An Enterprise Model of Rising Ship Costs: Loss of Learning Due to Time between Ships and Labor Force Instability
Since the end of the Cold War, the perceived need for Navy ships has dropped, and so the shipbuilding budget has dropped. Seemingly coincidental with this budgetary pressure, and perversely aggravating the problem, ship costs began to rise steeply. We will set aside that ships have grown in weight by about three percent per year since World War II, and that ever-more weapon systems are being put into them, and confine ourselves to discussions of costs rising for ships beyond the increase in “content.” We will also set aside rises due to commodity prices and inflation and that fewer ships, divided among a fixed industrial base, reduce the base for overhead and reduce opportunity for the effects of quantity-driven learning; these effects are well understood, and yet cost growth in ships exceeds that which they explain. This paper will show two additional effects, each of which causes ship direct labor to rise in a way that has never been adequately modeled. The paper will demonstrate, via a statistically significant model, cost growth from loss of learning due to increased time between ship starts and from the lessening of efficiency due to inexperienced labor caused by fluctuating demand.
Richard L. Coleman is a 1968 Naval Academy graduate, received an M. S. with Distinction from the U. S. Naval Postgraduate School and retired from active duty as a Captain, USN, in 1993. His service included tours as Commanding Officer of USS Dewey (DDG 45), and as Director, Naval Center for Cost Analysis. He has worked extensively in cost, CAIV, and risk for the Missile Defence Agency (MDA), Navy ARO, the intelligence community, NAVAIR, and the DD(X) Design Agent team. He has provided cost estimating support on numerous ship programs including DD(X) (now DDG 1000), the DDG 51 class, Deepwater, LHD 8 and LHA 6, the LPD 17 class, the Enhanced Patrol Craft Demonstrator, Virginia class submarines, CVN 77, CVN 21 Construction Preparation, CVN 78 as well as for Hurricane Katrina damage and Business Interruption analysis. He is now the Director of the Cost and Price Analysis Center of Excellence and conducts Independent Cost Evaluations on Northrop Grumman programs. He has more than 60 professional papers to his credit, including six ISPA/SCEA and SCEA Best Paper Awards and two ADoDCAS Outstanding Contributed Papers. He was a senior reviewer for all the SCEA Professional training course (CostPROF) modules and lead author of the Risk Module. He served as Regional and National Vice President of SCEA and is now Director of Research.
Jessica R. Summerville graduated with a B.A. in Mathematics from the University of Michigan in 1994. She received an M.S. in Operations Research from the College of William and Mary in 1995. During her Masters program, she worked as a Programmer/Analyst at SAIC in support of NASA programs. She was Manager of the Risk and Cost Analysis Department and worked mainly in the areas of cost and risk analysis. She currently supports a major government customer doing statistical analysis and Operations Research modeling. She has led multiple projects in support of several different customers, including the Missile Defense Agency (MDA), NAVAIR, intelligence community projects, and the DD(X) Design Agent team. She has supported numerous ship programs including DD(X), the DDG 51 class, Deepwater, LHD 8 and LHA 6, the LPD 17 class, Virginia class submarines, CNN 77, and CVN 21. In addition, she authored the regression analysis module for CostPROF, the official Society for Cost Estimating and Analysis (SCEA) training course, and was a key player in developing several other modules. She is an author of over 30 papers including two SCEA Best Paper Awards and an ADoDCAS Outstanding Contributed Paper.
Bethia Cullis is an Operations Research Analyst at Northrop Grumman IT. She is currently the Program Manager for all Independent Cost Evaluations (ICEs) required by NGIT, NGNN, NGSS and NGTS. In addition to her ICE work, Ms. Cullis has supported numerous ship programs including DD(X), the DDG 51 class, LHD 8 and LHA 6, the LPD 17 class and CVN 21. Before joining Northrop Grumman in 2004, Ms. Cullis completed her undergraduate degree in Economics and English at Case Western Reserve University. She also worked as an analyst for Newry Corporation, a competitive consulting firm in Cleveland, OH.
Eric Druker graduated from the College of William and Mary with a B.S. in Applied Mathematics in 2005 concentrating in both Operations Research and Probability & Statistics and a minor in Economics. Over the past two years he has been employed by Northrop Grumman as an Operations Research Analyst. He performs cost and risk analysis on several programs within both the Intelligence and DoD communities. Mr. Druker has also worked on high profile projects such as the Virginia Information Technology Agency and the United States Army Corps of Engineers (USACE) proposals. He was a recipient of the 2005 NGIT President’s award for his work on several high profile Independent Cost Evaluations during which he helped to develop the risk process currently used by NGIT’s ICE teams. He has also performed decision tree analysis for NG Corporate law and built models for Hurricane Katrina Impact Studies and Schedule/Cost Growth determination.
Gabriel B. Rutledge graduated from Louisiana State University in 1999 with a B.S. in Industrial Engineering. He worked as an Industrial Engineer and Cost Engineer for Northrop Grumman Ship Systems (NGSS) for over six years. In his time with NGSS he supported the DD(X) (now DDG 1000), DDG 51 class, LHD 1 class, LPD 17 class, American Classic Voyages Cruise Ship, Searex, and Sealift programs. He was a recipient of the 2004 NGSS President’s Award for his cost estimating work on the DD(X) Composite Integrated Deckhouse and Apertures Project. For the past two years, he has worked for Northrop Grumman Information Technology as an Operations Researcher. In his time with NGIT he has served as a program manager for NGIT’s proposal support efforts on LPD and LHA 6 class contract extensions. He was a recipient of the 2005 NGIT President’s award for his work on several high profile Independent Cost Evaluations. He now works on intelligence community projects dealing with satellite space and ground systems.
Peter J. Braxton holds an AB in Mathematics from Princeton University and an M. S. in Applied Science (Operations Research) from the College of William and Mary.
He has worked to advance the state of knowledge of cost estimating, Cost As an Independent Variable (CAIV), Target Costing, and risk analysis on behalf of the Navy Acquisition Reform Office (ARO), the DD(X) development program, and other ship and intelligence community programs. He has co-authored several professional papers, including ISPA/SCEA International Conference award-winners in CAIV (1999) and Management (2005). He served as managing editor for the original development of the acclaimed Cost Programmed Review Of Fundamentals (CostPROF) body of knowledge and training course materials and is currently undertaking to lead a large team of cost professional in a comprehensive update thereof. He serves as SCEA’s Director of Training and was recently appointed a Northrop Grumman Technical Fellow.