METHODS FOR ESTIMATING THE COSTS OF SOVIET DEFENSE ACTIVITIES

• Document Type: CREST
• Collection: General CIA Records
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• Original Classification: S
• Document Page Count: 20
• Document Creation Date: December 27, 2016
• Document Release Date: March 9, 2012
• Sequence Number: 2
• Content Type: MEMO

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CENTRAL INTELLIGENCE AGENCY
OFFICE OF STRATEGIC RESEARCH
Methods for Estimating the Costs of Soviet
Defense Activities
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Methods for Estimating the Costs of
Soviet Defense Activities
This memorandum was produced by
Programs Analysis Division of the
Office of Strategic Research and was
not otherwise formaZZy reviewed or
coordinated.
Preface
This memorandum is intended to provide users of
the CIA's annual. estimates of the costs of Soviet de-
fense activities with an understanding of how these
estimates are derived. It summarizes the sources of
information and procedures currently used to develop
ruble and dollar measures of investment and operating
costs for Soviet military organizations and major
weapons systems.
The estimating methods noted are those which were
in use on 1 December 1976. These cost estimating
methods are continuously being reviewed, however, and
will be revised whenever new evidence, new analytical
techniques, or the more detailed analysis of available
data permit.
This memorandum does
cesses of calculati
goods or services.
Comments and
the Programs A
not discuss in detail the pro-
costs of individual military
regarding this publication may be
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Preface . . . . . . . . . . . . . . . . . . .
Background . . . . . . . . . . . . . . . . . 1
The Direct Costing Approach . . . . . . 1
Basic Categories of Costing Data . . . . 2
Methods for Estimating Investment Costs . . . 5
Establishing Weapons and Equipment
Procurement Rates. . . . . . . . . . . 5
Calculating Dollar Costs of Weapons
and Equipment . . . . . . . . . . . . 6
Estimating Ruble Expenditures for
Weapons and Equipment . . . . . . . . 6
Deriving Construction Costs of
Facilities . . . . . . . . . . . . . . 9
Methods for Estimating Operating Costs. . . . 11
Calculating Manpower Costs . . . . . 11
Calculating Operations and Maintenance
Costs . . . . . . . . . . . . . . . . . 14
Estimating Research, Development, Test,
and Evaluation Costs . . . . . . . . . 14
Price Base . . . . . . . . . . . . . . . . . 16
Tables
1. Sources of Data for Determining 7
Procurement Rates . . . . . . . . . . . .
2. Applications of Dollar Cost Estimating
Methods . . . . . . . . . . . . . . . . . 8
3. Sizes of Data Samples Used to Estimate
Construction Rates of Soviet Military
Facilities . . . . . . . . . . . . . . . . 10
ii
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6. Methods for Estimating Costs of
Operations and Maintenance . . . . . . . . 15
Graph
Shares of Estimated Costs of Soviet
Defense Programs Included in Major SCAM
Expenditure Accounts . . . . . . . . . . . . . 4
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The Direct Costing Approach
Over the past 20 years, the CIA has developed a
direct costing, or "building block," system upon
which to base the bulk of its cost estimates of
Soviet defense activities. This direct costing approach
ties cost estimates directly to Soviet military programs
and it pro- 25X1
vides a level of detail not available from other costing
methods.
The direct costing approach begins with the identi-
fication and listing of the detailed physical components
and activities which make up the Soviet defense effort.
These components and activities are then multiplied by
appropriate costs and summed to provide annual estimates
of the total cost of the Soviet defense program. This
total cost is also broken down into various military
service, mission, program, or resource categories.
The extensive computation involved is performed
within a computer program called the Strategic Cost
Analysis Model--SCAM. This program permits the output
to be tailored to meet consumer needs. It is also
flexible enough to permit analysts to judge the effects
that changes in Soviet force structure, military pay,
equipment prices, and US inflation exert on the final
estimates.
The estimates are developed in both rubles and
dollars. Activities included in these estimates are
those in the Department of Defense budget and defense
programs funded by the Energy Research and Development
Agency. Military assistance and civil defense programs
are not included.
