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The Iceberg Effect: The Hidden Nature of Conflict Costs Lesson #3 (of 7) from the Aftermath of 9/11

The vast majority of costs in major military conflicts are hidden from view at the outset of operations. In a separate article called “The Myth of Proportional Response, I recounted that In a March 16, 2003 Meet the Press interview of Vice President Dick Cheney, held less than a week before the Iraq War began, host Tim Russert reported that “every analysis said this war itself would cost about $80 billion, recovery of Baghdad, perhaps of Iraq, about $10 billion per year. We should expect as American citizens that this would cost at least $100 billion for a two-year involvement.” On May 13, 2010, Richard Wolf reported in USA Today: “The monthly cost of the war in Afghanistan, driven by troop increases and fighting on difficult terrain, has topped Iraq costs for the first time since 2003 and shows no sign of letting up.

Pentagon spending in February, the most recent month available was $6.7 billion in Afghanistan compared with $5.5 billion in Iraq. As recently as fiscal year 2008, Iraq was three times as expensive; in 2009, it was twice as costly. The shift is occurring because the Pentagon is adding troops in Afghanistan and withdrawing them from Iraq. And it’s happening as the cumulative cost of the two wars surpasses $1 trillion, including spending for veterans and foreign aid. Those costs could put increased pressure on President Obama and Congress, given the nation’s $12.9 trillion debt.” An even more sobering point – basically the dropping of the “other shoe”, was made later in the article: “Obama made clear Wednesday that the U.S. role in Afghanistan would remain long after troops are withdrawn, a process planned to begin in July 2011. “This is a long-term partnership,” he said during a news conference with Afghan President Hamid Karzai.”

The initial estimate of a 2-year engagement and a total cost of $100 billion in Iraq seems extraordinarily naive in the light of history, but at the time it probably appeared to many to be overstated. Actual authorized expenditures (FY2001 – FY1010) and the FY 2011 request look like this:

  • FY 2001 – $0
  • FY2002 – $0
  • FY 2003 – $53 billion
  • FY2004 – $75.9 billion
  • FY2005 – $85.5 billion
  • FY 2006 – $101.6 billion
  • FY 2007 – $131.3 billion
  • FY 2008 – $142.1 billion
  • FY 2009 – $95.5 billion
  • FY 2010 – $65.9 billion
  • FY 2011 – 51.1 billion

Total Iraq War Spend for the US: $802.2 billion. In other words, the Iraq war ended up costing about 8 times the original estimates by pundits. (Note that these are CRS estimates that include all bridge funds, supplementals, continuing resolutions, omnibus spending, and so on – which makes these numbers higher than many official reports from organizations such as the US DOD.) (http://www.fas.org/sgp/crs/natsec/RL33110.pdf) There are other costs associated with conflict that are less direct, second order types of effects as well. They are rarely identified, but no less real than the visible ones. For example, analysts conservatively estimate that prices for oil rose between $5 and $10 a barrel as a result of the Iraq War. (http://www.usatoday.com/money/economy/2008-04-09-iraq-war-economy-cost-obama_N.htm) According to Columbia University economist Joseph Stiglitz, the ultimate price tag for Iraq — which administration officials initially pegged at $50 billion to $60 billion — is easily $3 trillion or above when factors such as the cost of health care for disabled veterans, surging oil prices and the economic impact on families who have lost breadwinners are considered. That means the US Government estimates were even less accurate than those of the late Tim Russert.

When the US evaluates the likely economic cost of a significant military conflict, it faces what former Defense Secretary Donald Rumsfeld might well have captured as two categories: “Known Unknowns”, and “Unknown Unknowns”. Known Unknowns are elements that you understand going in are variables that will impact cost, and cannot know the magnitude of with certainty. Unknown Unknowns are things that come up later, were not anticipated, and are still undefinable with certainty when they are eventually recognized as meaningful variables in the future cost equation. Known unknowns include things such as duration of the conflict, determination of the enemy to resist, and quantities of hidden caches of weapons and munitions. Unknown Unknowns could include such factors as secret treaties, weapons development breakthroughs that occur in the middle of the conflict, and intervening natural disasters.

It would certainly seem as though one of the lessons from events stemming from our actions following 9/11 is that we dramatically underestimate the costs – even the known unknowns – of significant conflicts.

Among the known unknowns were:

  1. Military Personnel Funds such as hostile fire or separation pay and to cover the additional cost of activating reservists, as well pay for expanding the Armed Forces to reduce stress resulting from prolonged deployment
  2. Operation and Maintenance (O&M) funds to transport troops and their equipment, conduct military operations, provide support at bases, and repair damaged equipment;
  3. Procurement funding to cover replacement of weapons systems, upgrade equipment, and pay modernization costs.
  4. Research, Development, Test & Evaluation costs to develop more effective ways to combat war threats such as roadside bombs;
  5. Working Capital Funds to cover expanding the size of inventories of spare parts and fuel to provide wartime support; and
  6. Military construction primarily to construct facilities in bases within theatres of operation or in neighboring countries.

Among the unknown unknowns were:

  1. The initially unrecognized requirement to the logistical costs of allies, incurred while conducting counter-terror operations in support of U.S. efforts;
  2. The development of the Commanders Emergency Response Program (CERP) providing funds to individual commanders for small reconstruction projects
  3. The development of an Afghan Security Forces Fund to pay the cost of training, equipping and expanding the size of the Iraqi army and police force
  4. The requirement for a Joint Improvised Explosive Device (IEDs) Defeat Fund to develop, buy, and deploy new devices to improve force protection for soldiers against roadside bombs or IEDs.

Estimates and projections are, by their very nature, inaccurate reflections of reality. As such, some room should be built into them for error. I have recognized the underpinnings of this phenomenon for many years as they apply to my personal life. When I am about to undertake a project such as performing maintenance on my car or some similar project, I always begin with what I honestly believe it will take in terms of time and multiply that estimate by two if it’s a simple job or by three if it’s more complex. Historical evidence suggests that this approach is pretty accurate, and saves me a lot of uncomfortable conversations with my family during the course of the project. In business, a 10% contingency is commonly applied to major projects to allow for unknown unknowns, and estimates for known unknowns are built into the project costs on a line-by-line basis. Experienced project managers understand the nature and variability levels of typical costs in the types of projects they are managing, and good project managers produce better estimates than those with less experience and weaker skills.

It is clear now that initial estimates for the Iraq conflict produced information that was inaccurate by nearly an order of magnitude. Few project managers in the commercial business world could perform at this level without severe career repercussions. In the case of US military actions, where the stakes are extremely high, it seems that improvements are desperately needed in America’s ability to forecast the time frame and monetary cost of our actions. Certainly, in the aftermath of ours actions following 9/11/2001, that is a lesson we would benefit from learning.

What do you think?

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