{"id":3061,"date":"2012-12-14T05:15:48","date_gmt":"2012-12-13T19:15:48","guid":{"rendered":"http:\/\/www.aspistrategist.ru\/?p=3061"},"modified":"2012-12-14T20:41:37","modified_gmt":"2012-12-14T10:41:37","slug":"reader-response-managing-submarines-and-managing-uncertainty-2","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/reader-response-managing-submarines-and-managing-uncertainty-2\/","title":{"rendered":"Reader response: managing submarines and managing uncertainty"},"content":{"rendered":"
Andrew Davies\u2019 post yesterday<\/a>\u00a0on the second Coles report is absolutely right: the fundamental issues don’t lie with the Collins design itself but with the poor management of the complex system that determines the maintenance and manning of the submarines. Andrew is also right that if those issues can be resolved, there could be very significant efficiencies involved in extending the Collins\u2019 life of type.<\/p>\n

However, as Andrew also notes, there is no certainty that those issues are being resolved or will be in future. As a result, there is a risk that the extension option will simply be throwing good money after bad. The question then becomes how different possible approaches going forward compare in terms of their consequences if those problems are not fully or satisfactorily addressed.<\/p>\n

In other words, what needs to be analysed are the risks under alternative approaches for taxpayers (both financially and in terms of our defence capability) and how those risks vary with the extent to which we can or cannot address the systemic problems Andrew (and Coles) notes.<\/p>\n

There are tools available to analyse such problems. One such is the notion of\u00a0net present value<\/a>\u00a0(NPV). An example shows how it might work, albeit at the obvious cost of extreme simplification. We assume that the options are to extend the Collins life of type and defer a replacement, or retire the Collins and bring a replacement forward. For this simple illustrative model we ignore the complex program management issues that either would entail, and the numbers are purely indicative.<\/p>\n

Consider the payoff (future costs and benefits) structure below:<\/p>\n

State assumption A<\/span>: we deal with the problems that have so dramatically reduced Collins’ availability<\/p>\n

Under that assumption, the payoffs are:<\/p>\n