Pay As You Go

One of the cutsie phrases that the current NASA Administration likes bandying about regarding their approach to exploration is “Pay As You Go“. Kind of like O’Keefe’s “spiral development”, this pithy phrase is the latest fad at NASA. The basic philosophy behind “Pay as You Go” being that instead of coming up with an actual cost number, and asking for go ahead on what they know is an extremely expensive and bloated space exploration program, they instead try to live with their budget, and accelerate or decelerate their plans depending on funding. The idea being that if you don’t actually specify a cost, it’s impossible to have a “cost overrun”…

Gotta love that logic, eh?

The real problem with this approach as I see it, is when you factor in the fact that they’re trying to run this as a jobs program to try and make the program as “unkillable” as possible. The idea being that while trying to reduce costs compared to the Shuttle a little bit, they want to keep as many former Shuttle employees employed as they possibly can. Who cares if the ability to attach ceramic tiles to an orbiter isn’t really that important for lunar exploration? Who cares if most engineers in their right mind would get rid of the labor intensive, expensive, and dangerous SRBs in any future launch project? Who cares if it would be far cheaper to just buy existing launch services and focus instead on the orbital, translunar, and lunar portions of the architecture? This is about “butts in seats” in Utah, Texas, Florida, Alabama, California, Louisianna, etc.

The problem though is that if NASA doesn’t get the big budget increases they want over the next few years, and they decide to “throttle back” the exploration development, something interesting happens…

Basically, if you are trying to keep the Shuttle team continuously employed, you have to keep paying them fulltime paychecks. Whether they’re actually flying anything or sitting on their thumbs, they’re collecting a fairly hefty paycheck every month. And SRB techs or Shuttle TPS techs can’t exactly be moved over to engineering and plopped down in front of a computer and told to start running CFD analyses. These guys have lots of skills in maintaining the shuttle, but for the most part aren’t exactly engineers.

So what? What that means is that as you “throttle back development” more and more of the exploration budget goes to just keeping people around, and less and less of it goes to actual bending metal, flying tests, firing engines, etc. As that percentage drops, it actually drags the development program out more than you would think, and can have a major impact on the end cost of the program. Especially after the Shuttle gets retired, when all of the technicians that need to be kept around to support Ares I and Ares V need to get paid out of the Exploration Systems budget every year, regardless of how long it takes to get Ares I and Ares V flying.

Let’s look at a simplified example. A company has a project that requires about $2.5M in actual hardware, consumables, test articles, etc. and a fixed monthly cost for payroll and other overhead of about $250k/month. If the company is funded at a rate of $500k per month, the project ends up costing about $5M total and taking about 10 months.

But what if you “throttle things back”? What if the company is having a hard time raising money, and is only able to keep a trickle of $350k per month flowing in? If the company can’t layoff employees, or shift them to part time (which may very well be the case if the company is doing something that requires lots of specialized skills), then the project ends up dragging out for over two years. In the end, it ends up costing $8.75M instead of $5M, with only about 28% of the money actually going to hardware.

Admittedly this is oversimplified a bit. If a company were in that situation, it’d probably have its engineers spend more time doing analysis, and low-cost tests, that might decrease the amount of overall tests a bit, and bring things back a little bit under control. But you get the basic point. If you have high fixed payroll and overhead costs, “throttling things back” doesn’t eliminate cost overruns, it causes them. At least if you’re intellectually honest. A program that ends up costing almost twice as much as it was supposed to because it was stretched out over a longer time has overrun its budget whether you declare that number up front, or play coy games about not knowing the costs.

If NASA were pursuing an exploration plan that didn’t have such a large percentage of its funding tied up in maintaining large standing armies, multiple factories, etc. it wouldn’t be so bad. If they were able to layoff employees (especially those not doing anything useful) when the money got tight, it also wouldn’t be so bad.

Keeping the overall program cost from mushrooming due to delays would imply the ability to layoff excess employees at will. If your funding rate cut in half, and you were able to layoff half of your employees, you could theoretically still get done for the same budget, but just taking twice as long (ignoring all the details). Unfortunately this just isn’t a reality, or if it is, it undermines one of the key arguments for Ares-I.

