When it comes to military defense spending, it’s a mistake to overrely on so-called actuals—suppliers’ historical cost records—to assess price reasonableness. BCG helps defense and security agencies take a far more strategic approach.
Defense and security agencies procure products and services essential for fulfilling their missions and for navigating a landscape marked by stiffening competition from other global powers. They face a tough mandate: maximize capabilities and readiness through smart defense spending while also reducing costs.
To determine if proposed pricing for a product or service seems reasonable, buyers can analyze contractors’ actuals. Though the use of actuals isn’t inherently wrong, serious flaws in their analysis can ultimately cause costs to increase over time.
BCG’s defense spending consulting teams help procurement teams apply a rigorous approach to avoid these—and other—perils inherent in the actuals-analysis process. The result? Buyers can increase the odds of securing the most competitive pricing for every product or service needed to strengthen their capabilities and readiness.
BCG helps military defense spending clients get the best value for their money over time by analyzing contractors’ actuals and future estimates through a critical, market-based lens.
Our approach centers on three key areas of opportunity:
Getting the Right Cost Data. We assist military defense spending clients in developing and deploying a structured template aimed at streamlining the provision and evaluation of actuals to help buyers make defense spending decisions. This approach delivers multiple benefits. It accelerates the acquisition of products and services, and getting the right cost data also gives clients the information that’s most essential for gauging price reasonableness, which contractors don’t always provide. For example, clients can gain insight into where the actual work will be performed and which skill levels are associated with proposed labor costs. As a result, clients avoid making common mistakes, such as signing on for senior, specialized workers in high-cost locations who aren’t needed for a particular program.
Using Commercial Market Benchmarks. Our defense spending consulting teams know that best practices can be shared between the military and business worlds. To that end, we help clients use commercial market benchmarks to challenge suppliers’ cost estimates and drive toward more-competitive pricing for every area of defense spending. Drawing on these benchmarks, clients can compare costs associated with process steps, labor skills, materials, and other aspects—even for specialized and technically challenging work.
Communicating a New Narrative About Actuals. We help defense spending procurement teams craft the right responses to contractors who question challenges to their cost estimates. Through effective communication, buyers can ensure that suppliers bear the burden of demonstrating why an estimate is reasonable—or not—by drawing not just on actuals but also on relevant market data.
Managing Director & Partner
Managing Director & Partner
Knowledge Expert, Client-Facing Knowledge Team