Saturday, February 21, 2015

Service Life Value

Here’s a cursory look at the cost of some ship classes relative to their expected service lives.  I’ve tabulated the cost of the ship, the expected service life in years, and the calculated “value” expressed as the number of years of service that each billion dollars buys.  Hence, the greater the number, the more”valuable” the ship is in terms of service life.  Some of the cost numbers are highly debatable, the Nimitz class being an example because the class was spread over so many years and changed so much, but they serve to illustrate the concept.

Class    Cost, $B Yrs   Value (yrs/$1B)
LCS        0.6     20    33.3
Burke      2       30    15.0
Nimitz     6       45     7.5
America    6       35     5.8
Ford      13       50     3.8
Zumwalt    8       30     3.7

We see that the LCS far and away leads the pack.  It’s a good value for service life.  At the other end, the Zumwalt and Ford are the poorest values.  Is it coincidence that the newest construction represents the poorest value or is it telling us that our program costs are getting out of hand?  I think it’s clearly the latter.

Our programs are getting more expensive on a relative basis and I believe the two biggest reasons are overhead related to build numbers and concurrency.  We’ve covered this in previous posts (see, "Shipbuilding Costs - Impact of Low Volume" and "Concurrency - Building Without a Design!").

Now before you all start pounding out replies, this little analysis is only for service life.  It does not take into account operational value.  Thus, while the LCS represents great service life value, it has no operational value and is an overall major disappointment.  The Zumwalt, which is a poor service life value, may well turn out to have little operational value – a double negative value!  On the other end of the spectrum, the Ford, with a poor service life value, may turn out to have a very good operational life value – it remains to be seen.

Take this for what it is – a simple ranking with an interesting underlying concept.  Don’t get worked up about the actual numbers. 

23 comments:

  1. All reasons for the Navy to build a good low-medium-high mix of vessels. The medium (real FFGs and DD/DDGs) provide the best service life value trades...too bad the U.S. has not embraced this recently. They did it like gangbusters in the 70's and 80's.

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  2. Good perspective. I have found it useful to turn the equation around the other way and divide cost by year to come up with what is the annual cost to construct one of each ship type. Those numbers would be LCS $30 million, Burke $67 million, Nimitz $133 million, America $171 million, Ford $260 million, and Zumwalt $267 million. Then if you are interested in playing the fleet size and composition game, you can take your assumed procurement spending level and see how much each type consumes and how fast the money runs out. If you assume the shipbuilding budget to be $15 billion going forward and you want a 300-ship Navy, then the average cost/year per ship needs to be $50 million. That means your average ship needs to be a better value than a Burke. That seems to scream pretty strongly for some kind of high/low mix procurement strategy.

    You have the tradeoffs quantified. For each Zumwalt, you can have 4 Burkes, which is the better value? A Burke is 2 LCS's, which is the better value? Two Fords are 4 Nimitzes, which is the better value?

    Of course, these sorts of rough calculations need to be refined to reflect actuals (in the case of the Fords that may be difficult) and adjusted for effects of such things as inflation, but they still provide a useful guideline.

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    1. Agreed. I have a bunch of spreadsheets devoted to playing the fleet composition game.

      Here's my template, with the Navy's desired fleet, the New Navy Fighting Machine fleet, and Capt. Hendrix's "355 ship" fleet he described in the Proceedings (IIRC) a while back.

      https://docs.google.com/spreadsheets/d/1hRAo7G3k5Xoq1L26iMi1fjpxFch5sRKrW7ZffuPFlrI/edit?usp=sharing

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    2. This analysis is missing O&M cost, which typically is 2-5 times the procurement cost of a system.

      GAB

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    3. Everyone, this was not an in-depth analysis - just an interesting and cursory glance at construction costs versus service life. There's nothing deep and meaningful to be gleaned from this!

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    4. Smitty,

      Actually to give credit where credit is due, I got my approach from your spreadsheets, so you are the one who should take credit.

      Almost any permutation of a reasonable submarine force runs $6-7 billion a year (both because boats are expensive and because submerging and surfacing puts additional strains on hulls that shortens life), and any kind of reasonable carrier force runs $2 billion/year, so if you're looking at $15 billion/year, then there goes over half of it. 100 C/D/F surface combatants (Burke, CG(X), LCS) will burn about $4 billion/year, 30 amphibs of various flavors burns another $2 billion, and 30 auxiliaries about $400 million a year. That's pretty much your navy.

