Impact of Continuous Competition on Operations and Support Costs
MARYLAND UNIV COLLEGE PARK CENTER FOR PUBLIC POLICY AND PRIVATE ENTERPRISE
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Based on projected federal budget deficits, the Department of Defense can expect continued downward budgetary pressure for the foreseeable future. Necessary spending, such as replacing aging defense systems and providing health care for veterans and their families, makes the DoD s long-term acquisition plans unsustainable. If current spending patterns continue, then cost control, not to mention net budget cuts, will be one of the most difficult challenges facing defense policymakers. Under intense pressure to cut the defense budget following the end of major hostilities in Iraq, Secretary of Defense Robert M. Gates has acknowledged that the era of unchallenged defense spending is over Shanker, 2010. As large numbers of U.S. forces remain engaged in winning the peace in Iraq and Afghanistan, it is essential that the DoD work to reduce inefficiencies and set priorities, as it faces an inevitable drawdown. One of the challenges to any DoD budget analyst is determining the net cost of defense systems. This is not a simple task. To the casual observer who follows press announcements of new defense systems, the overriding factor is procurement cost. Indeed, these costs are the most straightforward 5 to 7 billion for a Nimitz class aircraft carrier, 1 billion for an Arleigh Burke guided missile destroyer, and so on. These costs may seem large, but they shrink in comparison to the costs of owning, operating, maintaining, and supporting these ships. Over its 50-year lifetime, the Nimitz class aircraft carrier s operations and support OS costs are nearly 30 billion. For major defense systems, like ships, aircraft, and tanks, the OS costs account for 65 to 70 of total life-cycle costs, which refers to the total amount spent on a defense system for planning, RD, testing, production, OS, and disposal. OS costs may be large, but they are frequently not a driving factor in the design of new defense systems.
- Economics and Cost Analysis
- Defense Systems