Appendix E.1

PRODUCTIVITY IMPROVEMENT

The amount by which the Department can improve productivity over time will have a large effect on the life-cycle cost of the Environmental Management program. For example, if the Department improves productivity, defined as the ratio of outputs-to-inputs, at an annual rate of one percent from 2000 to 2050, the same scope of work can be accomplished in 2050 for approximately one-half the cost of completion in 2000. Larger productivity improvement rates would have an even more dramatic effect over the long-term. Therefore, the Department is concerned about productivity improvement for two major reasons. First, because productivity improvement can have a large effect on life-cycle cost, the accuracy of the Baseline Report cost estimate is dependent on addressing the issue of productivity improvement. Second, the Department is interested in improving productivity to actually reduce the life-cycle cost of the program. This appendix only addresses the first reason.

The Department approached the problem of forecasting productivity improvements for the Baseline Report in two ways. First, Headquarters asked field sites to develop cost estimates for the Baseline Report that reflect anticipated cost savings due to productivity improvement. The data submission from several sites reported cost savings due to productivity improvements in the short term, from FY 1996 through FY 2000. On average, site submissions indicated that they will be approximately five to ten percent more productive in FY 2000 than in FY 1996. The Base Case reported in Chapter 4 reflects these site-reported cost savings. The majority of these savings stem from site productivity improvement initiatives aimed at reducing overhead costs, reforming contracting procedures, improving project definition, reengineering business processes, streamlining cleanup activities, and preventing pollution. Only a small number of site submissions, however, indicated that productivity will increase after this period. A primary reason for this is the difficulty of estimating productivity improvements far in the future.

For this reason, the Department developed an additional case based upon the assumption that the Department would improve productivity in the long-term (post-FY 2000) at a rate consistent with the past performance of the federal government. Historical data from the federal government indicates that productivity has grown at approximately one percent annually over the long term. Major reasons behind these annual productivity improvements include adopting improved technologies, using existing technologies more efficiently, and improving management structures. Increasing productivity at this rate will result in a life-cycle cost of approximately $195 billion, a savings of $32 billion from the Base Case.

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Appendix -A2- / -B- / -C- / -D- / -E1- / -E2- / -F- / -G- / -H- / Glossary