      So 10-12 carriers, 60-80 subs, 100 surface combatants, 30 amphibs, and 30 service force ships is your navy. 230-250 ships.

      Here's what I'd do. The trick to having a powerful military for a lower cost is to keep a large portion of that military at lower level of readiness in peacetime. That active duty sailor who costs you $120,000/year costs only about a quarter of that, or $30,000, if he's a reservist. So replace 50,000 active duty slots with 100,000 reserve slots and you save (50,000 x 120,000) - (100,000 x 30,000), or $3 billion. That gives you 20% more to spend on procurement (not considering the cost savings resulting because O&M costs probably go down roughly proportionate to personnel costs). Stretch that out further by going with a high/low (or high/middle/low) mix procurement strategy. You can get some decent hardware by lengthening out buys of several European classes--Spanish F100/F105, French/Italian Horizon and FREMM, Norwegian Nansen, Danish Absalon, Swedish Visby. Buys will increase the amortization base for sunk costs, but we would probably want to upgrade DC configuration of merchant standard designs, so probably we are looking at slightly more than what the Euros are paying for theirs. Don't do like we did with the Lericis a few decades ago and take a 500 ton design and "adapt" it to a 1500 ton class. Do some design to cost to keep a lid on things.

      Here's a thought about employment. Let's say you have a 10 ship class. You're probably going to have 1 in a heavy maintenance availability at any time. As they come out of maintenance, put them initially in reserve status, with about 1/2 full time crew and two reserve crews for the other 1/2 each. Then crew them up to 100% and move them to home fleet status. Finally deploy them for a couple of years around the world. Have basically 1/3 of your ships in each group--for our 10 ship class, 3 in reserve, 3 in home fleet, 3 deployable. For crewing use a version of the 4:3:1 approach. You'd have one crew (actually half a crew on active, plus a full crew in reserve) for the reserve ships. Then have 3 crews for the combined home/deployed two ships. Rotate crews each 6 months, so at any time you have one deployed crew, one operating in home waters (maybe short trips out of area), and one kind of like the off crews on the boomers, doing schools/training or taking leave or going through team trainers and the like.

      Those are some ideas. Whatever, we cannot stay on the current course or we'll end up with too few ships.

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    5. CDR Chip,

      Good ideas: the challenge is the USA has not done a good job of preparing reservist for front line service in combat (look at Korea even the marines were guilty of sending unprepared people into combat).

      On the other hand, the Germans are (or at least were) very good at using reserve forces to expand their armed forces because they insist(ed) on very tough, very realistic, and complete training at the individual and unit level. The German Army was less prepared than the French and English when the war started, but they used the "phoney war" period to prepare for France see:"The Blitzkrieg Legend: The 1940 Campaign in the West" by Karl-Heinz Frieser.

      GAB

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    6. CDR Chip,

      I'm still trying to grasp the ramifications of your plan.

      Questions:

      1) If you only have 3 out of 10 ships active, would only one out of ten be deployed at any one time, using the 4:3:1 rotation? This would be a large drop in forward presence, assuming an overall increase in numbers didn't compensate. I suppose that is part of the plan. A strategic pull back would have significant ramifications, that may outweigh any benefits of a larger Navy.

      2) Can the Navy really expect to transfer funds saved by retiring sailors or moving them to reserve status directly to procurement? We seem to have a veritable war with Congress every time BRACs are mentioned, or any cuts in end strength are contemplated. One would think cutting 50,000 active duty sailors would demand BRACs. Reservists don't need the same level of basing support. And even if Congress goes along with reducing end strength, can the Navy realistically expect to shift that money to procurement? My guess is relevant committee members will see savings and apply it to their favorite pet projects.

      It would be an interesting conversation to have, though.

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    7. GAB/Smitty,

      Thanks for responding. I'm basically throwing out ideas to get the kinds of comments you provided.

      To respond to both, this would be a significant change in concept of operations and much better reserve training would be key. As I said, the Swiss, Swedish, and Israeli models should provide some guidance.