The argument goes that you need a bunch of these Shuttle employees to stick around for Ares V, and also to prevent a dangerous brain-drain from endangering any of the remaining shuttle flights (as people see their job ending and jump early). If you could really lay some of these people off without incurring these effects, the argument is bogus. If the argument is real, then you’re stuck paying for them, even if they end up sucking up almost all of the exploration budget.

By going with NASA developed, owned, and operated HLVs for their space exploration plan, NASA has put itself in a situation where any decrease in funding is going to have a disproportionate effect on schedules and overall costs. If they had instead tried to build a more open-transportation architecture that mostly relied on existing and future commercial vehicles with NASA only developing the orbital, translunar, and lunar components, things would be a lot different. The percentage of exploration systems costs that were direct payroll and overhead would be much lower, which would make the project far less affected by temporary budget cuts or lack of budget increases. The overall cost of the project wouldn’t go up anywhere near as quick, and the schedule wouldn’t be impacted anywhere near as much.

As it is, if NASA can’t manage to get something better than the full-year continuing resolution for this next year, the whole return to the moon might get delayed by several months to as much as a full year. With Democrats in charge of the House and Senate, large budget increases (or raiding money from Science or Aeronautics) are less likely to be allowed, which starts really raising questions about the political viability of NASA’s exploration plan. The very thing that is being used to make the ESAS approach “unsinkable” (all of the jobs in all the Congress districts) may end up slowing the whole thing down so badly that it ends up putting the whole program at risk of cancelation at some future point.

This also highlights once again how critical COTS is to the survival of the whole ESAS scheme. If the budgetary situation doesn’t end up being as rosy as ESAS initially planned (and even with unrealistic budget increases they still were coming in over budget for the timeline they’re publically touting), and if COTS doesn’t get the funding and support it needs to succeed, NASA may find itself spending almost its entire exploration budget on just maintaining ISS and keeping all those Shuttle people employed while they slowly try to develop Ares V and eventually start working on the other lunar transportation elements. If that were the case, and as the return to the moon date slides further and further into the future, do you really think that nobody is going to care just because they’re staying within their budget?

Results obviously aren’t the most important thing that Congress expects out of NASA, but they aren’t entirely unimportant. At some point somebody is going to question the wisdom of continually blowing as much money as they do every year for so little in return.

The following two tabs change content below.
Jonathan Goff

Jonathan Goff

President/CEO at Altius Space Machines
Jonathan Goff is a space technologist, inventor, and serial space entrepreneur who created the Selenian Boondocks blog. Jon was a co-founder of Masten Space Systems, and is the founder and CEO of Altius Space Machines, a space robotics startup in Broomfield, CO. His family includes his wife, Tiffany, and five boys: Jarom (deceased), Jonathan, James, Peter, and Andrew. Jon has a BS in Manufacturing Engineering (1999) and an MS in Mechanical Engineering (2007) from Brigham Young University, and served an LDS proselytizing mission in Olongapo, Philippines from 2000-2002.
This entry was posted in Business, COTS, NASA, Space Development. Bookmark the permalink.

15 Responses to Pay As You Go

  1. Karl Hallowell says:

    I wonder if this is in part instinctive funding protection by a bureaucracy. It’s probably not a coincidence that any cut in funding results in an inordinate overall increase in costs down the road. They’ve used up every bit of their funding resources in such a way that it will hurt no matter how Congress cuts the budget.

    But it strikes me that Congress can call this bluff by cutting the Gordian Knot. Ie, if the Shuttle, ISS, and Constellation programs are all eliminated, then that frees up a lot of funding for a manned or unmanned space program.

  2. Bill White says:

    First rule of government work — spend every penny they give you and then ask for more. If NASA did the Moon with EELVs Congress would cut NASA’s budget and if we terminated our SRB capacity then Mars would be off the table until after Griffin’s (and Zubrin’s) lifetime.

    Some would see that as a feature and not a bug. Other opinions differ.

    ESAS is about keeping MarsDirect (or a variant) as a viable option and as Dr. Soug Stanley wrote, perhaps as early as 2009 there could be a push for Mars now.

