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Original Date: 09/14/1998
Revision Date: 01/18/2007
Information : Cost as an Independent Variable Process
Cost as an Independent Variable (CAIV) is a methodology that recognizes cost requirements as being independent of product performance. Raytheon Missile Systems Company (RMSC) implemented a CAIV process to develop and design military products with the highest quality and performance, at the lowest cost, and in the shortest turnaround time. Prior to 1995, no process existed at RMSC which could provide performance versus cost tradeoffs. In 1995, the Under Secretary of Defense for Acquisition and Technology identified the need to develop a process that could treat cost as an independent variable, and allow the government to procure the most performance for an affordable cost.
The CAIV process is an adaptation of a commercial pricing practice that allows the customer to determine how much performance it can afford. This process reduces cost and risk by setting aggressive and firm cost objectives, increasing competition, incentivizing suppliers, and effectively utilizing producibility programs and design reuse. In addition, the process reduces total ownership cost, increases customer satisfaction, and provides cost performance that meets or exceeds the customer’s needs. RMSC’s design teams conduct structural evaluations of various cost- performance tradeoffs by establishing realistic but aggressive cost requirements; devising appropriate metrics; allocating requirements down through the product structure; and managing risk to achieve cost, schedule, and performance objectives. The result is the most cost efficient means of balancing both cost and performance requirements. The customer then determines whether this tradeoff of performance for cost savings is acceptable. Figure 2-1 illustrates the CAIV process map.
The AIM-9X program is currently in the Engineering and Manufacturing Development phase at RMSC. As one of the Department of Defense’s (DOD’s) flagship programs, AIM-9X was chosen by the Navy to be a candidate for the CAIV process. After RMSC implemented the process, the program’s subassembly recurring unit cost was reduced from $35,000 to $4,000. This represented a savings of $310 million over 18 production lots, while still maintaining product performance.
Figure 2-1. Cost as an Independent Variable Process Map
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