Date of Award

3-21-2013

Document Type

Thesis

Degree Name

Master of Science

Department

Department of Mathematics and Statistics

First Advisor

Edward D. White, PhD.

Abstract

Cost growth above inflation (CGAI) is the cost growth that exists after adjusting for the effects of currency inflation over time. The time value of money would suggest the increase in Operating and Support (O&S) costs over time would only be affected by inflation. In essence, every year aircraft need to be maintained at the same level and O&S costs should not change, assuming the same level of requirements. If CGAI exists in O&S there will be a large inaccuracy in the total life cycle cost (LCC) of weapon systems and an inaccurate budget put in place. An inaccurate estimate of O&S costs lead to budgeting problems and creates future budget issues. This study begins an exploration of CGAI and attempts to measure the relationship of the cost growth to unaccounted increases in raw material cost. Specifically, we evaluate CGAI through an analysis of raw material costs from a period of 2000 to 2012 for Air Force aircraft. Raw material costs ideally should only be affected by inflation, and thus any cost growth beyond inflation indicates a problem. A better understanding of inflation-adjusted cost growth provides understanding why O&S cost continues to increase beyond the rate of inflation.

AFIT Designator

AFIT-ENC-13-M-02

DTIC Accession Number

ADA582469

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