      As for the employment of the 10 ships, I should probably clarify a bit. I'm assuming that out of 10 you would have one in major maintenance at a time. That might be a bad assumption, you might have two or more in major maintenance, but that would mean adjusting the other numbers to accommodate, and I have taken the case of one to work out the rest for now. I'd do like the Brits and take the ship legally out of commission during the major maintenance phases. I'd bring it back into reserve status with half a regular crew and two half reserve crews. The extra half crew would be a manning source for other ships if needed in a crisis. Have 1/3 of the non-maintenance ships do primarily local ops in this status, probably for about three years. Then fleet up the manning to 100% and move them to full active but non-deployed status. In this mode they would take local assignments, maybe some short trips out of area (like an east coast ship taking a short trip to the Caribbean or a west coast ship to Canada or Mexico), but mostly local/coastal ops. After roughly three years there, move to deployed/deployable status, take one or maybe two long deployments, with two crews alternating while deployed. So opuit of our hypothetical 10-ship class you'd have basically 1 ship in maintenance (out of commission, skeleton crew) 3 ships in reserve (half active crew, 2 separate blue/gold reserve half crews), 3 ships active non-deployed (1 crew each), and 3 ships in deployed/deployable status (2 crews each). So it's kind of a (3-1/2 active + 1 reserve):3:1 or 2 status. Hope that clarifies. But to repeat, that's just a concept, it probably needs a lot of refinement, but I think it's at least a conversation starter.

      As for your second question Smitty, again we're talking a whole paradigm shift in employment and operations, and I think those are the kinds of questions that would be answered in the concept development. At least I think the numbers could be made to work.

      I think the real problem is that there really isn't a plan. Good or bad, this would at least be a plan that I think could work. It's a start, not a finish.

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    8. Still trying to understand. For 10 ships in a class,

      1 x Refit - skeleton crew
      1 x Reserve - 1/2 reg crew, 1 reserve crew (blue/gold)
      1 x Reserve - 1/2 reg crew, 1 reserve crew (blue/gold)
      1 x Reserve - 1/2 reg crew, 1 reserve crew (blue/gold)
      1 x Home Fleet - 1 reg crew
      1 x Home Fleet - 1 reg crew
      1 x Home Fleet - 1 reg crew
      1 x Active Fleet - 2 reg crews
      1 x Active Fleet - 2 reg crews
      1 x Active Fleet - 2 reg crews

      So for 10 ships, you need 10.5 regular crews, six reserve half-crews and 1 skeleton crew. That's more than just having one regular crew per ship.

      Does that sound right?

      Or did you mean have a total of three half crews for the reserve ships? That would bring the numbers down to 9.5 regular crews, 2 blue/gold reserve half crews and 1 skeleton crew.

      Of the 10 ships, some number of the "Active Fleet" ships are operational and forward-deployed. Presumably, since they have two crews each, they can be kept at sea more often during their "Active Fleet" period. How much more is difficult to say. Ships will still have to have some time for training and maintenance.

      I'm still concerned about the impact to forward presence. Today, if we have an turnaround ratio of 3:1 (6 months deployed out of an 18 month cycle), it takes around 5 ships, homeported in the US, to keep one on station in the Med due to transit times. If we reduce the turnaround ratio to 2:1 (owing to having more than one crew available), we still need 4 ships to keep one on station. With only 3 ships out of 10 in the Active Fleet, assuming all are home ported in the US, how many can be kept on station? Less than one? One?


      According to this doc, surface combatants spend about 7.7% of their lives in major overhauls, so your 1 out of 10 is probably high.



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    9. "this doc" being this doc,

      http://www.gao.gov/archive/1997/ns97057.pdf

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    10. Smitty,

      Thanks, your table lays it out more clearly than I did.

      As for the major maintenance question, one principle is that we would be stretching ship lives with among other things better maintenance, so if 7.7% is the number now, then 10% might very well be the number needed. I almost tend to think that's maybe a bit low rather than high, and that would of course impact the numbers a bit.

      As for the employment question, it might help to adjust the descriptions a bit. Change Reserve to Reserve/Home, Home to Active-Nondeployed, and Active to Active-Deployed/Deployable. The active/non-deployed pool would function pretty much like non-deployed ships do today. With that in mind, I believe the appropriate pool for applying the 3:1 turnaround ratio would be six ships, resulting in two deployed at any time.

      And that's about the way I see it. I would envision a ten-year cycle, with about three years in each operating phase. I would see most deployments as being two years duration, going around the world, returning home via Panama or around the Cape, with about 6 months each in WestPac, the IO, and the Med/Europe. So in the deployed/deployable group you would end up with two ships deployed and one at the ready.

