Return-on-Investment Metrics for Funding Modeling and Simulation

Abstract

Return on Investment (ROI) is a term used widely in business to determine if a specific investment of funds now or over time will provide a positive return - a return greater than the investment. At least as far back as the early 1990s, the Federal Government, particularly the Department of Defense (DoD), has asked questions about the ROI for training or the ROI for use of modeling and simulation (M&S). One common question was “What do I get in return for spending one more dollar on M&S?”. We have tried in several ways to answer that question concerning what is the return for use of M&S, but not specifically by calculating ROI. The Federal Government, including DoD, does not invest in the same way that a business may. Business looks at investment, future expenses, and anticipated sales for new entrepreneurial ventures, new/improved products, or other changes to business facilities or processes. Business uses a profit basis; improved sales, increased profits, or lower expenses in business are rewarded with bonuses or promotions. Government looks at a cost, benefit, and cost avoidance basis. Claims of ROI or cost savings in government would likely be rewarded with immediate budget cuts because funding is seldom considered sufficient in govern-ment, and if one office claims savings, then the savings could go elsewhere. This chapter explores the question of what is the return for the use of M&S in DoD training. This discussion will be focused in four areas: Benefits, Policy, Profi-ciency, and Cost Avoidance.