Cost/Effectiveness—Tool or Club?

Oct. 1, 1963

“Both the experienced military man and the operations analysts are important Contributors to the decision-making process. However, I am disturbed because now, in the Department of Defense, the operations analyst—properly concerned with ‘cost/effectiveness’—seems to be working at the wrong echelon, above the professional military level rather than in an advisory capacity to the military who should thoroughly appreciate his assistance. Specialists can­not, without danger, extrapolate their judgments into fields in which they do not have expert knowledge. Unfortunately, today in the Pentagon an unhealthy imbalance has resulted because at times specialists are used as experts in areas outside their fields. This has resulted in a tendency to draw conclusions before all the evidence has been examined.”

—Adm. George W. Anderson, USN (Ret.), before the National Press Club, September 4, 1963

There is no military logistician or civilian fuel dealer who would suggest that the C-54 is a proper vehicle for hauling coal. Yet, in the Berlin Airlift, more than a million and a half tons of coal were hauled in airplanes, most of it in C-54s.

Economic nonsense? Yes, but it contributed to com­munism’s first great defeat in the cold war.

In the jargon of the systems analysts, moreover, the cost/ effectiveness of the airlift was excellent. Cost/ effectiveness is the accomplishment per dollar of cost, and it was high in this case despite the fact that no competent and sober man normally would pick an airplane for a job which properly belongs to a barge, truck, or train.

The cost/effectiveness of the C-54 in the Berlin Air­lift was good because there were no alternatives. The need for effectiveness was so critical that the cost was not important. The barge, truck, and train were not priced out of the mission—they were eliminated by geographic, political, and military factors.

There are few, if any, military requirements where cost/effectiveness can be applied with such simple de­cisiveness as in the Berlin Airlift. There are few, if any, where there are no alternatives and the need is so compelling that cost can be ignored completely.

The application of cost/effectiveness to the map­ping of military strategy, weaponry, budgeting, and procurement in the Defense Department is not new. But there is new emphasis on cost/ effectiveness, and, for the first time, it is being used in the transmission of military requirements from the armed forces to the Pentagon civilian secretariat.

In the past, the Army, Navy, and Air Force have used cost/effectiveness as an in-house tool to help deter­mine requirements. Now, when these requirements are passed up for departmental approval, they must be accompanied by cost/ effectiveness studies for a num­ber of—possibly four or five—alternate solutions. The result is that the services frequently have a system imposed on them that is not their own first choice.

The Air Force has felt the impact of this approach more than the other services. Defense Secretary Robert S. McNamara is blunt about the reason. He says the requirement for strategic retaliatory forces, in sharp contrast to other military requirements, lends itself to what he calls “reasonably precise calculation.”

Mr. McNamara has explained this to Congress in great detail. The strategic mission, most of which still is a responsibility of the Strategic Air Command, is to deter war by maintaining a capability to destroy an enemy’s military power. This is a job that can be de­lineated with more ease than most missions of the armed forces because it can be measured, the Secre­tary says. The data needed, in his view, are precise and fairly easy to assemble.

First, he seeks the number, types, and locations of the potential targets. Then, how many weapons of what size are needed to put these targets out of busi­ness? The third step, Mr. McNamara says, is to find the best way to deliver these weapons, which means a choice between manned airplanes and a variety of missiles. To do this, he needs to know, for each sys­tem, the number and weight of warheads it can de­liver, its ability to penetrate enemy defenses, its ac­curacy, and its cost/effectiveness. The latter he de­fines as “combat effectiveness per dollar of outlay.”

The Secretary says there are other measurable fac­tors, both of which must be ground into his calcula­tions because the enemy might strike first and reduce our strategic force before it is used. These factors are concerned with the effectiveness of the enemy attack and the vulnerability of our own planes and missiles.

