DOD Budget
DOD Budget

Author: United States. General Accounting Office

Publisher:

Published: 1992

Total Pages: 20

ISBN-13:

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A Study of Historical Inflation Forecasts Used in the Department of Defense Future Years Defense Program
A Study of Historical Inflation Forecasts Used in the Department of Defense Future Years Defense Program

Author: Mark S. Sweitzer

Publisher:

Published: 1997-09-01

Total Pages: 105

ISBN-13: 9781423582007

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This thesis explores historical inflation forecasts used in the Department of Defense (DoD) Future Years Defense Program. The study examines historical DoD forecasts against experienced inflation as measured by the Gross National Product and Gross Domestic Product implicit price deflator (GNP/GDP IPD) from 1979 to 1996. This study also compares the accuracy of DoD forecasts with those made by the Congressional Budget Office (CBO) and Data Resources, Incorporated (DRI). The results regarding the performance of historical DoD inflation forecasts are mixed. Upon examining budget through five year GNP/GDP IPD forecast spans, DoD short-term results do not indicate a downward bias and DoD long-term results do indicate a downward bias. Overall DoD forecast bias was lower than the CBO and DRI which tended to overestimate inflation. Next, forecast accuracy was evaluated in which all agencies equally anticipated budget year inflation. Forecasts for later years also yielded mixed results. CBO and DRI forecasts tend to exhibit less dispersion, but DoD tends to have less bias. DRI one, two, and three year forecasts and CBO four and five year projections demonstrated the least dispersion while DoD forecast results were more dispersed. Possible explanations and implications of these findings are provided.

New Approaches to Defense Inflation and Discounting
New Approaches to Defense Inflation and Discounting

Author: Kathryn Connor

Publisher:

Published: 2013

Total Pages: 42

ISBN-13: 9780833083395

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Inflation indices and discount rates are necessary tools in the Department of Defense's acquisition process, as the final selection of a system is partially based on potential increases in sustainment costs (inflation) and the present value of future costs (discounting). Inflation indices built for DoD use very broad categories that include operations and maintenance (O & M) as well as manpower, procurement, and research and development. This study addresses the question of how well current inflation indices and discount rates are serving DoD weaponsystem program management. It investigates inflation rates for parts for the Abrams tank and the Bradley armored personnel carrier and shows that the two weapon systems, while both ground systems, experience inflation differently. Although government decisionmaking can benefit from discounting (taking into account the time value of money), choices made using discounted cash flows are not always the least expensive for DoD. Its O & M estimating strategies should be reviewed to reflect changing repair and other costs, since a range of reasonable courses of action exists for many DoD investment decisions. Recommendations for the Office of Cost Assessment and Program Evaluation to consider when evaluating the inflation and discounting policies that impact the long-term affordability of DoD programs include (1) revisiting O & M costs annually with a 5-year moving-average inflation, to reflect changing repair and other costs; (2) highlighting the role of supply chain surcharges in parts costs in cost estimates used to inform program financial analysis; (3) expanding analysis of investments to ensure consideration of least-cost outcomes.