Cost-effectiveness in defence expenditure

Decision-making in defence is complicated by the need to make long-range plans with regard to weapons systems and force structures in an environment marked by great strategic and technological uncertainty. Cost-effectiveness analysis, which is a variant of the general analytical approach, is an attempt to clarify and structure defence choice situations. As a method of analysis, it shares certain properties of both cost-benefit and operational analysis, and indeed emerged from them in response to the unique needs of defence planners. Cost-effectiveness analysis involves a number of conceptual and practical problems, but its most difficult challenge is the requirement to exist in a political and bureaucratic environment where the system of incentives may not be compatible with the notion of economic rationality. However, the recent appearance of competitive cost-effectiveness analysis of defence options promises to promote the relevance and applicability of this approach.