    = = =

    Note that Bart Gordon (D-Tenn) has suggested that NASA may need more money, not less.

  3. Jon Goff says:

    There are plenty of good ways of going to Mars that don’t involve needing SRBs. In fact, most of the more cost-effective, nearer term methods avoid the SDLV trap. On-orbit propellant transfer is the real key there.

    And yes, I’m sure that NASA needs more money. I’ve already said so. Just because one Congresscritter can also thinks NASA needs more money does not imply that NASA deserves more money, an especially doesn’t mean that they’ll actually get more money.

    I’m not all that interested in Mars personally, but I have some ideas for how to do that a lot less expensively than even “Mars Direct”. Maybe I’ll blog those when I get the time.


  4. Jon Goff says:

    Alas, I doubt Congress will completely cut the Gordian knot. We might end up with something far worse. Shuttle retired, Ares I flying, but the rest of VSE canceled. And with Ares I now needing to justify its existance, COTS tossed out the window too. Basically you could call it the “Everyone but ATK gets Shafted” option.


  5. mwhittingt says:

    Jon – I’ve heard the canard that VSE is just a scheme to keep the shuttle standing army employed. The problem is that the standing army is due to shrink just from natural attrition anyway. Thanks primarily to the hiring freeze during the Clinton years, there are a lot of NASA employees and contractors who are due for retirement toward the end of the decade anyway.

  6. Jon Goff says:

    Yet you repeat the canard quite a bit yourself. Whenever you talk about “political realities” that’s what you’re doing. Yes, some of the Shuttle workforce will go away, but claiming that workforce retention isn’t one of the key reasons behind Ares I and Ares V is well…really disingenuous.


  7. Bill White says:

    On-orbit propellant transfer is the real key there.

    The comments at Cynics are interesting on this point. There appears to be a large school of thought that on orbit fuel depots make terrific sense if Elon Musk can hit his advertised price points. And that they make no sense if current EELV price are the best we can hope for.

    As we know, Falcon 1 has not flown successfully. Therefore Falcon 9 is the most paper of paper rockets. And actual final SpaceX price points are far from proven.

    If a fuel depot can only be stockpiled at current EELV prices, Ares may well be less expensive.

  8. Jon Goff says:


    The comments at Cynics are interesting on this point. There appears to be a large school of thought that on orbit fuel depots make terrific sense if Elon Musk can hit his advertised price points. And that they make no sense if current EELV price are the best we can hope for.

    It definitely is a school of thought. But one that I think is fundamentally wrong. SpaceX succeeding will definitely make an orbital propellant depot business case easier to close, but isn’t an absolute neccessity. For one thing EELV prices would be a lot lower in bulk than they currently are. Yes, quite a bit lower than Ares costs especially when you count the not-yet-sunk development costs. Ares I/V only look good when you ignore development and fixed costs. Add them back in and they’re extraordinarily expensive, even compared to current EELV prices.

    Second, even at EELV prices an orbital propellant depot would make the lunar architecture a lot more robust. The LSAM and EDS can only loiter 15 days waiting for the CEV before they start cutting into margin. After about 30 days, they probably couldn’t complete their mission. Having the ability to top things off is going to save them at least one mission over the course of the first ten years of operations, which at a mission cost of over $2B, means a heck of alot.

    Lastly, if it’s a privately owned and operated propellant depot, they can buy from anyone, US or not. Which means that even if Elon doesn’t succeed, they could still buy Soyuz flights or Protons, or Zenit Sea Launch flights, or flights from pretty much anyone else on the market.

    So this whole “orbital propellant depots only make sense if SpaceX delivers, therefore are too risky” meme is bogus in my opinion.


  9. Bill White says:

    Jon –

    As I recall, Falcon 9 is projected to come in at a price per kg above current Proton prices, as I recall just as Dnepr will be lower per kg than Falcon 1.

    If we can use foreign carrier rockets to fill that LEO fuel depot, we could start deployment tomorrow.