The dollar cost estimates attempt to reflect how
much it would cost in the US to produce and man a mili-
tary force of the same size and inventory of weapons as
that fielded by the Soviets and to operate that force
as the Soviets do. They are intended to provide a
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general appreciation of the overall magnitude of Soviet
defense activities in US cost terms. The building-
block approach permits comparisons with US expenditure
data on mission, resource category, and individual pro-
gram bases.
Dollar costs, of course, do not measure actual
Soviet expenditures for defense. Estimates, therefore,
are also made in rubles and are an attempt to recreate
established Soviet prices. Ruble estimates permit an
understanding of the economic and resource considerations
underlying Soviet defense planning. They also can give
insight into the impact of Soviet defense programs on the
Soviet economy. Lastly, these ruble estimates can be used
to deduce the priorities of the activities and programs
within the Soviet defense budget.
Basic Categories of Costing Data
The Strategic Cost Analysis Model incorporates
three basic cost categories--investment, operating, and
RDT&E. The investment category includes procurement
of weapons and equipment and the construction of
facilities. The operating category includes military
manpower and activities associated with operating and
maintaining the USSR's stocks of weapons and military
equipment. The RDT&E category includes Soviet defense-
associated research, and weapons system development
activities carried out prior to deployment.
These basic cost categories vary widely in their
relative contributions to total defense spending esti-
mates.* Ruble estimates of Soviet defense expenditures
are affected almost equally by investment and operating
expenses, each of which accounts for roughly 40 percent
of the total, and least by RDT&E outlays, which comprise
about 20 percent of the total. Dollar cost estimates
of Soviet military programs are most affected by opera-
ting outlays, accounting for over 65 percent of total
costs, and are less sensitive to costs of investment or
RDT&E, which contribute approximately 25 and 10 percent
to the total.
*These comments are based on an analysis of ruble and
dollar cost data averaged over the 10-year period
from 1967-1976.
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The basic cost categories described above break
down into 45 expenditure accounts which are used to
catalog inputs to the Strategic Cost Analysis Model
in more detail. These in turn are composed of hundreds
of individual programs and activities. The graph, next
page, illustrates the relative importance of 11 of
the SCAM categories which account individually for at
least two percent of either the dollar or ruble cost
estimates of Soviet defense programs. In combination,
these 11 accounts comprise about 80 percent of the
USSR's estimated ruble outlays for defense and 80
percent of the total estimated dollar costs of Soviet
defense programs.
The difference in relative magnitude of the expen-
diture accounts is important. In general, therefore,
those accounts which have the greatest impact on the
total estimate reflect more complex estimating metho-
dologies, while data in the less significant accounts
reflect less rigorous cost estimating procedures.
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Figure 1
Shares of Estimated Costs of Soviet Defense Programs
Included in Major SCAM Expenditure Accounts
(Percent)
Military Pay
RDT & E
Civilian Pay
Missile System
Procurement
Aircraft
Procurement
Naval Ship
Procurement
2.8
-
14.3
Facilities
2.2
-
Construction
14.2
Aircraft
Maintenance
Organizational
2.1
Equipment
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3.9
Ship Operations
1.9
and Maintenance
2.5
Percentage shares reflect averages for 1967-76. Chart includes all accounts which cover two percent or more of
the total cost of the Soviet defense program as estimated in rubles or dollars. The account for clothing and
personal equipment-which represents 4.4 percent of the ruble estimate of Soviet defense spending-is excluded
because these costs are included elsewhere in the dollar estimate.
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Establishing Weapons and Equipment Procurement Rates
Calculations of costs of new weapons and equipment
and initial spare parts are made by multiplying esti-
mated procurement rates by unit costs.
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Table 1 illustrates how these procedures are
applied to the SCAM investment accounts. It lists
the accounts in order of decreasing dollar cost
significance and arrays the methods used to estimate
procurement rates from left to right in order of
decreasing certainty.
