Vanguard Magazine

I INTERVIEW 12 AUGUST/SEPTEMBER 2017 www.vanguardcanada.com COSTING FOR THE CANADIAN SURFACE COMBATANTS An interview with Rod Story, Financial Advisor - Analyst at the Parliamentary Budget Oce As part of its National Shipbuilding Strategy (NSS), the Government of Canada has outlined a long-term project to renew Canada's federal fleet of combat and non-combat vessels. One group of ships within this strategy is the Canadian Surface Combatant (CSC). This program consists of build- ing up to 15 ships to replace Canada's 12 Halifax- class frigates and three Iroquois-class destroyers. The original budget to build these 15 ships was set in 2008 at a total of $26.2 billion. Given the factors of inflation, rising cost of material, labour and other expenses, the original budget is not enough to construct the planned number of ships by the anticipated start year of 2020. With a mandate of providing independent analysis to Parliament on the state of the nation's finances and to estimate the financial cost of any proposal for matters over which Parliament has jurisdiction, the Oce of the Parliamentary Budget Ocer (PBO) prepared a report: The Cost of Canada's Surface Combatants. This report which was released on June 1, 2017, was spearheaded by Rod Story, Financial Advisor - Analyst on the Expenditure and Revenue Analysis team at PBO. Marcello Sukhdeo, editor of Vanguard spoke with Rod Story recently about this report and the methodologies used in arriving at an estimated cost for CSC. Q: The Oce of the Parliamentary Budget Ocer issued a report on the cost of Canada's Surface Combatants recently. It was noted in that report that you played an important part in preparing it. What methodology did you use in arriving at the cost estimation for CSC? We used three different cost estimation methodologies: a primary one that is parametric-based, as well as two secondary methodolo- gies that are heuristic-based to confirm the results of the primary methodology. For the primary one we used TruePlanning 16.0 by PRICE LLC, a software which can perform costing of all sorts of different things. But in this case, I had to tailor it by first calibrat- ing to a known program of a similar type, for example, using an earlier surface combatant, and then changing the parameters to reflect the new program. The theory is that past performance will inform future performance. The other two methodologies were simpler heuristic-based ones. They were derived from two RAND reports that had in- vestigated the cost of naval shipbuilding in the United States and Australia. Q: Can you share a little more about the process you used with these methodologies to arrive at a costing for CSC? In estimating the cost of the CSC program, TruePlanning was first calibrated to the CPF program using a CPF Cost Performance Report from March 31, 1994. This report was from near the end of the CPF construction program; as such, the cost estimates it contained were unlikely to change significantly. The parameters that were changed from the CPF model to create the CSC estima- tion were: development dates, production dates, salaries, weights of the seven work breakdown structures, inflation rates for the various work breakdown structures, updated ammunition costs, and spare parts costs. On the heuristic-based methodology we used U.S. data from the RAND paper (Why Has the Cost of Navy Ships Risen?) for the factors that increase surface combatant costs and applied them

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