By Dr. Johnathan Mun
Gray Hulls and Gray Matter
Technology alone is not a capability. It requires people with the know-how to use it. At a time when great power competition is accelerating access to new technologies that can be employed by able minds to gain an advantage, the U.S. Navy is cutting its higher education funding in favor of platforms. The Fiscal Year 2022 budget request released on May 28, 2021, which includes cuts to the U.S. Naval Academy (USNA), Naval Postgraduate School (NPS), and U.S. Naval War College (NWC) by 20%, down from $615M to $498M—pennies in the big scheme of defense budgets, but a high opportunity cost.1
This article attempts to shed some light on the value propositions and return on investment (ROI) of military education and research. Education and research are inextricably linked in that both aspects contribute to the value add of the warfighter of the future. The intangible value of military education is significant in developing skills in leadership; critical, creative, and strategic thinking; and quick tactical decision-making for junior and senior officers. In particular, as opposed to civilian universities, a military-oriented curriculum taught by faculty members with military-based academic and research backgrounds or special military knowledge allows the transfer of institutional knowledge and expertise to the students, as well as the development of deep intellectual capital in our defense-focused faculty. Strategic, tactical, and innovative changes and challenges in the future will require the continuous education of the joint forces to maintain a competitive advantage over our current and future adversaries.
The value of education and research has always been a simple concept to understand but one that is fairly difficult to measure. Generally, higher education adds significant value to the individual, both in terms of future economic returns through better and higher-paying jobs and in terms of incalculable and intangible values such as the deepening of one’s knowledge and perspective and the enrichment of one’s experience of the world. The literature is filled with descriptions of qualitative social benefits of higher education.2 The cost is relatively easy to calculate (particularly for parents of private school and college students). Contact the local private colleges’ admissions or financial aid departments for a good wake-up call. However, the complete ROI for education is difficult to quantify economically and mathematically. And determining the value of highly specialized education such as military graduate education and research makes the value problem even more complex.
The U.S. Department of Defense (DOD) sends many of its mid-level officers (mostly O-2 to O-4 levels) to graduate programs to obtain graduate and advanced degrees or technical skills and nontechnical competencies that are highly valued in their respective billets. Sending a military officer to a 1.5–2-year graduate program costs upwards of $250,000 plus the opportunity cost of lost services. A doctoral program costs upwards of $500,000 per officer, plus their respective soft opportunity costs for being away for 3–4 years. The question is whether the benefits of such education are indeed more significant than the cost incurred by the DOD.
The U.S. Navy invests over $3.3B across the Future Years Defense Program (FYDP) at NPS, NWC, and civilian schools.3 In the past, the ROI in sending officers to such in-residence on-campus education programs has been measured, to some degree, by retention or years of service beyond the education and requisite years of payback service. The assumption is that these officers will apply the knowledge and skills learned in their respective billets or positions. Retaining our warfighting top talent and broadening their skill sets with the strategic and critical thinking attributes honed by these educational and research programs help build an officer corps that would be more capable of executing the DOD’s strategy and enhancing American national security posture. The future demands leaders who possess both the knowledge and the moral capacity to decide and act, and education is the key.4 A 21st-century education for U.S. military forces is vital to national security.
This current article is a short executive summary of the detailed technical research sponsored by the Office of the Chief of Naval Operations (OPNAV) Naval Research Program by the author, which looked at various novel ways (stochastic forecasting, artificial intelligence and machine learning, data science analytics, and advanced simulation analytics) to value the monetary ROI of military education and research activities.5 Although the intangible and qualitative aspects of military education are significant, our research focused on the more quantitative measure of ROI.
What’s the State of the Art?
In considering the importance of education and its associated costs, previous research indicated that the overall benefits and ROI to the Navy from graduate education could be measured, given certain assumptions.6 The report analyzes the political landscape, military policies, and guidance on education and continues with a highly simplistic set of assumptions to generate said ROI. This indicates that even detailed studies fall short of determining an adequately robust ROI measure for military education. Such previous research reinforces the fact that ROI determination in military education and research is not an easy undertaking. Therefore, our research did not evaluate the efficacy of the political status or policy deliberations but focused on a singular goal: determining a set of potentially viable methodologies and techniques from which a robust ROI for military education and research can be triangulated and ultimately determined.
