Monday, 16 April 2012

TAC and the choice of fighter jets

We all know the theory of calculating Total Acquisition Costs but anyone in the real world also knows that when you get down to practice predicting future costs is a bit harder than the theory.

The latest saga in the fighter jet and aircraft carrier saga provides a good case study. Rather than the preferred option being 25% lower,  MOD are now faced with the cost of justifying an increased upfront cost of £1.8bn, as opposed to the previously predicted £400m.  That's quite a difference and I'm sure many of you ask, 'How could your calculations be so far out?'  Getting the predicted figures wrong is understandable but making the wrong choice somewhat harder to justify.

If you were asked to calculate TAC for a fighter jet you may well have done a comparison of the alternatives and really looked at running costs, maintenance costs, etc., but would you have included the additional costs of

  • the cost of being without a fighter capability for a few years;
  • restricted choice of the aircraft carriers you could land on owing to the need, and cost, to fit additional landing equipment;
  • the cost of being the first to try new equipment which is therefore likely to include refinement and development costs;
  • the cost of strengthening an aircraft carrier deck as the fighter jets are too heavy to land on some decks;
  • additional training costs for ground crew;
  • incompatibility with the French aircraft carrier;
  • pilot training.
Heaven knows what other costs.

The big lesson from all this is to try and look as widely as possible at cost drivers when completing a TAC comparison.

Yes, calculating TAC is easy in theory but a lot harder in practice as the MOD have just discovered.  Fortunately MOD advisers appear to have spotted the differences before it's too late, let's hope their masters have the confidence to accept the need for another U-turn.

If some of this sounds familiar it may well because we've had previous discussions on fighter jet procurement.  Remember our discussion on the UK government bidding to sell Eurofighter jets to India and the belief the Indians were picking the more costly option to the detriment of the UK consortium bid.  Then we had the Indian procurement team falling out over comparative offers and concerns about validating costs. If we can get the TAC wrong for our own procurement, is it just possible others could and even we could make an error in calculating a competitions cost model?  As we've said before numbers can lie.

Background reading:
Toghla, T. (2012), 'Military tells Cameron to retreat over new jets', The Times, 16 April

No comments:

Post a Comment