There is a format used by the Army, Navy, and Air Force for summarizing data they supply to the Secre­tary of Defense when he is to make a decision on weapon systems and forces. The first part of this presentation is a rundown on the possible alternatives. This includes the currently approved program, the revised program preferred by the Army, Navy, or Air Force, if they have a preference, the recommendation of the Joint Chiefs of Staff, and a listing of other pos­sible alternatives.

For each alternative there must be a forecast of the force structure. In testimony before the House and Senate Appropriations and Armed Services Com­mittees on the fiscal 1963 to 1967 defense program, Mr. McNamara cited an example. The air-weapon sys­tems designated are hypothetical and so are the figures:

Alternative I

Number of Aircraft at End of Fiscal Year

1961 1962 1963 1964 1965
1966 1967
F-18 800 767 658 493 325 275 150
F-21 412 510 620 620 610 585 570
F-28 200 315 385 510

and similarly for each alternative.

This must be followed, in the example above, by a breakdown of system costs, showing how much obligational authority will be needed each year—1961 through 1967—for each of the airplanes used in each alternative. These estimates must cover research and development, initial investment, and annual operating costs.

Then there must be an evaluation of effectiveness. For strategic systems this covers targets destroyed, with the losses broken down for the United States, its allies, and the enemy. There must be an estimate of the number of targets destroyed in each of six categories. A separate set of complete figures is required for each of the alternate force structures.

In the case of tactical air forces the data is about the same, except that performance for each alternative force structure is measured in terms of tons of bombs delivered, hours on station, and sorties flown.

Comments and recommendations are sought from the services, the JCS, the Comptroller, the Director Defense Research and Engineering, and others. All of this is coldly factual and there are none of these facts that the Army, Navy, and Air Force have not been collecting and utilizing for years.

There is some irony in the genesis of Mr. McNamara’s own proclivity for this approach and the expertise of his staff. The Secretary, who once was an officer in the wartime Army Air Forces, gained his foothold as a “whiz kid” through his masterful use of arithmetic and its practical application while in serv­ice with the Twentieth Air Force. His staff’s expertise has come from the RAND Corporation, a creature of the Air Force that was set up to pioneer the systems-analysis procedure. With his background and proven talent in this area, it was natural for Mr. McNamara to look upon RAND as an attractive source of staff support.

There are some observers who feel this circum­stance has its advantages, that USAF is lucky to have some of its concepts adopted by the Secretary of De­fense. They point out that what USAF long has termed a “weapon system” is identical with what the Defense Department now calls a “program element.” On the other hand, when USAF originated the idea and pio­neered scientific methods of systems analysis these things were tools in the hands of soldiers with a firm and usually decisive voice in the selection of the tools of their trade. Now the soldier must list as many alter­native tools as possible and wait upon a nonuser for the selection. It is inevitable that the soldier, with the responsibility for fighting, will weigh values differ­ently than his civilian peer. He has no argument with the Defense Department about the integration of cost/effectiveness as a factor. The conflict appears to be over the relative value to be given to cost and effec­tiveness.

The transposition of these approaches from USAF to DoD came about largely through the movement of people. Charles J. Hitch, Assistant Secretary of Defense (Comptroller) came to the Pentagon from RAND, where he had worked on USAF problems and authored his definitive book on the subject, The Economics of Defense in the Nuclear Age. Dr. Alain C. Enthoven, Mr. Hitch’s deputy for systems analysis and the man who concentrates his talent on the selecti­on of strategies and weapon systems, also is a RAND veteran.

In the preface to his book, Mr. Hitch says the greatest debt of the authors is to USAF and admits that much of it was written as part of a USAF-RAND project. The book has a long appendix entitled ‘”The Simple Mathematics of Maximization.” Author of the appendix is Dr. Enthoven.

With this background it is fully reasonable that the r Force not only accepts the role of cost/effectivene­ss in the selection of weapons and strategy, but is its most devoted practitioner. On the other hand, it is impossible to find a man working with cost/effec­tiveness in USAF who does not point to its limitations, well as its advantages.

