F.12. HVR Family of Advanced Cost Estimating Tools (FACET)

The cost context model in the HVR Family of Advanced Cost Estimating Tools ("FACET") provides estimators with the ability to compare estimated project costs with historical costs for similar programmes176. In some cases, projects in the central cost database date back as far as the 1940s. All costs are normalised to common economic conditions and corrected for differences in scale. An exponential increase of normalised, real-price unit costs is observed, with an average exponential coefficient (across 17 distinct platforms) of 1.4% p.a., as shown in Figure F-19.

Exponential coefficients of normalised unit cost growth in real prices

Source: HVR Review of Top 20 MOD Procurement Programmes (Feb 2005)

Figure F-19: Exponential coefficients of normalised unit cost growth in real prices across different platforms in the cost context model

It has been suggested that an inherent feature of defence equipment means that their costs to increase faster than the rate of inflation observed in the general economy177. The Review team contend that defence inflation is at best a dependent variable, being the result of behaviours in the defence procurement community 178.

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176 See HVR Review of Top 20 MoD Procurement Programmes (Feb 2005).

177 'Is Defence inflation really as high as claimed?', D. Kirkpatrick, RUSI Defence Systems (Oct 2008)

178 See, for example, 'Defence Inflation: Reality or Myth', M Chalmers, J. Dowdy et al., RUSI Defence Systems (Jun 2009)