Why Has the Cost of Navy Ships Risen?
Introduction
Over the past four decades the cost 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 rather than the 290 it now has. In this document the reason and the sources of the increase are investigated. The problem is also considered from the industry's point of view. Some options for the Navy to reduce ship costs are found.
In this document cost increase of four 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 class Cost in 1967 million $ Cost in 2005 million $ Cost Increase
%
Nuclear Attack Submarines $484 $2,427 401
Guided Missile Destroyers $515 $1,148 123
Amphibious Ships $229 $1,125 391
Nuclear Aircraft Carriers $3,036 $6,065 100
To organize analysis we divide sources of cost escalation factors into two groups.(economy driven and customer driven factors)
Economy driven factors: Largely outside of the control of government such as worker wages and indirect 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 costs
Since 1950 Naval ships costs have escalated at rate between 7-11 percent. However inflation over this period 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 components
CPI Component Annual Growth Rate (%)
Private transportation 2.4
Food and beverage 4.2
Gasoline 4.9
Medical Care 6.6
College Tuition 8.0
Cost escalation rates for Force ships
Ship Type Annual Growth Rate
Amphibious ships 10.8
Surface combatants 10.7
Attach submarines 9.8
Nuclear Aircraft carriers 7.4
Cost escalation rate can be measured by (cost2/cost1)-1
Generally we examine the annual growth rate = (year2-year1)ãcost2/cost1-1
We 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.
The U.S. Navy nurtured into a challenging power in the years previous to World War II, with battleship construction being revived in 1937, commencing with the USS North Carolina . It was able to add to its fleets throughout the early years of the war when the US was still not involved, growing production of vessels both large and small. In a conflict that had a number of amphibious landings, naval superiority was important in both Europe and the Pacific. The mutual resource...
***With the cost involved in building one U-Boat, five corvettes can be built, enough to escort a convoy in the Atlantic Ocean and outmaneuver a U-Boat.
Organizational cost drivers’ determine costs of a company by affecting the types of activities and the costs of activities performed t meet demand for a company’s product. Vroom’s has to consider its employees, supplier and equipment. These are the choices that concern vroom’s activities and the involvement of people that influence the business in decision making.
The United States of America has been involved in many different conflicts, foreign and domestic, popular and unpopular, spanning across four centuries and all corners of the globe. From the warm coastal waters of the American homeland to the atolls of the Pacific, from the winding inland rivers of Vietnam to the chokepoint at the Strait of Hormuz, American sailors have valiantly stood up to defend America’s interests at home and abroad. The Navy has had to continuously update its vessels and technologies in order to keep up with the rapidly changing times, and ensure we not only stay competitive with but surpass the foreign competition. No other period in history has undergone the swift technological evolution that our troops experience today, and outfitting our soldiers with the best equipment money can buy and the most up-to-date training must remain a top priority. As sequestration and budget cuts slash $487 billion from the Department of the Navy’s budget over the next 10 years, it is more evident than ever how detrimental these budget cuts can be on the sailors of today and tomorrow alike. Significant cuts to the Naval budget will jeopardize the readiness of our ships and sailors, impair our ability to maintain strategic assets ready for forward deployment in critical areas, and constrict our ability to acquire new and improved technology.
A few sailors in the Navy were builders, but the sole Military Occupational Specialty held by those men was Construction, which did not provide enough diversity in skills to make them very effective. Although contractors were the better option at the time, the contracting system was ridden with problems. Every contractor was required to reach a government-set qualification level before beginning work. Congress had to authorize every contract, and the payment type was decided on a case-by-case basis. Some contracts were unit-price payment, others were lump-sum, others were paid on a loan, and still other prices were calculated at the end of the project based upon man-hours, materials cost and similar factors (known as an informal contract, and was the most expensive of all contract types) (Bingham 77-80) Furthermore, every project was carried out using a predetermined amount of supplies, again negotiated with Congress. If more supplies were needed, the contracting business went through Congress to re-negotiate the contract for more supply
Environmental – External environmental factors are forces or trends that can affect a business whether it is an opportunity, threat, or constraint. They can be divided into three interrelated subcategories of remote, industry, and operating environments. The remote environment includes factors beyond a company’s operating situation such as the economic, social, political, technological, and ecological factors. The industry environment includes factors that have more of a direct influence on a company’s business such as entry barriers, competitor rivalry, the availability of substitutes, and the bargaining power of buyers and suppliers.
Carnival Cruise Lines was the most popular and most profitable cruise line in the world. In regards of threat of new entrants, it is very difficult to enter in the cruise industry. The competition ne...
The pricing process is dependent upon factors which can be categorized as internal and external factors. The internal factors include the factors that are within the control of the organization or the producer, whereas the external factors are influenced by the market or factors which are beyond the control of the producer.
Labor=> Although the influences of technology are drastically reducing costs of the labor required in manufacturing vehicles, there are still substantial labor costs in designing and making vehicles not to mention the labor costs of getting the technologies repaired etc...
$74.0 for 30 Virginia-class submarines to add to what is already the best and most up to date submarine force in the world
Gaining a substantial market power in the commercial aviation industry allows for significant impact on technological development, economic growth, employment, and national prestige (Carbaugh & Olienyk 2004). In 2010, more than any manufacturer sector, the value of aerospace industry shipment in the US accounted for more than $171 billion of civil aircraft and a trade surplus of more than $43 billion (Harrison 2011). Like any other industry, large commercial airplane industry gets affected by macro, endogenous, and exogenous factors. Several factors may influence the industry i...
The external factors can be divided into six broadly categories which are political, environment, social, technology, environment and legal (Johnson, 2005). Such external factors usually are out of the firm's control and sometimes present themselves as threats. In this case, political factor, environmental factor and technology factor will be used to analyse the computer technology industry.
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
Cost increases are most often out of the control of the affected firm. These increases are often caused by external factors relating economies and currency exchange changes. This is particularly true concerning fuel. Supplier relationships and negotiations that sour are often caused due to the rush and stress of acquiring materials; this results in rush decisions and brash attitudes that negatively affect the relationship. Pressure from senior management can also put undue rush on negotiations resulting in a less than favourable outcome.
Environmental factors affect an organisation in 2 ways. They set limits and pose threats and they also provide opportunities and challenges. A change in the government export policy may suddenly threaten an export oriented organisation. A reduction in the rate of interest may provide cheap finance to an organisation.