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 business models on naval warfighting processes and procedures. The Knowledge Value Added/Real Options (KVA+RO) Valuation Framework is a tool set 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 the aging IWS AEGIS and SSDS systems. The results of the research demonstrated that the leave and layer approach for incrementally replacing AEGIS system modules was the most valuable strategic option, providing the highest return on investment with the lowest risk. This study measured the operational value of various system replacement options from an end-user perspective, identified areas of deficiencies in capabilities, and flagged areas for potential system improvements and acquisitions. The potential costs and cost savings for each option were also calculated.