      I agree with your crew numbers (10.5/6). The extras could be your surge pool.

      It's a different operating concept. There are issues to work out, but this is kind of a framework. More and better use of reserves and of the high/low mix, particularly the low end, seem to me to be keys to maintaining greater readiness with limited bucks.

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    11. Thanks CDR Chip,

      I think I understand now.

      The 7.7% was just major overhauls, I think. Ships still go through regular maintenance in their 3:1 operating cycle.

      3:1 with six ships results in two deployed, but only one-plus on station, due to transit times. Even shrinking to a 2:1 cycle with two crews (possibly not a great idea due to reduced time for maintenance), you still can't keep two ships on station with six ships. You need eight.

      Now if you combine this with home porting abroad, you could get two on station with six ships, possibly even three, with two crews per ship.

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    12. Chip/Smitty, what's been bypassed in this discussion is needs. If all we want is the largest possible military for the least cost we should put every asset in inactive status and have no active duty personnel. We'll just gear up when the need arises. On paper that maximizes our power and cost values. In reality, if a need arises, we'll have lost long before we can gear up.

      So, before begining planning for an optimized active/reserve force structure you need to ask and answer, what does the naval force need to do in both peace and war? Coming up with some optimized deployment ratio is pointless if it doesn't result in sufficient deployed ships to meet the needs.

      What are our naval needs? Well, that's tough to answer without a coherent geopolitical strategy. Setting that lack aside, how many ships and of what type do we need to meet our ill-defined needs in the Pacific? The Middle East? And so on. Answer that first, then work backward on optimizing deployments.

      Regarding active versus reserve personnel, how do you propose to keep reserve personnel trained up to warfighting standards? Our current active duty force is woefully insufficiently trained for combat. How will we keep reservists trained? The days of throwing bodies in the engine room or on simple guns is long gone. ASW personnel need to practice ASW IN THE FIELD on a continuous basis or their skills atrophy (witness our ASW shortcomings now). Aegis technicians require years of training and constant practice and upgrades of their skills. Officer tactical training is a never ending requirement that our current force has allowed to dangerously degrade. And so on.

      Finally, outside of the SSBN force, crew swapping has, historically, failed completely, resulting in massive maintenance issues due to lack of ownership. Crew swapping is great on paper and a failure in reality.

      Your ideas may have merit but you need to rework them starting with the end needs and working backward. How many ships and of what type, need to be forward deployed? Don't forget logistics ships! Figure out the force structure you need deployed and then figure out your cycles and whatnot.

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    13. gree absolutely that mission requirements should drive things, and right now that element seems to be missing in the Navy, and indeed DOD as a whole. I was bypassing the issue in my discussions because my focus was to define some possibility parameters. The issue needs addressing, but first I’d like to respond quickly to a couple of your points.

      First, yes the reductio ad absurdiam idea of keeping nothing in active status would obviously minimize costs but leave no capability. I intentionally cited Israel (active 176,000/reserve 565,000), Sweden (20,000/200,000), and Switzerland (25,000/175,000) because they are making it work in varying threat environments and have obviously found workable tradeoffs between cost and readiness. With our worldwide presence requirements, we would need a greater number of actives. But the principle is sound, others are making it work, and so can we.

      As for keeping reserve personnel trained up to warfighting standards, the first point is that as you noted, we’re not up to warfighting standards in a lot of areas in the active force now. So we need a new concept anyway. And a lot of it is funding. My three-tier force (active-deployed, active/non-deployed, and reserve/home) should actually free up more funding to train the active components harder. The reserve ships would spend about 5 days a month at sea (2-1/2 with each reserve crew) and that’s not much less than actives are getting now. If you had a reserve sub in every port where you had reserve surface units, and they did combined training evolutions twice a month, you would probably end up with more ASW capability (at least more ping time) in the reserve force than you have in the actives now.

      As for crew swapping, seems to me that that the critical question is to identify why it works for the boomers and fails elsewhere. I would bet that a lot of the difference is in level of commitment to make it work. It has to work for the boomers, whereas everybody else has just been fooling around with it. Make it something that would have to work, and it would work.