Calculating Dollar Costs of Weapons and Equipment
The dollar concept reflects the cost of producing the
Soviet design using US production technology, input
prices, and profit margins. The ability to reflect the
Soviet design depends to a large extent upon knowledge
of the physical and performance characteristics of the
individual weapons. Where there are good data, the cost
estimates capture the austerity or complexity of the
Soviet design. When the knowledge is less complete, US
analogs are used. In these cases attempts are made to
adjust the analog to reflect the general understanding
of Soviet design practices.
When there is sufficient information, an engineer-
ing cost study is performed. Most of the costs, however,
are derived using cost estimating relationships (CERs)
which are based on US weapon costs. These costs often
are adjusted to "Sovietize" the weapons. Some weapons--
usually lower cost items--are costed on the basis of
the nearest equivalent US weapon.
These general approaches to dollar cost estimating
are used to measure Soviet procurement outlays as indi-
cated in Table 2.
Estimating Ruble Expenditures for Weapons and Equipment
The ruble costs of weapons systems and equipment
items are in most cases derived by applying ruble-to-
dollar conversion factors to the dollar cost estimates.
Where data are available, conversion factors are developed
by comparing samples of Soviet prices with dollar cost
estimates. For those defense industries where the
I available price information is not sufficient to permit
direct calculations, ruble-to-dollar factors are extra-
polated from those for other defense or civilian industries
producing similar products.
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Table 1
SOURCES OF DATA FOR DETERMINING PROCUREMENT RATES
Procurement Production Estimated Soviet Other SCAM US
? Expenditure Accounts Data Requirements Accounts Analog
Missile Systems
Ballistic*
ABM, Cruise, SAM,
AAM
Aircraft
Ships and Boats
Organizational Equipment
Land Arms
Tanks
Other
Electronics
Radars
Other
Ammunition
Military Space** X
Nuclear Weapons X
General Purpose Vehicles
Supplies and Equippage
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TABLE 2
APPLICATIONS OF DOLLAR COST ESTIMATING METHODS
"Non-
Engineering "Sovietized" Sovietized" Combined US
Analysis CERs CERs Costs Analog
Missile Systems
Strategic Ballistic 76*
ABM 76
Tactical Ballistic
Cruise 65
SAM, ASM, AAM 76
SAM Launchers
Aircraft
Airframes
Engines
Avionics
Helicopter Engines
Helicopter Airframes
Helicopter Avionics
Ships
Major Surface
Minor Surface
Auxiliary
Submarine
Electronics and Weapons
Systems
71
65
60-76
Organizational Equipment
Ground and Air Units
Other Units
Land Arms
Tanks
Combat Vehicles
Artillery
AA Guns
Rocket Launchers
Small Arms, Mortars
Electronics
Radars
Ground Force Tactical
Communications
Comsat and Command Post
Systems
Other Electronics
60-75
59
59
74
73
73 (ZSU) 60
66(Tube type) 73
Ammunition
Military Space
Satellites
Launch Vehicles
Nuclear Weapons
General Purpose Vehicles
Supplies and Equippage
75
60
66
73
NOTE: This table provides only a general indicator of the applications of
cost estimating methods to SCAM investment categories.
*Numbers indicate the year that the cost estimating. methods were developed
which are used to calculate costs for the most significant items in each
expenditures category.
75(from ruble data)
75(from ruble data)
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Price information is best for Soviet ships. We
have a published Soviet costing model which is based on
an extensive sample of merchant ship prices from different
shipyards in the USSR. We also have ruble price informa-
tion on Soviet electronics, aircraft, and motor vehicles.
Conversion factors for missile and space systems are
based on a smaller sample of prices and on extrapolation
from the electronics industry. Conversion factors for
land arms, ammunition, and organizational equipment are
extrapolated from those applicable to tanks and the
motor vehicle industry. Ruble prices for nuclear materials
are derived from analysis of Soviet production processes
and facilities.
Deriving Construction Costs of Facilities
Estimates of Soviet investment in military facil-
ities are made first in rubles and then converted to
dollar costs with a ruble-dollar ratio for Soviet
construction activities.