Challenges in Computing ROI in Military Education and Research
A decision maker’s primary responsibility is how to decide which investment alternatives provide the greatest return with the least risk of loss. In civilian organizations, numerous methods and models assist with these decisions. But in military and government agencies, these methods often fall short because typical governmental and military investments do not provide for a monetary return.7 In other words, the government is not in the business of selling goods and services. Instead, it provides intangible returns such as national defense, public safety, goodwill, and other public goods that are difficult, but not impossible, to quantify.8 Scholarly research into assessing the ROI of complete military education and research is lacking or, at least at the time of writing, insufficient and unsatisfying.
The DOD sends its officers to graduate-level institutions each year to obtain advanced degrees primarily to fill positions in their services whose duties require the knowledge and skills gained in graduate school. Furthermore, the benefits of a graduate education extend beyond the specific assignment for which the officer was educated, applying to subsequent assignments. For fully funded education, the service must pay not only the cost of the education but also the pay and allowances associated with an officer’s billet allocated for education as well as assume the opportunity cost of the missing officer’s services, and that same officer will also have to forgo any experience that might have been gained while he or she is in school. Evaluating the quantitative effects of a graduate education poses multiple challenges. DOD educational policy suggests broader, more extensive use of graduate education than simply filling billets that have been determined to require it.9 The question, therefore, is whether the benefit gained from a graduate military education is worth the cost.
Several past studies of individuals with privately funded education such as an MBA or other technical master’s degree show that they earn an average rate of return of at least 46% more than a bachelor’s degree in a 2008 study… and the ROI ranges between 27% to 36% for an MBA.10 However, applying a similar methodology would not work well within the DOD because the U.S. military’s human resource environment is such that it is a closed internal and hierarchical structure. For instance, an officer’s pay is based on his or her rank and years of service, regardless of educational background. It can be argued that higher education may result in higher efficiency and productivity, thereby increasing the speed of promotions, but these are relatively difficult to quantify. An alternate approach might be to consider the years of service beyond the time the education was received. This amounts to the value of retention: how much the military can save in costs by having a higher retention and reutilization rate than by having to educate a new officer to replace a billet due to attrition. Nonetheless, using comparables, traditional financial metrics can be applied to determine the ROI of education and research.
Research Methodology
In our research, multiple technical approaches were applied. More traditional ROI methods such as knowledge utilization, frequency and impact of knowledge used, statistical significance comparisons between the less and more educated cohorts’ productivity and output, as well as the economics of a person’s working life were computed. These were also combined with more advanced analytics such as Integrated Risk Management techniques where Monte Carlo simulations and stochastic forecasting were applied to determine the uncertainty of knowledge gained and used, the lifetime economics of the graduate, combined with data science and pattern recognition with artificial intelligence and machine learning methods. Models like multivariate autoregressive unequal variance heteroskedastic general linear models were applied.11 We applied said analytics to determine the ROI of NPS and NPS-based Acquisition Research Program (ARP), a program established in 2003 that delivers warfighter-focused research that informs and improves acquisition policy and practice.12
In addition, intangible and intrinsic value exists in military education and research but cannot be readily quantified in any standard ROI calculations. In nonmilitary college education in the private sector, higher education brings with it various intangible value-add (e.g., diversification and innovation of the economy, increased wages, and lowered crime rate). However, the intangible value of military education is different. The military is a closed vertical society. A survey of past naval students at NPS, NWC, and USNA indicated that approximately 96% agreed that formal education was extremely useful or very useful in their naval careers. The study found that military personnel have more positive perceptions of their institutions than civilian personnel. Our research results support this point of view.
Key Conclusions
In the research performed, the ROI for military-based research has significant qualitative intangible worth and quantitative economic ROI using secondary data. The ROI ranged from 240%–600% for various military research programs. For example, using standard industry best practices and a specific case study, we concluded that the average conservative ROI for the ARP to be approximately 304%. In the analysis of the ROI of the NPS education programs, we found that from the point of view of the DOD, for every dollar invested in NPS education, the benefits return anywhere between 5.7 and 7.7 times the investment, which represents expected ROIs between 469% and 673%. These ROI values are minuscule compared to the holistic, intangible, and qualitative value of a military graduate university to the DOD. The global average for DOD education and research, on average, provides the government an ROI of approximately 485%. This is a favorable ratio rarely achieved in most DOD programs. Follow-on research can, of course, be applied to further calibrate the analytical models.
