Chapter 15

Options for Surveillance and Reconnaissance

William B. Rouse

15.1 Introduction

The case study in this chapter emerged from a keen interest in “the value of defense” or, put differently, the question, “What is defense worth?” Of course, considerable attention has been paid to the cost of defense. Ideally, one would like the cost to be significantly less than the value. That makes defense a good investment in terms of the concepts, principles, models, methods, and tools discussed in Chapters 7 and 10.

We have applied this approach to a number of case studies in the private sector in industries ranging from aerospace, automotive, and electronics, to semiconductors, computers, and pharmaceuticals (Rouse & Boff, 2004 Rouse et al., 2000). In all these applications, an upfront investment secured the possibility of future free cash flow. The difficulty with defense investments is identifying the free cash flow.

It would seem that money always flows from taxpayers through Congress to the Department of Defense and then to defense contractors. Cash does not seem to flow the other way. However, reduced expenditures in the future, relative to what they would have been without investment, can be characterized as cash flows. Thus, we should, in principle at least, be able to estimate the cash flow returns from defense investments.

There is one significant difficulty, however. What is the value of the performance impacts of the systems acquired through defense expenditures? This leads ...

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