Efforts To Estimate The Long-Term Cost Of Defense Programs Give Me A Migraine

One of the few ways to get the media’s attention in Washington is to claim that a government program is going to be more expensive than was originally projected. The bigger the number, the bigger the headline and the greater the feigned outrage on Capitol Hill. This is particularly true for major defense acquisition programs. Never mind that the gap between the thirty year projection on entitlement spending and expected revenues is so large you could drop the entire discretionary budget into that space and still have plenty of room left over.

Last year, the Department of Defense (DoD) appeared to have dropped a bombshell when it testified that the cost to sustain the planned fleet of F-35 Joint Strike Fighters for the next fifty years was over $1 trillion. Pundits, bloggers and some members of Congress didn’t even stop to ask whether or not that number had any meaning before exploding in outrage. It turned out that almost half that number reflected half a century’s worth of inflation and was, therefore, meaningless. Another big chunk of the total bill was due to the fact that DoD had included lots of new infrastructure and support equipment in the figure, things that had no direct relationship to the cost of maintaining the airplane. Finally, DoD never bothered to figure out what it would cost them to maintain the fleet of fighters the F-35 was intended to replace. So the critics had no way of comparing the F-35 sustainment number to anything. It turns out, by the way, that over the same fifty years it would cost three or four times as much to keep all the current stuff flying.

Now we have a second example of how difficult it is to forecast the costs of major defense programs over a long period of time. The Congressional Budget Office (CBO) just published its assessment of the U.S. Navy’s thirty year shipbuilding program. The CBO estimates that over the next thirty years the price of the Navy’s plan to build some 268 ships — everything from massive nuclear powered aircraft carriers and strategic ballistic missile submarines to the relatively small Littoral Combat Ship — will cost $94 billion more than the Navy’s cost estimates. What a scandal!

Of course, it turns out that the difference between the two estimates is based almost entirely on the methodologies the two organizations employed, particularly their assumptions. But having seen what happened to the Air Force over the F-35 cost estimates, the Navy took the unusual step of issuing its own detailed statement on costing. Among the points that the Navy made was that it is really hard to make accurate cost estimates the farther out in time one goes. A small difference in assumptions about future inflation rates can result in big variations in the estimate of total costs. Another point the Navy made was that it has a remarkably stable shipbuilding plan with all but one type of vessel — the SSBN(X) — already under construction. As it looks out in the future, the shipbuilders will gain advantages due to learning curve effects and stable supply chain relationships which will lower costs.

So, it turns out there is no big news in the stories of the cost growth in the F-35 or the Navy’s shipbuilding programs. In fact, the more that government tries to project these costs over long periods of time the sillier they become. Reading these reports and trying to figure out what assumptions have been made and what errors have crept into the analysis gives me a migraine.