whether these investments directly relate to a more effective military is an open question because we do not have an unambiguous metric for the value produced by these investments. Enter AI “London School of Economics adopts AI- powered procurement system,” touts a re- cent headline, “reports 15 percent cost savings.” Another ominously announ- ces that “Microsoft uses AI to save $500 mil- lion, lays off workers.” These news reports imply that the pursuit of cost savings justifies the expense of implementing AI, or, more generally, reflects an ap- parent and clear relationship between investments in tech-nology and pro- ductivity because of a reduction in the ROI denominator. In a December 1993 article titled “The productivity paradox of information tech- nology,” Erik Brynjolfsson examined why business productivity declined in the 1970s despite massive invest- ments in information technology. He concluded that the apparent paradox could be attributed to an inadequate measurement scheme for the new technology, resulting in the mis- management of resource allocation. Now a Stanford University professor, Brynjolfsson has revised his conclusions somewhat, particularly in light of the 1990s, when a stronger correla- tion emerged between technology investment and firm-level productiv- ity. He now attributes the mismatch to a lack of understanding about how technology can or should be used to benefit productivity. Brynjolfsson cites this conclusion in his argument against the level of cur- rent AI investments—that we are failing to tie our implementation of AI technology to business outcomes. In other words, we do not yet know the returns on AI—we need more time to fully understand how AI should be used and where it makes sense. Our current investment strategy, which assumes that AI is a mature technol- ogy with a well-established correla- tion to productivity, leans too heavily into assumptions about the relation-
Just as a sign in a store might claim “buy two and save 50 percent,” claims of cost savings often are exaggerated and should not be the sole focus of military investments.
“util” or unit of utility that can mea- sure the pleasure or pain an action in- curs. The util metric makes sense until you try to use it in practice. Not all utils are the same and therefore can- not be used to compare the relative utility value of any action, process, or resource against any other. Despite the progress of the inter- vening centuries, the problem persists of identifying a common unit of value across disparate processes. Even if the Army could identify standard units of destruction, capability, readi- ness, or maneuverability, comparing the value of one type of Army process relative to the other is unrealistic. The ROI formula is the ratio of sales return (revenue minus investment) to the in- vestment alone:
focus of military investments. Mak- ing them the focus, taken to its logical conclusion, would mean maximizing cost savings by buying nothing or perhaps using appropriated funds to start a for-profit side business in- stead of buying weapons and tanks to help us win wars. (In business, this is called the cost-cutting death spiral and would be a dangerous approach for an Army that needs to win a war.) When we invest in the stock mar- ket, we buy a stock at a particular price with the expectation that its value will rise and we can later sell it for a higher price. At the time of pur- chase, we are making an investment. But because we are buying at market price, the revenue is zero. Over time, the stock price will fluctuate due to factors such as company earnings, market competition, and past volatil- ity of the stock price. If the price goes up, that is revenue from the perspec- tive of the stock owner (unrealized until sold), and therefore the ROI goes up. If the stock price goes down, so does the ROI. However, when Congress appro- priates funds for the military, we are expected to invest that money into the goods and services that support military core processes. These funds represent taxpayers’ monetized in- vestments. Therefore, they cannot be the equivalent of sales revenue. The expectation is that the military will turn these taxpayer investments into valuable products and services that protect the country, which is a bit like paying for insurance. However,
Revenue – Investment Investment
ROI =
An investment (that is, the cost to acquire or use a resource) is the focus of any funding request. In the world of business, revenue is gained from sales of a product or service. But because the government does not sell prod- ucts or services, we cannot use the ROI formula in standard financial ac- counting. Because dollars are an accepted denominator, it is tempting to use them as the numerator as well. So, cost savings are often used as a sur- rogate for the monetized value of rev- enue. Just as a sign in a store might claim “buy two and save 50 percent,” claims of cost savings often are ex- aggerated and should not be the sole
14 | DEFENSE ACQUISITION | November-December 2025
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