Program Choice in the Aerospace Industry

by D. Warren



In the U.S. the weapons business, unlike most businesses where resource allocation is incremental, resource allocation decisions involve budget upheavals of major dimensions. For most weapon system analyses, however, profit calculations are unnecessary for choosing between programs. This is because the profit on sales allowed by the Defense Department can be considered approximately the same among programs. Thus, anticipated sales will be proportionate to gross profit and can be used in lieu thereof when ranking the four different programs. These sales must be discounted to present value at some discount rate which reflects the opportunity cost of money to firm. Such discounting deflates the represented profit to a current real worth. The final step in analyzing the probabilities of company success is to compare oneself with the probable competitors. Although there are many ways to format such comparisons, two of the most useful ways are to compare experience and then capabilities. The first reflects historical competitiveness in all factors-price, production and technical capability. The second highlights the technical aspects.

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