Cost escalation for defence equipment- An additional analysis


  • Nima Khodabandeh
  • Peter Nordlund
  • Janne Åkerström

Publish date: 2018-10-19

Report number: FOI-R--4634--SE

Pages: 41

Written in: Swedish


  • Cost escalation
  • inflation
  • performance
  • quality


Previous Swedish and international studies have showed an increasing cost escalation for defense material, which has been proven to be greater than consumer price index. Attempts have been made to isolate if the cost escalation is due to better quality or if the escalation is unexplained. Recent studies have tried to apply regression analysis to separate the cost escalation into explained or unexplained by quality. The Swedish defense research agency uses international results, particularly Norwegian ones, in order to illustrate the cost escalation for Swedish systems. We further attempt to distinguish how, and if, the acquisition contracts and their structure effect the cost escalation. A previous study from the Swedish defense research agency in 2011 indicated a three to four percentage cost escalation, above the consumer price index, per year for the whole stock of defense materiel. The results show that while the cost escalation exceeds the consumer price index with three to four percentage, there are indications that almost half of this increase cannot be explained by performance variables. The study indicates a pure, performance adjusted, price increase of about one point five percentage above the consumer price index.