Affordability is the results obtained from the analysis of the Life-Cycle Cost (LCC) of a proposed acquisition, in which the purchase is in accord with the resources and long-term requirements of the acquirer.
The Defense Acquisition Guidebook (DAG) defines affordability as the degree to which the LCC of an acquisition program is in consonance with long-range modernization, force structure, and manpower plans of the individual DoD Component, as well as the Department as a whole. An affordability assessment is required at Milestone B and C. Affordability is considered in four aspects of DoD acquisitions. These aspects are: [1]
- Affordability Considerations
- Affordability Assessments
- Full-time Funding
- Cost As an Independent Variable (CAIV)
1. Affordability Consideration: Play an important role in identifying capability needs throughout the Joint Capabilities Integration and Development System (JCIDS) requirements process. Affordability is part of the:
- Determination of Key Performance Parameters (KPP)
- Capability Development Document (CDD)
- Capability Production Document (CPD)
2. Affordability Assessment: The purpose of the assessment is to demonstrate that a program’s projected funding and manpower requirements are realistic and achievable. There are two (2) approaches that the DAG has identified in conducting an affordability assessment. These approaches are:
- Analyze projected annual program funding
- Unit cost comparison based upon life-cycle cost and other similar programs
3. Full-time funding: It’s a DoD policy that all programs seek full funding. For Major Defense Acquisition Programs (MDA) at Milestone B, the Milestone Decision Authority (MDA) must certify in writing to Congress that the program is fully funded for the period covered by the Future Years Defense Program (FYDP). Program funding instability is one of the top three reasons programs experience cost, schedule, and performance instability.
4. Cost As an Independent Variable (CAIV): Methodology used to acquire and operate affordable DoD systems by setting aggressive, achievable LCC objectives and managing the achievement of these objectives by trading off performance and schedule as necessary. Cost objectives balance mission needs with projected out-year resources, taking into account anticipated process improvements in both DoD and industry. CAIV is part of a program’s Acquisition Strategy.
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Updated: 3/04/2021
