Weapon System Cost Analysis in the Canadian Armed Forces

Cost estimation in defence is a primary management tool employed to assist decision-makers in evaluating resource requirements at key project milestones in the acquisition process. The institutional reason for defence cost-analysis is to inform decision-makers of the costs, benefits and trade-offs which are involved in their decisions. The central problem facing defence cost analysis is how to develop and apply concepts and strategies to assess the economic cost and alternative future approaches under conditions of uncertainty. While this does not significantly reduce the risk inherent in a defence acquisition program, it does help decision makers “understand the nature of the risks involved in order to develop effective mitigation strategies.”1 When Canadian governments are faced with significant budgetary deficits and resort to cost reduction measures, defence – as the largest “discretionary spending category”2 – customarily shoulders the biggest funding reduction. This results in multi-year impacts on the overall planned military capital equipment program. The resulting resource constraint problems in national security are discussed in the first section of this article. The second section describes the distinguishing features of the defence cost analysis framework, the evaluation of the procurement of a new weapon system, and the importance of understanding life cycle costs. The third section considers the trend in increasing life cycle costs, and concludes with consideration of life cycle and procurement trade-offs as a critical enabler of effective defence resource management. TOP OF PAGE The Resource Constraint Problem in Defence “Hard power such as military capability is important and will become more so with geo-economic shifts. But it takes time to build.”3