AIA/NAS 989-2012 pdf download AEROSPACE INDUSTRIES ASSOCIATION DISCOUNTED CASH FLOW MODEL DOCUMENTATION FOR VERSION 2.0 APRIL, 1990
SCOPE
The AlA Discounted Cash Flow Model, Version 2.0 was created as an industry standardfor a financial analysis of IMIP projects.
1.1.1 IMIP BACKGROUNDThe Industrial Modernization Incentive Program (lMIP) was established to incentivizedefense contractors and subcontractors to significantly expand their ongoing productivitenhancement initiatives. MlP overcomes many of the impediments to increased capitainvestment, improved productivity and reduced acquisition costs. The Department of Defenis willing to consider alternate methods of doing business under lMlP. MIP makes possiblea negotiated business arrangement with benefits that may not have been possible otherwis
1.1.2 PURPOSE
One of the major business tools that will be used in negotiating lMlP business arrangemenis the Discounted Cash Flow model. The AlA DCF model can be utilized to evaluateprospective lMlP projects by all sectors of the defense industry including prime contractors,subcontractors, and the various governmental agencies. As this is a universal model, it habeen developed so that it will fit the needs of all users. The model incorporates enoughflexibility to allow each user to make modifications necessary to adapt it to his uniquebusiness methodology.
12 IMIP BENEFITS
An IMiP program is intended to provide mutual benefits to both DOD and the contractor. Thesebenefits are described below:
1.2.1 DOD INCENTIVES
Reduced costs . Implementation of advanced technological manufacturing methods whenqualified as an lMlP project generate savings to the customer in the form of reducedprogram production costs.
Increased surge capabilities . When contractors and subcontractors employ the latesttechnology in manufacturing methods, the capability to increase production output onshort notice is enhanced. This ability to mobilize rapidly is referred to as “Surge Capacity”lmproved Quality – Modern capital equipment and production methods increase productquality and reduce waste and rework.
mproved Reliability – Products produced by advanced technologies yield less undetectedproduct deficiencies, thus increasing product performance by reducing times of inoperability.Flexibility – Modern machinery and equipment are less specialized and more adaptable to awide variely of product requirements, thus reducing the cost of program unique capitalassets and idle capacity.
1.2.2 CONTRACTOR OR SUBCONTRACTOR INCENTIVES
Productivity Savings Reward (PSR) . The primary incentive in an IMlP program to the contractoror subcontractor is the PSR, It is the share of the DOD savings generated by the projectto be retained by the contractor or subcontractor, The PSR is the variable cash flowelement in the discounted cash flow model and is generally established through negotiationto achieve the contractor or subcontractor required rate of return on investment, Paymentof the PSR recognizes contractor or subcontractor investment where risk and size ofinvestment is higher than normal. The PSR is typically paid as DOD savings are incurred afterimplementation of the project, see section 2.2.3.
Risk Protection Contractors and subcontractors engaged in defense industry programsface an uncertain business base. The inherent investment risk is reduced in an IMIPthrough project funding and productivity savings rewards and/or contractor indemnification.Competetive Advantage . The Competition in Contracting Act of 1985 created a new businessenvironment in defense acquisition. Industrial Modernization enhances the contractor orsubcontractor competitive position.
1.3 DCF TREATISE
There are a mulitude of different financial indicators and methodologies used in project financial analysisThe established indicators below are accepted lMlP tools and indicators and are ufilized by the AlA DCF,Version 2.0.
AIA/NAS 989-2012 pdf download
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