The basic fighting unit in the U.S. Navy is more than a ship’s hull, weapons, and systems, it is the Sailors that crew and fight the ship. Training only prepares the warfighter to deal with the known factors of conflict at sea (e.g., the importance of good seamanship), but education prepares warfighters to deal with the unknown factors (e.g., effective decision-making in risk-fraught rapidly changing circumstances). Well-educated warfighters create significant value-add and make up lethal and effective combat-ready units for the future.13
To echo the words of retired Admiral Henry Mauz (former Commander of U.S. Atlantic Fleet, U.S. Seventh Fleet, and Naval Forces Central Command), “My NPS education did more for my career than all of my other degrees combined. It taught me how to make the hard decisions under time pressure with insufficient information using the analytical decision-making I learned here.”14
To conclude, we feel that the goal of the research in creating actionable intelligence for decision makers using an objective, valid, and defensible quantitative measure of a subjective value was achieved. Institutions like NPS should be valued as capabilities to optimize, not costs to minimize, and it deserves further attention from senior leadership on how the DOD can leverage NPS, NWC, and USNA for their comparative and competitive advantages.
Dr. Johnathan Mun is a specialist in advanced decision analytics, quantitative risk modeling, strategic flexibility real options, predictive modeling, and portfolio optimization. He is currently a Professor of Research at the Naval Postgraduate School. By the numbers, he has authored 32 books; holds 22 patents and patents pending; created 12 software applications in advanced decision analytics; and has written over a hundred technical notes, journal articles, and white papers. He is currently the CEO of Real Options Valuation, Inc., and his prior positions include vice president of Analytics at Oracle/Crystal Ball and a senior manager at KPMG Consulting. Dr. Mun holds a PhD in Finance and Economics from Lehigh University, an MBA and MS from Nova Southeastern University, and a BS in Physics and Biology from the University of Miami. He is also a chartered holder of the CQRM (Certified in Quantitative Risk Management), FRM (Certified in Financial Risk Management), CRA (Certified Risk Analyst), and others.
Acknowledgment: The author would like to thank RADM James B. Greene (USN, Retired) for his invaluable insight and inputs. RADM Greene was a surface warfare officer during his Navy career and was the founding Chair of the Acquisition Research Program at Naval Postgraduate School.
Endnotes
[1] Navy Times. Website accessed at https://www.navytimes.com/news/your-navy/2021/05/28/navy-aims-to-reduce-end-strength-cut-higher-education-funding-in-new-budget-request/
[2] Additionally, a cursory search on the Internet reveals that education correlates with lower crime rates, a better quality of life, and higher participation in volunteer work, and, therefore, creates intellectual and economic value to society. Some studies may also tell you that it can lead to longer lifespans.
[3] The Naval Postgraduate School is located in Monterey, California, and the U.S. Naval War College is located in Newport, Rhode Island. Department of the Navy (2018, December). Education for Seapower E4S Report. Website accessed at https://www.navy.mil/strategic/E4SFinalReport.pdf
[4] Ibid.
[5] Mun, J. (2020). Return on Investment in Naval Education and Research. OPNAV Naval Research Program. Website accessed at https://calhoun.nps.edu/handle/10945/67430
[6] Kamarck, K. N., Thie, H. J., Adelson, M., & Krull, H. (2010). Evaluating Navy’s funded graduate education program. A return-on-investment framework. Santa Monica, California: RAND National Defense Research Institute.
[7] Mun, J. (2016). Real Options Analysis (Third Edition). Dublin, CA: Thomson-Shore and ROV Press.
[8] Oswalt, I., Cooley, T., Waite, W., Waite, E., Gordon, S., Severinghaus, R., & Lightner, G. (2011). Calculating return on investment for US Department of Defense modeling and simulation. Defense Acquisition University, Fort Belvoir, Virginia. Retrieved from https://apps.dtic.mil/dtic/tr/fulltext/u2/a539717.pdf
[9] Kamarck et al. (2010).
[10] Ibid.
[11] Mun, J. (2021). Quantitative Research Methods (Second Edition). Dublin, CA: ROV Press.
[12] ARP research connects military and civilian acquisition professionals, policymakers in DoD and Congress, industry, and acquisition researchers from a range of federal and independent institutions. At NPS, ARP supports 60–80 graduate student research projects each year. See: https://nps.edu/web/acqnresearch
[13] U.S. Marine Corps, Learning (MCDP7). Website accessed at https://www.marines.mil/Portals/1/Publications/MCDP%207.pdf
[14] Website accessed at https://nps.edu/-/-nps-own-admiral-hank-mauz-rallies-fall-2009-grads
Featured Image: 364 Naval Postgraduate Students graduate in a June 2021 ceremony. (Photo via Naval Postgraduate School)
