A Model for Exogenous Learning on Department of Defense Procurement Programs

Evidence of exogenous learning on Department of Defense (DoD) procurement programs for major weapon systems acquisition can be demonstrated and explained with an investment strategy model that maximizes the manufacturer’s return on investment (ROI) over the life of the program. This article describes one such model. The model takes a list of investment and unit-cost-reduction pairs and a planned procurement profile and computes which investments should be made and in what order to maximize profit. Simulations conducted with this model explore the learning curve effects caused by regulatory lag (the period of time the contractor gets to keep the ROI before he has to pass savings onto the customer), the manufacturers’ expected profit, and changes to the procurement rate.