D. METHODOLOGY
6. Final Document
The final document must provide “a means for other analysts to reproduce our work” (Nussbaum 2014c) and must be understandable by non-engineers. The final document needs to make sense first and foremost, but like all estimates, it must be credible and reliable. The first two models discussed above failed to meet the reliability criteria. The first model used average cost (instead of ) and the second leveraged data
5 (After Labs 2008; NavSource Naval History n.d.; United States Navy Fact File 2013a; United States Navy Fact File 2013b; United States Navy Fact File 2013c).
from platforms which did not have similar characteristics as the envisioned SSC (it used capital shipping data). In order to ensure the decision maker has credible and reliable data, model three utilizes combatant platforms that most closely resemble the concept of the SSC. The analogous ships for this revised study includes: the Oliver Hazard Perry class frigate, the Freedom and Independence class LCS, and the Egyptian Ambassador Mk III. The United States builds the MK III and is very close in specifications to the proposed SSC. As a result, the MK III will also serve as a benchmark in the evaluation of the final cost analysis. The revised characteristics are outlined in Table 28.
Class Displacement T1 Cost
(in FY2014$)
Oliver Hazard Perry Class Frigate 4100 $ 1,142,600,000
Freedom Class LCS 2617 $ 699,800,000
Independence Class LCS 2771 $ 773,400,000
Egyptian Ambassador MK III 490 $ 322,500,000
Table 28. Further revised small surface combatant ship displacement versus cost in FY2014$.6
With this new data outlined in Table 28 and Figure 42, we determine the best-fit cost using an estimating relationship with the following equation:
COST=$179, 667, 412.14 $222, 452.43*+ DISPLACEMENT. (7) Initial results are shown in Figure 42.
6(After Global Security 2014a; Naval Sea Systems Command 2012; American Maritime International 2010; Labs 2008).
Figure 42. Final SCC T cost versus displacement FY2014$. 1
The expected cost for a SSC with a displacement within the range of 600 to 1500 long tons is shown in Figure 42. The possible displacement trade space is a narrowed down to this range because of information gathered in the initial stakeholder interviews and logistics analysis. The stakeholder analysis revealed a desired displacement of 600 long tons (lower bound). The logistics analysis discovered a significant improvement in on-station time for 1500 long ton SSC versus a 600 long ton SSC and thus resulted in the 1500 long ton as the upper bound. The determined upper and lower bounds are shown in Figure 43.
Figure 43. T cost versus displacement in FY2014$. 1
The estimated trade space is between $183 million (600 LT vessel on the lower bound line) and $513 million (1500 LT vessel on the higher bound line). Figure 43 only includes models #1 and #3 because model #2 did not provide relevant cost data.
Additionally, results from M&S help to determine that 15 is the desired number of small combatant ships needed to win the proposed scenario in the South China Sea (SCS). In addition to the 15 required, risk, presence and deterrence are significant in the AOR and must be considered as well. In accounting for externalities and other combatant commander requirements, we determined 30 to be a safe estimate of the requirement for these ships in the SCS.
Also applicable in this final analysis is the 2014 Quadrennial Defense Review (QDR) guidance, which states the following:
If deterrence fails at any given time, U.S. forces will be capable of defeating a regional adversary in a large-scale multi-phased campaign, and denying the objectives of – or imposing unacceptable costs on – a second aggressor in another region (Hagel 2014).
As stated in the QDR, the proposed fleet must be able to win a conflict in the South China Sea while also maintaining a significant advantage with a second aggressor in another region. This number (45) is determined by assuming the required fleet size in the SCS is 30 (the number required to defeat a regional adversary in a large scale fight as discussed above in the QDR quote) and an additional 15 additional SSCs are required to deny a second aggressor elsewhere. The SSC construction learning curve is in Figure 44.
Figure 44. Expected learning curve for the construction of the SSC in FY2014$.
Next, the model can estimate the total cost of a program by estimating the lot cost in Equations (8) and (9) (Nussbaum 2014a) as follows:
( )
1b( )
2 b( )
b N1 b,N x
CT = A +A +A N = A
∑
= x (8) where CTN is the total cost of a lot size of N units, A is the cost of the initial unit constructed, and b is a learning curve. This function is estimated by:
2 1
2
1 ,
b N
CT AN b
+
≅ + (9)
with values A=$513 million and b2 =ln
( ) ( )
b ln 2 =0.23446. Using Equation (9) the proposed 45-ship program total acquisition cost is $18,821,844,898 or approximately$18.8 billion.
The next step is to estimate the annual per ship O&S costs by category. Utilizing the same ratios of the cost for the LCS, we determine using the model the expected cost of the SSC for each of the O&S categories. Figure 45 contains the associated percentage of each cost category as a function of total O&S cost. This information is outlined to create a further trade space for follow-on study.
Figure 45. Operating and support costs by category for the proposed SSC FY2014$.
This study assumes a 20-year service life as outlined in Chapter VI Section C starting in 2014 and also an expedited shipbuilding plan of five craft per year (based on an average of four and one half per year to meet the 2025 deadline), the expected 10-year O&S cost for the program is estimated to be roughly $167 million per ship. The annual O&S breakdown for the SSC is contained in Table 29.
Small Surface Combatant O&S Cost by Category per year
(in FY2014$) Table 29. Ten-year per ship O&S calculations (after Naval Sea Systems Command
2012).
Finally, we aggregated these figures across the proposed 45-ship program the total cost of acquisition is $18,821,844,898 (approximately $18.8 billion for 45 ships) and the total O&S cost of a 45-ship program for 10 years of operation is $ $12,312,823,066.
Additional considerations include an estimated disposal cost of $1,974,279 ($21.2 million) per ship or $ $88,707,543.22 ($88 billion) for the 45-ship program.
This total estimated cost for the entire 45-craft SSC program at $31,223,375,507 (roughly $31 billion) in FY 2014$.