Economies of scale in police air operations

Daniel Livingstone, Home Office

04/03/2013

Overview

• NPAS need to understand the reason underlying variations in relative costs per flight at each base;

• A flight is defined as an operational or training mission. It is expressed in terms of duration (hours) and variable cost (of fuel and some maintenance);

• Base costs are fixed in the short term but variable in the long term;

• Costs per flight for each base are then compared. These are proxies for unit costs;

• Any evidence of unit costs decreasing with flight hours point to economies of scale.

However..• Some bases may be situated far away

from demand which will artificially increase flying hours and costs;

• Endogeneity bias: some airframes may be tasked for missions to retrospectively justify their purchase in pre-NPAS days; and

• Training hours are a legal requirement which means that training flights could be viewed as a fixed cost.

Assumptions formatting1

• Costs per period for a starting date are shown;• Where costs vary per period they are profiled;• Requires all costs to be classified identically at

each base;• No more than 4 operating categories of airframe

per base;• Each airframe category must have identical cost

profiles

Assumptions formatting 2

• 20 different categories of staff;• 20 different categories of operating cost;

Training and tasking assumptions• Precise details critical to analysis of scale economies;• 2 years split into monthly periods;• Training costs behave as both fixed and variable costs.

The volume of missions and their length/duration will determine the impact of training costs on the effects of scale;

• Inputs comprise:- total training flights;- total mission flights;- hours/distance in take off, cruise and landing;- Base location and mission centroid geo co-ordinates;

• Differences in tasking allow demand to be normalised which can better illustrate cost differences between bases;

Profiling

• This sub model shows the periodic rate of increase/decrease in costs;

• It is inferred from monthly data for each cost line;

• Each profile can then be compared;• Profile normalisation can also be

accomplished if bases post differing one off costs over the 2 year period;

Outputs

• Comprise:- capital costs (Which comprise airframe lease costs plus routine maintenance);- staff costs;- operating costs which includes maintenance costs

associated with flying; and - spares;- flying/training hours and flying/training distances

travelled;- total number of missions/training flights

• Together these permit measures of efficiency such as costs per flight etc to be calculated.

Application

• Measures of efficiency can be analysed to understand the potential for scale economies;

• Normalisation permits the model to be run in scenario mode with the identical missions and distances across bases;

• Easy identification of cost differences between bases;• Can be used for decision making by projecting costs

forward and examining the incremental consequences of expenditure decisions;

• The effects of consolidating/relocating bases can also be appraised, although this would require a base location model to be added on;

Additional functionality

• Base location model;• Demand model.