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Initiatives

Reduction in Total Ownership Costs (R-TOC)

The DoD-wide effort to Reduce Total Ownership Costs (R-TOC) grew out of numerous reviews and discussions at Program Executive Offices/Systems Commands (PEO/SYSCOM) conferences, the Defense Science Board, and others. The Deputy Director, OUSD (AT&L) Systems and Software Engineering/Enterprise Development leads the R-TOC program.

The R-TOC program was established in response to longstanding concerns about the adverse impact of defense budgetary and operational trends on force structure and readiness.  Declining procurement funds were resulting in a rapidly aging (and potentially inefficient and unsupportable) inventory.  Rising operations and support (O&S) costs were consuming higher portions of the defense budget and left even less available for modernization.

A May 10, 1999 memo from the Under Secretary of Defense for Acquisition, Technology and Logistics (USD(AT&L)) stressed that the purpose of R-TOC was to maintain or improve current readiness while reducing O&S costs. There are many other improvement programs focused of earlier parts of the life cycle, but there was very little emphasis on sustainment. The memo instructed the Services to focus on three general R-TOC approaches:

  • Reliability and maintainability (R&M) improvements,
  • Reduction of supply chain response time and reduction of logistics footprint, and
  • Competitive product support.

Thirty pilot programs,10 from each Service, were chosen to develop innovative new methods to achieve the R-TOC goals and objectives.  The DoD "Strategy for Affordability" established a 20% O&S cost reduction goal for FY 2005 for them.  In August 2005, the pilot programs reported their results toward the FY 2005 R-TOC O&S cost reduction goal.  Twenty-five of the original 30 pilots reported savings/cost avoidances in FY2005 of $2.1 billion and total $76.3 billion over the life cycle of the reporting programs.  Thus, the original R-TOC Pilot Program initiative was highly successful.

Special Interest Programs (SIPs)

In 2003, R-TOC was challenged to initiate a continuing R-TOC effort and to define a goal for FY 2010.  USD(AT&L) created the Special Interest Programs (SIPs) in a December 19, 2003 memo.  “Cost avoidance efforts in these SIPs will be used to demonstrate how affordability considerations can be institutionalized.”  The R-TOC Quarterly Meetings will continue as we “…jointly identify key cost issues and develop inter-related R-TOC goals specific to each program.” 

An R-TOC Program Element was established for FY 2006 and beyond.  The PE funds $25 million per year for R-TOC projects across all three Services.  The FY 2006-2009 funding of $96 million is projected to produce $7.763 billion in life cycle cost avoidances.

The 15 designated Special Interest Programs (SIPs) are:

  • Army – Bradley A3 Upgrades, UH-60M Upgrade, Stryker, Guardrail and UAVS
  • DoN – USMC H-1 Upgrades, V-22, F/A-18E/F, H-60, ASE, and Common Ship
  • Air Force – Global Hawk, Engines (F-101-GE-102 and F-118-GE-100), F-16, and F-35 Joint Strike Fighter,

Thus, there are now 15 Special Interest Programs continuing the R-TOC initiative to reduce O&S costs, to drive to a goal in FY 2010, and to institutionalize R-TOC concepts into ALL system programs.

USD(AT&L) FY 2010 Goal

In the December 19, 2003 memo, the USD(AT&L) (see link above) also set a new vision for R-TOC.  The USD(AT&L) set an R-TOC Goal for FY 2010, “…maximize cost avoidance on total defense systems’ FY 2010 O&S costs by offsetting 30% percent of the inflation predicted from an FY 2004 baseline.”  Thus, R-TOC has a focus toward FY 2010 with a cost goal for all syatems.
The common “agreed-to” definition of “inflation” is a growth of 2.6% per year from FY 2004 through FY 2010.  The following equation defines the goal:

                                    R-TOC FY 2010 Goal = FY 2004 O&S Baseline * 5%

Thus the task for each program is to define its actual FY 2004 O&S baseline cost and to set its R-TOC FY 2010 goal as 5% of that number.  Each program must then set-up initiatives to reach its O&S cost reduction goal in FY 2010. 

R-TOC Quarterly Meetings

R-TOC quarterly meetings which began in January 2000 continue as R-TOC Special Interest Program (SIP) meetings.  The overall general goal for the SIPs is to demonstrate how affordability considerations can be successfully institutionalized into all programs and thus “show-the-way” for all programs.  

At each Quarterly Meeting, approximately a quarter of the SIPs present briefings on their progress towards the FY 2010 goal.  This allows OSD and Service staffs to stay abreast of the SIPs and their progress while minimizing briefing demands.  It also allows the SIPs to share their experiences with other programs implementing R-TOC and to gain the benefits from what has worked (or not worked) for other programs.  All Special Interest Program briefing charts have been placed on the R-TOC website.

These resources are available to learn more:

R-TOC Website

Value Engineering Change Proposals (VECP) Community of Practice

Value Engineering Change Proposals in Supplies or Services Contracts [PDF, 498KB]

Reduction of Total Ownership Costs (R-TOC) Best Practices Guide [PDF, 1.5MB]