2013-LC01

Can DoD Inflation Indices and Discounting Processes Be Improved?

Life Cycle Cost Track 

LC-1_Presentation_CanDoDInflationIndices&DiscountingProcessesBeImproved_Connor

LC-1 – Presentation – Which Escalation Rate Should I Use

LC-1 – Handout – Which Escalation Rate Should I Use

Abstract:

Currently the DoD is facing an uncertain budget environment. This will have an impact on what the DoD can spend for acquisition programs and sustainment of major weapons systems. Current practices for inflation and discounting skew program affordability, especially during operations and sustainment. In this presentation, we look at how well current inflation indices and discount rates serve programs today and whether there are strategies to improve the accuracy of these estimates.
After examining the experience of several major weapons systems we have identified potential policy changes and strategies for cost estimators to employ on inflation and discounting. We believe that these can improve a program’s understanding of long run affordability and potential risks associated with inflation and discounting.

Author(s):

Kathryn Connor
RAND Corporation
Kathryn Connor is a cost analyst who joined the RAND Corporation in 2009. Since then, she has worked in the RAND Arroyo Center, the RAND National Defense Research Institute, and RAND Health. Her research has included the development of cost models for analyzing cost effectiveness, informing cost policy, improving property accountability metrics, assessing operations and sustainment of weapon systems, and understanding the cost implications of applying robotics to Army missions.
From 2007 to 2009, Connor was the director of the Greater Oakland Keystone Innovation Zone where she supported technology based economic development. Previously she was a research fellow at LMI. She earned her B.A. in economics and international studies from Baylor University and her M.P.P. with a focus on economic analysis and defense from University of Chicago. She is a certified cost estimator/analyst with the International Cost Estimating and Analysis Association.

James Dryden
RAND Corporation
Jim Dryden has been a weapon system cost analyst since 1970. He has worked for the following organizations addressing system cost issues:
1970 -1974 US Air Force Space Programs
1975-1980 RAND Corporation Space and Avionics
1981-1986 TRW Space & Technology Group Manager, Cost Modeling
1987-1996 US Government Strategic Defense Initiative Organization Director, Cost Estimating
1997-Present RAND Corporation Defense System Costing
Jim graduated from the US Air Force Academy in 1969 with a degree in Aeronautical Engineering, and holds a Masters degree in Engineering Economics from UCLA.