There is a tendency, they detect, to assume that any one of the possible alternatives can meet the requirement. This is the conflict behind the argument between manned aircraft and missiles. Mr. McNamara, having in front of him the alternative ways of delivering a warhead on a strategic target—the choice that he says lends itself to “reasonably precise calcula­tion”—has picked the missile. The case for the missile is that it—particularly in the Minuteman—has high “combat effectiveness per dollar of outlay.” In the case of Polaris, which is much more expensive, the factor of presumed invulnerability appears to have out-weighed the added cost. If cost/effectiveness were the only consideration, there would be no Polaris system today.

In this choice, however, the Defense Department is moving toward elimination of the manned bomber without considering whether such a system is a re­quirement in itself. Dr. Enthoven argues that in the choice of weapon systems, as opposed to the actual conduct of military operations, “one should not be ‘offense minded’ or ‘defense minded,’ ‘air minded,’ or ‘for or against bombers,’ or any other such approach.” He charges that “some individuals are fighting for their favorite weapon system because it symbolizes a way of life.”

It is possible here to help define the issue by point­ing out that the missile has its best friends in the Air Force, friends who fought for its speedy development in the face of technological conservatism in another day. The disagreement is not between cost/effective­ness and the “bomber men.” It is, more likely, between cost/effectiveness and the requirement for a mix of weapon systems to ensure flexibility. Target destruc­tion is but one goal of a strategic air effort. There are other elements that go into the campaign, such as reconnaissance for the seeking out of mobile or un­known targets. Missiles cannot perform some of these missions.

There is no necessity to center the case on we bomber vs. missile matter. There are many other ex­amples showing that the measures used in evaluating strategy and weapon systems cannot ignore complex and unmeasurable factors.

A classic example from World War II was that of the convoy losses suffered in crossing the Atlantic. Sta­tistical studies showed that the number of vessels lost to the enemy remained about the same, no matter what the size of the convoy. The apparent solution was to increase the size of the convoy, thereby cutting the percentage of ships lost on each crossing.

But there were some things not ground into the statistical formula. There were delays forced by wait­ing for ships to be available and delays waiting for the cargo. The speed of the larger convoy was held to that of the slowest ship. At the end of the voyage there were delays resulting from the monstrous task of un­loading a large convoy. The over-all result was a cut in the amount of cargo delivered in any unit of time.

The experiment proved that the cost/effectiveness of a convoy operation must be measured by the amount of cargo delivered in a period of time, not by the percentage of the convoy that survives enemy at­tack.

This search for the real measure of effectiveness is just as pertinent in the choice of strategies and weapon systems. There was a time in World War II when the rate of attrition appeared to be critical, a fact that always will be in the memories of men with experience in that war. Then there was emphasis on the targets destroyed. The disputes over whether the goal should be blanket devastation or selective de­struction of vital German installations is one that raged for many months as the Army Air Forces went into action. Effectiveness was the issue, and the only one.

Or, we can take a problem that is more current in 1963, that of the wartime capabilities of the Tactical Air Command. The New Frontier has placed emphasis on conventional-war possibilities. TAG now becomes more proud of its flexibility, the wide part of the wea­pons spectrum that it can accommodate. Nuclear bombs or iron bombs can be delivered from the same pylon, meeting the requirements from general war to the localized and remote conflict. Yet, the attrition rates in these two types of conflict would seem to dic­tate two different force structures. Shall the number of TAG delivery vehicles be dictated by the require­ments of all-out general nuclear war or by the demand of scattered uprisings fought with conventional wea­pons

There is another area of vital importance in making these determinations. It is intelligence. This reporter has found no record of any estimate on the cost/effec­tiveness of the military intelligence effort. Yet what comes out of intelligence could tell us where we should spend money and where we are wasting it. Jimmy Doolittle, once asked what he thought the Pentagon should buy if it had an additional few bil­lion dollars in the coffers, replied: “Intelligence!” The bearing of intelligence on strategy and the choice of weapon systems was obvious to him and he knew that more investment in the program would pay dividends.

