Pitfalls in Calculating Cost Growth from Selected Acquisition Reports

by Paul G. Hough

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Cost growth is a highly visible phenomenon in the procurement of major weapon systems. In general, cost growth is the ratio of a weapon system’s current estimate of cost to that of some earlier estimate. Thus, even given the same current estimate, different measures of cost growth are possible, depending on which prior estimate is selected as the baseline. Most studies of cost growth, however, select the cost estimate made at the time of program entry into full-scale development (the development estimate) as the baseline. Both the current estimate and the development estimate are normally taken from the Selected Acquisition Report (SAR), a legally mandated summary report on the status of major acquisition programs. This Note identifies and explains the type of cost data found in the SAR and reviews the history of the SAR with respect to cost reporting. In spite of changes that have improved the quality and comprehensiveness of the data in the SAR, it still presents difficulties for measuring cost growth. Among the most notable problems are failure of some programs to use a consistent baseline cost estimate, exclusion of some significant elements of cost, exclusion of certain classes of major programs, and constantly changing preparation guidelines. Nevertheless, the author concludes that SAR data are suitable for identifying broad-based trends and temporal patterns across a range of programs.

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