AEGIS and Ship Self-defense System (SSDS) Platforms: Using KVA Analysis, Risk Simulation and Strategic Real Options to Assess Operational Effectiveness

Abstract

Modern, analytical tools are critical to understand the impact of open architecture technology and open business models on naval warfighting processes and procedures. These tools must measure the operational value of a system from an end-user, warfighter perspective, identify areas of deficiencies in capabilities, and flag areas for potential acquisitions. One advantage of examining open architected system upgrade options from a warfighter perspective is that the new systems can be integrated with reengineered processes more easily leading to improved process performance. This perspective, using OA to upgrade existing IWS systems, ensures that upgrades will lead to improved warfighting capabilities. Traditional measurement tools used for cost analysis cannot calculate the total value of upgrading a system to support an improved warfighting capability, particularly the improved operational value resulting from reengineering of warfighting processes. The Knowledge Value Added/Real Options (KVA+RO) Valuation Framework is a tool designed to assist decision-makers in making technology acquisitions. This paper describes research using the KVA+RO framework for estimating return on investment, in an open architecture approach, to upgrading and/or replacing aging IWS AEGIS and SSDS systems. The results of the research indicated that using the open architecture (OA)model, in combination with the leave and layer approach, was approximately five times more valuable than the current proprietary approach to system replacement and was approximately twice as valuable as a complete retrofit and replace strategy. Leave and layer provided the highest return on investment for replacing the AEGIS system with the lowest risk. The ultimate success of the OA approach is dependent on the ability of the multiple parties to system development and deployment to collaborate. Collaboration, along with the tools that facilitate collaboration, is critical to the success of any of the OA approaches.