If we know little about the cost/effectiveness of our own intelligence effort, we know even less about that of the Russians. We know that their intelligence problem is far more simple than ours and that the cost/ effectiveness of their weapons must increase as we narrow the range of options we have for fighting a war. In this connection it is only necessary to recall the testimony of Gen. Thomas D. White in his sup­port of the B-70 bomber system when he was USAF Chief of Staff. If we build the B-70, he said, it will be expensive. But it will cost the Russians about four times what it costs the United States. We did not build the B-70, and Moscow never had to worry about the cost/effectiveness of a defense against it.

There are a few current issues in which cost/effec­tiveness studies are being pursued by the Defense De­partment and the armed forces. One is our own de­fense. Money can be invested in defense systems, such as the much-discussed and technologically complex antimissile devices, such as Nile X. It can be spent on a more elaborate system of shelters for civilians. A third component is improved strategic systems and warning devices that would make them practical to prevent attack. This may be the most complex cost/ effectiveness effort, as well as the most vital.

The Navy, at this writing, has been called upon to study and restudy its requirement for aircraft car­riers. While the Defense Department has not publicly revealed the major issues, it is widely assumed that the cost/effectiveness of the carrier is a matter that is taking major attention. Like TAC, the Navy pre­sumably is faced with the problem of multiple mis­sions. The cost/effectiveness of the carrier in a nuclear and general war probably will be less attractive than its cost/effectiveness as a mobile base for use in some remote policing action or other conventional-type conflict.

The Navy’s dilemma, in this case, recalls the story, probably apocryphal, of the Secretary of the Army who boasted of defeating the Secretary of the Navy in a poker game. He said the evening was climaxed when he “won a carrier,” which brought a query from a nearby Air Force officer: “Did you win cost or value?”

Air Force analysts currently are toiling over the figures growing out of the Army’s loudly proclaimed need for more air support and air mobility. The Howze Board, the group that produced an elaborate program for expansion of Army aviation including a fixed-wing transport system for use in the theater of operations, is not credited with producing an adequate cost/effectiveness study to go with it. The void will be filled by USAF and when its examination of the Army requirement is handed on to the Defense Department it will be supported by germane arithmetic.

Mr. Hitch, Defense Comptroller, wrote in his book that “strategy and cost are as interdependent as the front and rear sights of a rifle.” He said nobody can assign relative weights to the importance of the positions of the front and rear sights. In the same way, as he views the problem, “one cannot economize except in choosing strategies (or tactics or methods) to achieve objectives. The job of economizing, which some would delegate to budgeteers and comptrollers, cannot be distinguished from the whole task of making military decisions.”

He is declaring here that cost/effectiveness arguments really are arguments about strategy. Also, it follows that if there is a conflict on strategy—or a disagreement—either side can seek to prove its case with cost/ effectiveness arguments. If we revert to his illustrative front and rear sights on a rifle it becomes clear that the proponents of two different strategies may be aiming at two different targets.

Dr. Enthoven, an important aide to Mr. Hitch, has said it is clear “that both the Secretary of Defense and our senior military leaders are being forced by present circumstances to place increasing reliance on [systems] analysis rather than placing exclusive reliance on their experience and judgment.” This, he says, has become controversial and is described as “downgrading of the military.”

Well, the military view probably should be expressed in more exact terms. It is that cost/effectiveness is a good tool and one pioneered by men in uniform so far as military applications are concerned. But it also is a tool with limitations which must recognized. These limitations sometimes lead people with little military experience and judgment to substitute an inflated cost/effectiveness value for the values they do not know and appreciate. Inflated cost/effectiveness, in other words, can be made to fill a void where more critical material is needed.

When the cold war made it impossible to move coal into Berlin by barge, truck, or train, military men resorted to the C-54. Cost was not a factor. Effectiveness was 100 percent, which is what is needed in war.