Saturation of Learning Curves in Defence Acquisition Projects

Recent empirical evidence has shown that learning is a central cost risk factor in defence acquisition projects. The military learning-by-doing literature implicitly assumes that the marginal cost (or time) required to produce the nth unit (e.g., aircraft, ship) will asymptotically approach zero as n increases. It's assumed, in this paper, that the unit cost reaches a steady state where it remains constant over time. A new method that combines statistical analysis and stochastic simulation is suggested to estimate the distribution of the steady-state value. A case study on the acquisition of new warships is used to illustrate the approach. This model is general and can be applied to various defence acquisition projects.