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RATE ,STABILIZATION AND ITS IMPACT ON U. S. NAVAL SHIPYAftOS.(U)N

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RATE STABILIZATION AND ITS IMPACT ON U. S. NAVAL SHIPYARDS by

Melville Joseph Walters, III September, 1979

SThesis Advisor:

Robert B. Cunningham

Approved for public release; distribution unlimited

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SECURITY CLASSIPICATION OF T1tS PA041 (Wha "a. ,6e___

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. RE19CIPINT'S CAVALOG NUNER

4. TITLE[ (4~.. .. **,,,'l

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Rate Stabilization and Its Impact on U. S. Naval Shipyards .

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Melville Joseph Walters, III

e. PERPORMIN OGANIZATION NAME AND ADORESS

Naval Postgraduate School Monterey, Cal. 93940

I . CONTROLLING OPPICE NAME A o AOORESS

Naval Postgraduate School

Monterey, Cal. 93940

14. MONITORING AG4NCY NAME 6 AOODRIKSSI dWinI ken CORvoIind OMlfw)

Naval Postgraduate School

Monterey, Cal. 93940

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79

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It. oISTRIBUTION STATEMENT (of eAte R4p.)

Approved for public release; distribution unlimited

17. OISTRIBUTION STATEMEOINT (if Ioe botekeeagI 81.lto

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IS. SUPPLEMIENTARY NOTES

It. KEY Ron*$ (CintMh we Inw0 e*l II nweeW dad IdMOtpIP J iO W0n0 )

20. ABSTRACT (COIINNO Mamom" uddDI a

in W idwl# Op 616k VINOW)

The eight United States Naval Shipyards commenced opera-

tion under the rate stabilization concept in 1976. Rate sta-

bilization refers to the use of annually predetermined rates for the billing of customers for work accomplished in the

shipyard. A primary objective of rate stabilization was to

provide improved planning and budgeting to the customer and

the shipyard.

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->he objective of this thesis was to assess the impact of rate stabilization on the UY. S. Naval Shipyards.

Conclusions are that the overall operational, planning and programming advantages provided by rate stabilization

more than offset the disadvantages. 'Indications are that the concept of rate stabilization is working and that the shipyards are learning to work within the program. It is important that, once stabilized rates have been set, major changes in workload at the individual shipyards do not occur.,

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Approved for public release; distribution unlimited.

Rate Stabilization and Its Impact On U. S. Naval Shipyards

by

Melville Joseph Walters, III Lieutenant Commander, Supply Corps

United States Navy B.S., U. S. Naval Academy, 1968

Submitted in partial fulfillment of the requirements for the degree of

MASTER OF SCIENCE IN MANAGEMENT

from the NAVAL POSTGRADUATE SCHOOL

September, 1979

Author

77>L

/

Approved by:A

01

Thesis Advisor

Second Reader

Cha rman, De

t. of Administrative Sciences

Dean of Informatio d Policy Sciences

3-

ABSTRACT The eight United States Naval Shipyards conmmenced operation under the rate stabilization concept in 1976. Rate stabilization refers to the use of annually predetermined rates for the billing of customers for work accomplished in the ship-yard. A primary objective of rate stabilization was to provide improved planning and budgeting to the customer and the shipyard. The objective of' this thesis was to assess the impact of rate stabilization on the U. S. Naval Shipyards. Conclusions are that the overall operational, planning and programming advantages provided by rate stabilization more than offset the disadvantages* Indications are that the concept of rate stabilization is working and that', the shipyards are learning to work within the program. It is important that, once stabilized rates have been set, major changes in workload at the individual shipyards do not occur.

4~

TABLE OF CONTENTS

I *

RESEARCH OBJECTIVE .. -.---------------- a---- n--- - 8

A. INTRODUCTION--------------aaa.-a--------.-

8

B. THESIS OBJECTIVE a.......an ----

-

CaCa-an-

9

C. APPROACHa --a-------a-a--- -----

I I

a BACKGROUND --- an-----C-C-a-aCCCCCa.......a.a.....

n-

aa--9-----

-

9

A. INTRODUCT ION -..... a-a-a.--a-naa.-..-.-.-..

9

B. THE NAVY INDUSTRIAL FUND----a-a--------------

10

1. Operation Ca-a-s--C--a............a

.......

13

2. Billing and Collection ------------......

a.

13

3. Accounting ------------------------------... 15

4. Financial Reporting ------------------- 18 5. Financial Analysis .......... ------------- 18

a. Fixed Price Variance ---------------.. 13

b. Billing Variance -aaaa-a a- -C -

--- 19

c. Gain/Loss from Operations .---------. 19

C. RATE STABILIZATION-

----------.................

19

1. Advantages ....................

-a 21

2. Disadvantages

--------....-.aa......... -. 22

III.

IMPACT ANALYSIS OF

a

---C-a--a---a-----C-.............

25

A. INTRODUCTION ---------

----C--.-----------....

25

B. POSITIVE IMPACT -------------a-aa-aa-aa-a-aa-a -

25

I. Fleet Readiness .............. ............ 25

2. Stable Workload a---aa

..------------------

-26

3. Congressional Image---- --------------C-

27

4. Planning and Programmingaan ---aa-aa....

27

5. Improved Financial Management------------- 29

C.* NEGATIVE IMPACT-----------------------------------------

31

1. Group Payback Factor --------------- 31 2. Loss of Flexibil-i-t-y-----------36 3. Loss of Initiative ------------------------ 37

14.. Workload ---- -- -------------------

----

37

IV *

CONCLUSION----------------------

-----------------------

38

A.* INT RODUCT IONe~ -------

----------------------------------

38

B.* CON CLUS IONS--------------------------------------------------

39

LIST OF REFERENCES- ----------------------------------- 40

INITIAL DISTRIBUTION LIST----------------------------- m4

6

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