Cost as a Military Requirement
MARYLAND UNIV COLLEGE PARK CENTER FOR PUBLIC POLICY AND PRIVATE ENTERPRISE
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In 1916, Frederick Lanchester theorized that the power of a military force is proportional to the square of the number of its units. Despite technological advances in military weaponry, Lanchester s basic observation that quantity is essential to military success remains true today. Yet weapons system performance is frequently prioritized over affordability during the development process. As a result, Department of Defense DoD programs must often reduce planned quantities in order to stay within budget. Ironically, the expensive, yet marginal increases in system performance that result, measured in terms of their contribution to overall military effectiveness, could have been achieved by acquiring a greater number of less capable systems. Today, new and frequent mission changes are fueling the increasing costs for both goods and services. At the same time, there is little doubt that the DoD will see significant budget cuts in the coming years. Given these conditions, the DoD must reorient its priorities so that it is able to acquire essential systems in the required quantities. In a resource-constrained environment, the unit cost determines the quantity of systems that can be acquired. We contend that the DoD should make unit cost a contract requirement and, therefore, a critical design requirement. Moreover, we believe that, in addition to schedule and performance, cost should be explicitly represented within the trade space rather than merely designing to cost, program leadership would have the flexibility to trade higher performance for lower costs provided that the objectives of the program were maintained. Establishing the cost for a product prior to its development is not a new idea. In the commercial sector, this approach, known as target costing, was first introduced in Japan in the early 1960s. Today, it is widely used by firms throughout the developed world.
- Economics and Cost Analysis
- Logistics, Military Facilities and Supplies