Friday, December 9, 2011

Clock Strikes 13..... Fully Burdened BS

Former Under Secretary of the Navy and Director of the Central Intelligence Agency, James Woolsey once commented on a pronouncement by a retired Admiral regarding DOD energy efforts being a fad. He equated Admiral's specious argument as “like the 13th chime of a clock – it is not only bizarre in and of itself, it calls into question everything that issues from the same source”. Nathan Hodge of the Wall Street Journal just announced that it is 13:00 o’clock.

Several people rushed to get this article in front of me and I have been slow to respond. I have grown weary of explaining from where the number $400 per gallon came. Mr. Hodge raised this boogey man in a piece about air dropping fuel in Afghanistan. An otherwise good article is marred by this inaccuracy.

Why do I get so exercised about this recurring absurdity? Because I work with many small companies and I am often approached with ideas to alleviate this supposed financial burden. “Since the average price for a gallon of fuel in Afghanistan is $400, then my plan to create fuel onsite using hope and butterfly kisses for only $350 a gallon is a steal!”. I then have to destroy their dream by telling them the truth. Part of the burden in the Fully Burden Cost of Fuel is this myth.

To reiterate, the Defense Acquisition Guidance defines FBCF as : “the cost of the fuel itself (typically the Defense Logistics Agency - Energy (DLA-E) standard price) plus the apportioned cost of all of the fuel delivery logistics and related force protection required beyond the DESC point of sale to ensure refueling of this system. “

The purpose of the FBCF is to evaluate new systems and platforms during the Analysis of Alternatives portion of the requirements process known as the Joint Capabilities Integration and Development System. Materiel solutions will be considered more competitive that require less support infrastructure; that have a lower power requirement and that are more energy efficient. This will allow DoD to understand the implications of energy use in a given scenario. The FBCF is completely scenario driven based upon point to point movement of a specific variety (road march, attack, retrograde, etc). There can be no generic FBCF. So how did we get $400 a gallon?

In the Report of the Defense Science Board, More Capable Warfighting Through Reduced Fuel Burden, published in May 2001, the Board envisioned various scenarios in which what they called the “true cost of fuel” was computed. One of the scenarios postulated in the DSB report was fuel delivery to a ground mobile force 600 kilometers beyond the Forward Edge of the Battle Area, back when we had front lines; I miss the good old days. In this scenario the fuel would be delivered by CH-47 helicopters flying in three legs to Forward Area Rearm, Refuel Points (FARRP) and requiring a full fuel load for each helo at each FARRP. For a 1,500 gallon payload in each A/C and three stops there and three stops back, the fully burdened cost per gallon was $400. An exceptionally rare circumstance back then, maybe a bit more likely now. Still it was an extreme scenario.

People change behavior for one of two reasons: overwhelming opportunity or overwhelming threat. If those conditions do not obtain, the status quo will remain. Too often we have seen scare tactics used to try to change behavior. The $400 gallon is the equivalent of crying wolf. There are much better reasons to change: increased security, less actual cost and less impact on the environment. If we want to use economics, let’s build the business case, not the $1000 toilet seat case. The fully burdened cost in dollars is interesting in the acquisition program. The fully burdened cost in blood is the real story. Dan Nolan


Brian Smith said...

great post, made all the more better by the fact you actually found a picture of a clock that strikes '13'. Well played.

Les F. said...

Extremely well put Dan, especially the last line. We had a soldier, recently returned from Iraq, in a solar generator program kickoff meeting. His comment on FBCF: "Save me one life or take one convoy off the road and it's worth it."