedback to correct itself • Estimate of total lifecycle cost Problem • Actual progress: “I’ve spent 50% of the budget, so I must be 50% complete” (Not an actual quote) Insights • Budget Rec’s Permitting / Enabling Scope Creep Execution Honest Mistakes: Prologue Lack of genuine unified project authority limits ability to control requirements & respond appropriately to new data and changing circumstances Background Willful Ignorance: Problem Insights Rec’s Multi-party process with varying objectives & motivations virtually guarantees sub-optimal project management (President vs Congress vs Agency vs Contractors) Lack of clearly defined rationale/justification for human spaceflight will create ongoing challenges for any & all new initiatives until the question is resolved Multiple Parties Drive Programs Externalities • Congressional pressures & election cycles • Presidential attention & election cycles • Industry forces (politics, multiple constituencies) • Major projects take decades and the persons who make the influential decisions operate on a much shorter time scale Prologue Background Problem Insights Rec’s Recommendations Planning Build world-class internal cost & schedule estimation capabilities at the HQ level; benchmark against industry standards Prologue Contracting Background Problem Insights Move toward award-fee compensation: payment and/or bonuses upon successful achievement of operational targets Life-Cycle Management Established life-cycle program management office for each new program to constantly oversee long-term impacts of phase-level decision-making & trade-offs Measurement Rec’s Move aggressively to accelerate deployment of integrated financial management system & develop agency-wide mandates for utilizing real-time financials in measuring performance Spiral Development: A Word of Caution Prologue Background Problem Insights Rec’s Spiral Development calls for progress based upon achievement of intermediate objectives, with incorporation of new information in the planning and execution of subsequent stages Effectively a “real options” approach to minimizing overall project risk and maximizing results give limited resources However, any real option implies both an option to process AND an option *NOT* to proceed The Spiral Development approach could lead, albeit logically, to the abandonment of human spaceflight... Why have people in space? Kennedy’s Memo to Johnson, April 20, 1961 Do we have a chance of beating the Soviets by putting a laboratory in space, or by a trip around the moon, or by a rocket to go to the moon and back with a man?... Is there any other space program which promises dramatic results in which we could win? Kennedy’s Speech at Rice University, September 12, 1962 Finally, in a field where the United States and the Soviet Union have a special capacity--in the field of space -- there is room for new cooperation, for further joint efforts in the regulation and exploration of space... Surely we should explore whether the scientists and astronauts of our two countries -- indeed of all the world -- cannot work together in the conquest of space, sending someday in this decade to the moon not the representatives of a single nation, but the representatives of all of our countries. The contest will continue--the contest between those who see a monolithic world and those who believe in diversity--but it should be a contest in leadership and responsibility instead of destruction, a contest in achievement instead of intimidation.