Investment cost escalation – an overview of the literature and revised estimates

Hove, Kjetil; Lillekvelland, Tobias

doi:10.1080/10242694.2015.1093754

Cited by 16 publications

(8 citation statements)

References 11 publications

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“…During the Cold War the intergenerational cost escalation for fighter aircraft was dramatic (e.g., Hove and Lillekvelland 2016). This was, for example, recognised in 1979 by the vice president of Martin Marietta Aerospace, Norman Augustine (2015), who by extrapolating budget and cost trends, made his famous statement that the US defence budget would in 2054 only suffice to buy one aircraft.…”

Section: Introductionmentioning

confidence: 99%

Changing Path and Curbing Cost Escalation: Lessons Learnt from the Gripen Case

Amann

2021

Defence and Peace Economics

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Extant theory suggests that paths of development, although identified as being unsustainable, might be difficult to depart from. The aim of this study has therefore been to explore and understand how a path change can be facilitated in a setting of complex product systems. A unique single case of product development that managed to curb an unsustainable intergenerational cost escalation for complex defence equipment has been studied. The study shows a relation between a path change and a challenging opportunity, and also indicates how this relation can be moderated by the company management and the customers. The study provides both theoretical and practical implications, supporting understanding and facilitation of path changes.

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Section: Introductionmentioning

confidence: 99%

Changing Path and Curbing Cost Escalation: Lessons Learnt from the Gripen Case

Amann

2021

Defence and Peace Economics

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“…Davies et al 2011). For example, a summary of seven studies shows annual intergenerational cost increases of 6-11% for fighter aircraft and another summary of six studies shows annual intergenerational cost increases for submarines of 3-9%, all in real terms (Hove and Lillekvelland 2016). These cost increases are based on a long run increase of costs over generations for these types of equipment and are not adjusted for any possible changes in characteristics between these generations.…”

Section: Introductionmentioning

confidence: 99%

Affordability Aspects in the Development of Defence Equipment: Case Studies of Concept Generation in the Defence Industry

Amann

Kihlander

Magnusson

2020

Defence and Peace Economics

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Cost escalation for many complex defence equipment is arguably not sustainable. Customer driven requirements have led to an exponential increase in costs by pushing frontiers of technology to support primarily incremental improvements of traditional equipment concepts. Accordingly, affordability has become a more discussed subject in defence acquisition. This paper addresses the process of generating complex defence equipment concepts. The purpose is to explore how affordability is managed in that process and to identify possible leads to how an unsustainable cost escalation for this type of equipment can be curbed. This is done by studying two cases of concept generation of future combat air equipment systems from a company process perspective. This applied micro perspective on cost escalation showed that none of the concepts generated in these two cases were assessed to curb the cost escalation. Further, the innovation model for the generated concepts, with only one notable exception, was incremental. Nevertheless, the empirical observations from these two cases offer leads on how to potentially foster a more innovative and affordability-oriented concept generation process for future defence equipment, as well as indicating avenues for future research.

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“…Here, it has been argued that one should not adjust for quality changes from one generation to the other since the new generation equipment provides 'the same military capability against an enhanced threat' (Kirkpatrick 2008). Such quality adjustments in defence specific indices are cogently discussed in Horowitz, Harmon, and Levine (2015) and Hove and Lillekvelland (2015) in this issue.…”

Section: Definitions Aim and Scopementioning

confidence: 99%

“…It covers contributions from diverse nations in both size and scope including Norway, Sweden, the United Kingdom (UK) and the United States (US). Key aspects of the inflation debate are covered in this special issue ranging from country specific experiences (Hartley 2015;Keating and Arena 2015;Nordlund 2015) to technical issues such as quality adjustment and price indexing (Horowitz, Harmon, and Levine 2015;Hove and Lillekvelland 2015).…”

Section: Organizationmentioning

confidence: 99%

“…While the Swedish article briefly presents the concept of tournament goods to describe the rising unit cost in military equipment, the article by Hove and Lillekvelland (2015) devotes a section to discuss relative effects and how the need to counter new investment by adversaries can lead to a technology race with significant impacts on ICE. Hove and Lillekvelland also provide a more nuanced discussion on ICE by articulating the difference between inter-and intra-generational cost escalation.…”

Section: Organizationmentioning

confidence: 99%

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