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Ep 10: The Challenge of Defense Accounting

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This is the first episode of a conversation I had with Eric Lofgren. If you aren’t familiar with Eric, you may have heard of his blog or his podcast “Acquisition Talk with Eric Lofgren.” Eric is a subject matter expert on defense cost accounting and budgeting.

Why does this cost accounting and budgeting matter? Peter Drucker, a legendary management consultant, observed that “you can’t manage what you can’t measure.” DoD’s cost accounting system and budgeting process were developed immediately after WW II and reflect the experience of that time, which was principally industrial and the biggest weapons’ systems were platforms.

But today, weapons are rapidly morphing into systems that bear far more resemblance to a high technology system - with both hardware and software - and the issue of accounting for the costs of these systems bears little resemblance to the current method of DoD cost accounting and budgeting. There are at least two implications to this: 1) how does the department budget for systems whose cost structure doesn’t resemble systems they are used to developing? 2) how does the department value commercial innovation that it seeks as an accelerant to both innovation and lethality?

You can listen to the full episode here or at our show, Commercial Innovation for Defense, on Apple Podcast, Spotify, Google Podcast, Overcast, or wherever you listen to your favorite shows.

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