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Table 3
SIZES OF DATA SAMPLES USED TO ESTIMATE
CONSTRUCTION RATES OF SOVIET MILITARY FACILITIES
Facility Type
Sample Size (percent)
Missile
95+5
Nuclear Storage
95+5
Airfield
95+5
ABM Radar and COMSAT Stations
95 + 5
Command and Control
25-50
Naval
5-10
Ground Force
5 or less
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Calculating Manpower Costs
Manpower costs are calculated by multiplying esti-
mates of the numbers of men in Soviet military organiza-
tions by per-man ruble and dollar cost factors covering
each type of personnel-associated outlay. Estimates of
manpower levels are made using one of five basic methods:
The factors used to calculate dollar costs of Soviet
personnel expenditures are developed from pay and allowance
data for the US armed forces. Average per-man costs for
each US military service are calculated and applied to the
counterpart Soviet forces. This process imputes the rank
structure of the United States armed services to the Soviet
military.
The factors used to convert manpower data into ruble
expenditures estimates were taken directly
from Soviet publications, or by converting the
estimated dollar costs of analogous US personnel expendi-
tures into rubles.
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Calculating Operations and Maintenance Costs
Operations and maintenance costs for Soviet systems
are calculated primarily by multiplying numbers of
weapons systems or the estimated values of equipment
stocks by operations and maintenance cost factors. These
cost factors reflect the combination of US operations and
maintenance cost data and available information on Soviet
operating and maintenance procedures. The cost factors
applied to order-of-battle data produce dollar cost esti-
mates which are then converted into rubles using generally
the same ruble-dollar ratios as are used to estimate pro-
curement costs of the associated equipment. The cost
factors which are applied to values of equipment stock
or facilities are expressed in percentage terms and pro-
vide both ruble and dollar operations and maintenance
cost data.
Exceptions to these cost estimating procedures occur
when Soviet operations and maintenance costs can more
easily be related to manpower levels, or where a direct
ruble cost factor is available. The application of these
operations and maintenance cost estimating procedures are
shown in Table 6.
ESTIMATING RESEARCH, DEVELOPMENT, TEST,
AND EVALUATION EXPENDITURES
Estimates of Soviet RDT&E expenditures are the only
ones made by analyzing Soviet financial data, and are of
the lowest confidence. These data include published
Soviet figures for "science" and capital expenditures,
and a total "science and technology" expenditures figure
cited in 1975 by the chairman of the USSR's State Commit-
tee for Science and Technology. These ruble data are
analyzed to eliminate overlaps among the various expendi-
tures accounts and to separate military and civilian RDT&E
activities.
Dollar cost estimates of Soviet military RDT&E are
made by dividing the ruble costs by a weighted combina-
tion of ruble-to-dollar ratios developed for high techno-
logy areas such as missile and aircraft production.
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TABLE 6
METHODS FOR ESTIMATING COST OF OPERATIONS AND MAINTENANCE
Multiplication of Multiplication of Multiplication of Application
Order-of-Battle Inventory Values Per-Man-Cost of US and
Expenditure Data and Unit and Percentage Factors and Man- Soviet Cost
Category Cost Factors Cost Factors power Data Data
Civilian
Pay
Preinduction
Military
Training
Ships
Utilities
Land Arms
missile
Systems
Facilities
Petroleum Products
Aircraft 76
Ship 75
General Purpose
Vehicles
Military Space
Operations* 66
Electronic Equip-
ment
ABM, OHD Radars 72
Air Defense Radars 68
Other 64
General Purpose
Vehicle Main-
tenance
Nuclear Weapons
Maintenance
Printing and
Publishing
Fixed Communica-
tions System
Leasing
NOTE: Dotes reflect year of most recent cost factor changes.
4Based on number of launches and US cost factors.
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PRICE BASE
The cost estimates are stated in constant prices to
reflect changes in Soviet programs and not the effects
of inflation. The ruble estimates are denominated in
1970 established Soviet prices. In the dollar estimates,
the base year is moved forward each year using disag-
gregated price indices.
Personnel cost factors, however, are inserted directly
into the dollar estimates each year, using actual base
year US costs for such terms as pay and subsistence.
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