Part TwoCost analysis since 2000

2.1  In this Part we analyse cost variations since 2000 by providing analysis for all 63 projects that have featured in our annual Report since that date. In performing this analysis, cost of capital13 has not been removed from projects approved before 2010. This is because these projects had cost of capital included within their approvals and forecast costs, as reported in the Major Projects Reports. Specialist Vehicles, Airseeker and the Puma Life Extension Programme, which only recently received their main investment decision, do not include cost of capital. This analysis, therefore, is not comparable with Part One of this Report, where cost of capital has been removed for all projects.

2.2  To date, projects included in the Report over the past twelve years have a total approval value of £92.7 billion, with a combined total forecast cost of £103.3 billion. This represents an increase of £10.6 billion, or 11.4 per cent. Figure 7 shows how this increase has changed from year-to-year over this period.

2.3  We have analysed this cost increase over the past 12 years by four methods:

a  Dividing the 12 years into three distinct phases and assessing the causes of cost growth in each period (paragraph 2.4).

b  Assessing the additional impact of cutting equipment numbers and impact on the Defence budget if the Department had kept the original levels of equipment required when the main investment decision was taken (paragraphs 2.5-2.9).

c  Analysing cost variation by date of approval. We divided the 63 projects into two groups: those that received their main investment decision in 2001 or earlier and those approved more recently (paragraphs 2.10-2.12).

d  Analysing cost variation by size of project (paragraph 2.13).

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13  Cost of capital was a notional opportunity cost from using money in capital expenditure projects instead of alternative investment opportunities.