Financial Management

Cost As an Independent Variable (CAIV)

Cost As an Independent Variable (CAIV) is an acquisition philosophy that emphasizes keeping system Life-Cycle Cost (LCC) within an established range by trading the other system acquisition variables of performance or schedule. [3]

Definition: Cost As an Independent Variable (CAIV) is a strategy for acquiring and supporting defense systems that entails setting aggressive, realistic cost objectives (and thresholds) for both new acquisitions and fielded systems, and managing those objectives. (NAVSEA)

Cost As an Independent Variable (CAIV) Cost Objectives

CAIV is a strategy that entails setting cost objectives when defining operational requirements and managing the achievement of these objectives. Cost objectives must balance mission needs with projected out-year resources, taking into account existing technology, maturation of new technologies, and anticipated process improvements in both DoD and industry. As system performance and cost objectives are decided (on the basis of cost-performance trade-offs), the requirements and acquisition processes will make cost more of a constraint, and less of a variable, while nonetheless obtaining the needed military capability of the system. Although much discussion of CAIV is centered on new systems, there is always an opportunity for cost reduction. CAIV principles are applicable throughout a system’s life cycle. [1]

Cost As an Independent Variable (CAIV) 7 Key Tenants [1]

  • Requirements are stated in terms of capabilities and may be exchanged, substituted, or adjusted for the sake of another.
  • Capabilities should be established at the system level and not at lower levels.
  • Early and continuous customer/warfighter participation in setting and adjusting program goals throughout the program is imperative.
  • Trade space (i.e., cost gradient with respect to performance) around the cost objective is encouraged.
  • Realistic but aggressive cost objectives are set early and updated for each phase of an acquisition program.
  • Requires risk management
  • Cradle to Grave process

Cost As an Independent Variable (CAIV) Plan

A CAIV plan should address the following elements: [2]

  • Set cost goals: The CAIV plan would include cost goals for unit procurement cost and operating and support (O&S) costs. The unit procurement cost goal typically would be established for a specified quantity of systems and a specified peak production rate. The O&S cost goal would be an annual cost per typical deployable unit (e.g., battalion or squadron) or individual system (e.g., ship or missile), given specified and documented ground rules and assumptions (such as the program basing plan and the system operating tempo). The goals should be challenging but realistically achievable. The goals in the CAIV plan might be the same as the cost goals in the Acquisition Program Baseline (APB), or possibly might be more aggressive.
  • Perform trade-off studies: Cost, schedule, and performance may be traded off within the “trade space” between thresholds and objectives documented in the capability needs document. The CAIV plan would show the timing, content, and approach for the specific trade studies to be performed. Over time, as the system design matures, the trade studies become more refined and specialized.
  • Establish cost performance integrated product team: The CAIV plan would designate a Cost Performance Integrated Product Team (IPT), which most likely would receive considerable support from the system contractor. The Cost Performance IPT would monitor the CAIV implementation and oversee the trade studies.
  • Provide incentives: The elements of the acquisition strategy should describe incentives to the contractor that directly support, or are at least complementary to, the CAIV plan. Such incentives might include award fees, sharing of cost savings, or other (positive or negative) incentives.
  • Establish Metrics: The CAIV plan should address how metrics will be established to track progress and achievement of unit procurement and O&S cost goals. The plan should identify how progress toward achieving the goals will be monitored and reported. The plan also should describe how cost estimates will be updated and refined over time, and compared to the original cost goals. The plan should identify specific organizational responsibilities, and identify related major events where progress toward achieving goals will be assessed.

AcqTips:

  • Program Managers should consider developing a CAIV plan as part of their Acquisition Strategy.
  • A OSD DoD CAIV template can be found at the DoD R-TOC website but is restricted to military users.
  • Since a significant portion of a system’s Life-Cycle Cost (LCC) is fixed by its design, the optimum time to apply CAIV principles is early in the life of an acquisition program.

AcqLinks and References:

Updated: 7/18/2021

Rank: G1

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