Perennial cost and schedule overruns have become the norm for DoD programs. Increasingly, DoD leadership attributes these overruns to the lack of flexibility in the systems being developed. However, providing justification to invest in flexibility is problematic when the measure of value is a military capability, as there is no extant method to demonstrate the potential return on investment. This research effort sought to develop a decision tool for justifying investments in flexibility and valuing the inherent ability of different systems or designs to respond to uncertainty. The tool presented here is essentially a modification of the current life cycle cost (LCC) metric and is premised on the notion that the need for capability changes arises in a stochastic manner that can be incorporated into a continually updated, expected value model presented in terms of a cumulative distribution function. Because the decision tool requires accurate LCC estimates as an input, this research also led to the development of a novel cost estimating methodology that significantly improves the accuracy of current LCC estimates. The resulting improvements in decision-making and affordability assessments translates to increased value across the defense portfolio on the order of hundreds of billions of dollars over a system's life cycle.
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