Why Has The Cost Of Navy Ships Risen? :: Military Government Spending

Why Has the Cost of Navy Ships Risen?IntroductionOver the past quadruple decades the exist of navy ships has exceeded the rate of inflation. Although navy increases the budget from $10 billion to $12 billion, they will achieve a fleet of 260 ships by the year 2035 quite an than the 290 it now has. In this document the reason and the sources of the increase argon investigated. The problem is also considered from the industrys point of view. Some options for the Navy to reduce ship cost are found.In this document cost increase of iv types of ships- nuclear attack submarines, guided missile destroyers, amphibious ships and nuclear aircraft carriers is noted. Generally we consider these four ships as a whole.Cost escalation of naval ships Ship classCost in 1967 million $Cost in 2005 million $Cost Increase % atomic Attack Submarines$484$2,427401Guided Missile Destroyers$515$1,148123Amphibious Ships$229$1,125391Nuclear Aircraft Carriers$3,036$6,065100To organize analysis we divide sour ces of cost escalation factors into two groups.(economy driven and node driven factors) economy driven factors Largely outside of the control of government such as worker wages and collateral labor cost, and material equipment cost.Customer driven factors are factors that the customer directly influences. Customer driven factors include elements the government wants on a ship.The most important problem from shipbuildersf perspective is their main customer governmentfs fluctuating demands. The growth of ship costsSince 1950 Naval ships costs have escalated at rate between 7-11 percent. However inflation over this achievement ranged from 4-5 percent. To observe the inflation we can look at CPI (consumer price index) CPI is the best known measure of changes in consumer prices. This index measures price changes to a sample of typical consumer goods.Annual growth rate of some CPI componentsCPI ComponentAnnual Growth Rate (%)Private transportation2.4 pabulum and beverage4.2Gasoline 4.9 Medical Care6.6College Tuition8.0Cost escalation rates for Force shipsShip TypeAnnual Growth RateAmphibious ships10.8 come near combatants10.7Attach submarines9.8Nuclear Aircraft carriers7.4Cost escalation rate can be measured by (cost2/cost1)-1 Generally we examine the annual growth rate = (year2-year1)cost2/cost1-1We divide sources of cost escalation factors into two groups.Economy driven factors Largely outside of the control of government. Economy driven factors may include worker wages and benefit costs, labor productivity, indirect labor cost, and material equipment cost. These factors affect all shipbuilding programs uniformly. Labor constitutes between 32 and 51 percent of the construction costs for the ships we analyzed. Equipment cost range from 35 to 57 percent of construction costs for the ships we analyzed, material cost range from 11 to 17 percent.