    Therefore, it is not a “SpaceX only” meme, its also “Will Congress let NASA buy fuel that passes through a Russian chokepoint” — if your architecture depends upon a fuel depot and only Russia can deliver fuel at a cost effective price point we have placed the Russians in the critical path for our success.

    Also remember orbital inclination issues. Where do we deploy that depot? 51 degrees? 28 degrees?

    And, as I have been reading at nasaspaceflight both LEO rendevouz and LLO rendevouz have disadvantages for staging lunar missions. An L point fuel depot would be far more useful.

    Finally, there are pad congestion issues. We have ONE Delta IV pad and ONE Atlas V pad available on the East Coast. You need to add more pads ($$$) before you can fully cost out an EELV only fuel depot.

  10. Bill White says:

    Oh yes, cyrogenic fuel transfer remains a theoretical skill. A very very valuable skill but an unproven skill.

    = = =

    To accelerate things, I would have preferred that in January of 2004 President Bush announced that the orbiter program was terminated. No more orbiter.

    Flying orbiter through 2010 and then switching to an all EELV program makes no sense whatsoever.

    = = =

    Cross your fingers for DIRECT.

    That offers real promise, in my opinion.

  11. Jon Goff says:

    Once again, while Proton’s and Soyuz’s and Dneprs all have good prices, I disagree with the conclusion that EELVs would be more expensive than the current ESAS architecture. And why should Congress have any say about where propellant purchased on orbit comes from? Atlas uses Russian engines and is ok by DoD. Unless Congress passed an explicit law not allowing NASA to buy propellants from a depot unless it was mostly shipped by US companies, it wouldn’t be a problem with current law.

    As for inclinations, Bigelow is looking at putting his station at 40 degrees, which IIRC may be reachable by some or all Russian boosters, though at a slight penalty. That would be a good place for a depot.


  12. Jon Goff says:

    Additional pads aren’t that expensive. At least for the Atlas boosters, you wouldn’t even need another pad. Another transporter would be adequate, as the booster typically spends only a very brief amount of time on the pad before launches.


  13. Jon Goff says:

    Cryogenic propellant transfer isn’t 100% proven out, but that’s an argument for paying for a demonstration mission, not for avoiding it. The payoff to risk ratio is just too high to justify ignoring it.


  14. Brad says:

    Pay as you go


    “The basic philosophy behind “Pay as You Go” being that instead of coming up with an actual cost number, and asking for go ahead on what they know is an extremely expensive and bloated space exploration program, they instead try to live with their budget, and accelerate or decelerate their plans depending on funding. The idea being that if you don’t actually specify a cost, it’s impossible to have a “cost overrun”…”

    Hey, I am as big a critic of HLV and the NASA ESAS plan as you can find, but I think your criticism of pay as you go is a little unfair. I don’t think NASA believes their plan is bloated or that NASA is using pay as you go as a scheme to deceive critics of the true cost of the program.

    The whole point of pay as you go is to avoid the Apollo trap. With Apollo, reaching the goal of putting a man on the moon meant the end of spending and therefore the end of manned space exploration. Pay as you go is intended to sustain manned space exploration by claiming that exploration can be afforded within the existing budget, so that no Apollo style crash spending is neccessary.

    It’s pretty clear that Congress and the American public has been willing for decades since the end of Apollo to support the present level of NASA spending of manned spaceflight. And that is in spite of the fact that the spending has not produced any manned missions of space exploration. With the Shuttle and ISS projects finally out of the way why wouldn’t the public support the existing level of spending and which actually sends men to explore places in space we have never been before? That is the true meaning of pay as you go.

  15. Brad says:

    NASA getting stuck with only Ares I and without Ares V

    I don’t think that will happen.

    I think NASA want’s HLV very very badly. And I am convinced the main reason NASA wants the Ares I stick is because they see it as a stepping stone (or stalking horse) to Ares V.

    Should HLV be seriously threatened NASA would drop Ares I in a heartbeat if it meant they could still get HLV in some shape or form even if it meant dropping Ares V and going to a cheaper and less capable SDHLV such as a sidemount ‘Shuttle C’ style configuration. Even if it meant launching the Orion via Delta IVH.

Leave a Reply

Your email address will not be published. Required fields are marked *