Commentary | It’s the Cost

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Big money is not returning to the U.S. federal space sector. Trends in the factors that make up the federal budget make increases to the space budget improbable. The aerospace industry must think about costs very differently — or face almost certain decline. 

Fiscal trends limit our budget choices. Economic growth could be a source of future budget increases, but the United States is in its lowest growth period since World War II. In only one year since 2000 has gross domestic product (GDP) annual growth exceeded the 3.4 percent average of the last 80 years, and then only by 0.1 percent. The average growth over the last 12 years has been 1.6 percent. A big change in economic trends would be needed for GDP growth to enable budgetary growth. 

Increasing the federal budget’s share of the GDP would provide additional money, but total federal revenue as a percent of GDP has fallen during the last four years to the lowest level since the Harry Truman administration. Revenues were projected to increase in 2013 to levels last seen during the Dwight Eisenhower administration, but that increase is earmarked to reduce the budget deficit. Increasing the budget would require either additional tax revenue or additional borrowing, either of which would face fierce resistance. 

Because all federal space spending is part of discretionary spending, increasing the discretionary share of the budget could provide for increased spending. Unfortunately, the discretionary share has been declining steadily since 1967 in line with increases in mandatory spending and that decline is projected to accelerate. 

The federal space sector competes with all the other demands on the shrinking discretionary budget and is unlikely to win an increasing share. Neither the Defense Department budgets of the last decade nor the healthy NASA budgets of the early 1990s are likely to return. Federal space programs should expect to fight over a shrinking piece of the budgetary pie. 

The federal space sector thus faces a stark choice: Reduce unit costs or produce less. By reducing unit costs I mean reducing full life-cycle costs while maintaining or increasing the quantity, quality and reliability of the results produced. Without reduced unit costs, support for national security from space capabilities will decline. Without reduced unit costs, NASA will not be sending humans to Mars or even back to the lunar surface due to the new systems needed to get into and out of gravity wells. Affordability is the challenge of our era.

One sure way to reduce unit costs is through expanding markets. Historical precedent shows that as commercial markets for high-value systems are added to low-volume government markets or as low-volume commercial markets expand, unit costs tend to decrease. The first-generation computer market, the communications satellite market and the jet aircraft market all went through similar transitions. 

The transition to commercial markets can produce dramatic unit cost reductions. For example, the post-World War II tube computer market consisted of custom-built computers until the first commercial computers were manufactured in the early 1950s. Within six years, the unit cost of computing using commercial tube computers fell by an order of magnitude even with production runs as small as 11 units. The cost of computing using custom-built computers remained unchanged. 

As effective as growing commercial markets might be in reducing unit costs, it is too soon to predict when commercial space markets will develop enough to significantly lower costs across the federal space sector. Federal space programs should use commercial sources wherever it makes sense, but if they want to maintain or expand their activities in the near term, they must also expand their own efforts to reduce unit costs. 

The aerospace industry has a poor track record at trying to reduce the costs of space projects. It is cause for celebration when a project completes without a large cost overrun. Most acquisition reforms in the past, such as “should cost” and “will cost,” have focused more on preventing overruns than on reducing baseline costs. 

Some in the space industry have begun addressing the problem of unit cost reduction and have produced a growing number of innovations. The most well-known are the companies developing ways to reduce launch costs. Many of these companies receive some government support, notably from public-private partnerships with NASA. 

Efforts to reduce spacecraft costs are less well-known. Defense Department efforts to reduce unit costs of spacecraft have included block satellite purchases and program reinvestment in the Advanced Extremely High Frequency and Space-Based Infrared System programs. The Wideband Global Satellite program adopted some commercial practices, standardizing hardware lines and spreading costs over a larger market by bringing in international partners. 

Schools of thought have formed around some of the proposed cost-cutting innovations. One school promotes disaggregation — deploying mission functions on smaller spacecraft or hosted payloads, rather than deploying a few large multifunction spacecraft. This approach also offers increased resilience.

Another school of thought promotes standardization and modularization — adopting standardized or modular architectures at the system, subsystem or component levels. A variation on standardization is using standard commercial satellite buses, rather than customizing each bus to the particular mission. NASA’s Lunar Atmosphere and Dust Environment Explorer uses a modular common spacecraft bus, designed to be used for many kinds of missions and to cost less than custom-built spacecraft. 

One new opportunity is to buy heavier launches and trade spacecraft mass growth for reduced unit costs. Recent reductions in the marginal cost of launch enable spacecraft design engineers to avoid spending the money needed to keep spacecraft on the smallest possible launchers. Costs can be reduced both by forgoing expensive mass-reduction efforts and by replacing high-cost designs with lower-cost designs that were too heavy to be considered under previous mass limits. 

Adapting commercial principles and practices to government projects is a theme common to many innovations. One powerful adaptation is to change the structure of constraints and goals to make performance (functional requirements) a fixed constraint and make reliability, manufacturability and cost reduction the primary goals. This practice is difficult for government agencies to implement because it requires uncommon engineering and executive discipline to resist making budget-killing changes in the functional requirements. 

These examples are representative of a growing number of proposed innovations in both engineering and acquisition management. Few of the innovations are mutually exclusive, but each spacecraft program is likely to benefit most from a different combination of them. Some innovations will be valuable to one program but useless or inappropriate for others. Reducing unit costs will require that agencies stay alert to new developments, map new developments onto their programs to identify the best fits, and do thorough and unbiased trade studies whenever there might be a significant cost-saving opportunity. 

Beyond the difficulties in adopting innovations and making them work is the structural challenge that government funding practices do not generally reward agencies for cutting unit costs. Current reality, however, is that budgets are being cut regardless of consequences. The only remaining choice is to determine how much performance shrinking budgets will allow. Regardless of future budgets, we have a duty to the nation and the health of the industry to deliver the greatest performance that the available money can buy. 

 

Gary Oleson is a senior engineer at TASC Inc.