      As for starting with the end needs and working backward, I don’t get the intel skeds any more, but there’s enough information in the public domain to support some educated guesses. Tonight we have 98 ships deployed and 35 ships underway on local ops out of a battle force of 284. Let’s assume those are ballpark numbers for reality checking. I laid out a fleet structure somewhere that was based around
      -12 CV battle groups (6 Ford/Nimitz, 6 smaller carriers),
      - 8 surface action groups headed by a battlecruiser (new ship, kind of a Kirov/Kiev hybrid, with big guns, missiles, and extensive drone and limited VSTOL capability) and a Japanese Hyuga type ASW helo platform, and
      - 10 amphib battle groups with an Aussie Canberra LHA, a UK Albion LPD, a Dutch Rotterdam LSD, a Korean Dokdo/French Mistral LPH, an LST, an LKA/LPA, and a gunfire support ship (a Des Moines cruiser/arsenal ship hybrid).
      So you’d have 30 groups, each with about 10 ships including escorts. One group of each type in WestPac, one of each type in the IO, and one of each type in the Med/Europe area gives us roughly 90 deployed surface combatants, add maybe 20 subs and we are probably looking at about 110 deployed combat ships at any time. Over and above that you would need replenishment ships, and I would do like the RN and make all replenishment ships (and probably the LST and LKA/LPA) MSC ships with civilian crews. That pretty well means the active-deployed third of the fleet is deployed the whole time they are in that status, and it also takes closer to 350 combat ships than 300 to maintain, so we better be building a lot of low-end ships in the mix and staffing some of them with reserves in order to stretch the wallet.

      Again, we really need to define missions before building ships. Absolutely no disagreement there. But even in the abstract, I think it’s useful to run some models to see what the tradeoffs are.

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    14. Smitty,

      Looking at your numbers on deployments, the one thing I am proposing (and obviously you need two crews to do this) is to reduce the transit time losses by making deployments essentially continuous round-the-world evolutions. A Pacific ship goes to WestPac of 6-9 months, then transitions to the IO for6-9 months, then to Med/Europe for 6-9 months before coming home via Panama or the Cape. You would avoid the long repeated to/from transits. As I said, you can't do this without rotating crews.

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  3. Why do you have the cost of a Zumwalt at 8bn each?

    I can't find a source that mentions a cost anywhere even close to that. The CRS reports put the cost at around 4billion per ship. https://www.fas.org/sgp/crs/weapons/RL32109.pdf

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  4. It includes the R&D. The costs can't be ignored and with only three ships to spread it over, it is substantial.

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    1. Whether to include R&D depends on what you're trying to get out of the numbers. The R&D costs for DDG-1000 are mostly sunk at this point (~$8.7 billion out of $9.1 billion spent prior to FY15). So it doesn't make sense to include them if you are thinking about buying more DDG-1000s.

      On the other hand, if you want to compare, say, buying more LCSes or buying an as yet to be designed and built frigate, you most certainly should include the R&D costs for the frigate, but not the sunk R&D costs for the LCS.

      Given that CNO is just trying to come up with a number of "hull-years" per billion dollars spent for each program, it probably makes sense to just be consistent. Either include R&D or not, for all programs.

      Of course even his rough numbers are interesting.

      If you go by the DDG-1000's 2014 SAR, the "Then Year" APUC for each ship is $4.2 billion.

      So 30 / 4.2 = 7.3 years / $1B

      Or about half of the hull-years/$1B of a Burke.

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    2. Including R$D costs is really not a question. We had to spend them in order to build the ship. We spent $24B to build 3 Zumwalts. That's $8B each. What the money was called or what account line it came from is irrelevant.

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    3. Including them or not depends on the conclusions you are trying to draw.

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  5. I agree with ComNavOps, the R&D should be included in the cost of the Zumwalts.I haven't heard anywhere that USN intends to buy more than 3, the total program cost is $24 billion divided by 3, it's $8 billion a ship. Never understood the US propensity to not include R&D costs, is there some kind of special budget for R&D costs because I'm pretty sure it's the US taxpayer that pays for that R&D, I wish we had an R&D fairy that magically made the money appear out of thin air and I don't buy one second the "we will reuse" that R&D on other projects.....that's BS.

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  6. Interesting metric. One big issue left off the big picture here is the cost of RCOH for the CVN's. As far as I know, you can't get to 50 years without a core overhaul, which means if you're going to count the service life as 50, that has to be included in the cost. Otherwise, the service life needs to be lowered.
    Overseas Guest

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