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ABSTRACT.
Cost growth in Department of Defense (DoD) weapon systems continues to be a scrutinized area of concern. One way to minimize unexpected cost growth is to derive better and more realistic cost estimates. In this vein, cost estimators have many analytical tools to ply. Previous research has demonstrated the use of a two-step logistic and multiple regression methodology to aid in this endeavor. We investigate and expand this methodology to cost growth in procurement dollar accounts for the Engineering and Manufacturing Development phase of DoD acquisition. We develop and present two salient statistical models for cost estimators to at least consider if not use in mitigating cost growth for existing and future government acquisition programs.
INTRODUCTION
An ongoing problem for over three decades, cost growth during the acquisition of major weapon systems concerns not only those who work in the acquisition environment, but also the members of Congress and the general public. According to reports by the General Accounting Office (GAO), RAND, and the Institute for Defense Analysis, the average cost growth in major defense acquisition programs ranges anywhere from 20 - 50 % (Calcutt, 1993, p. i). This fiscal escalation in major acquisition programs adversely impacts the Defense Department, the defense industry, and the nation.
The Department of Defense (DoD) coined the phrase "realistic costing" for the current reform being undertaken in the defense acquisition community. "Under the new costing approach, the Pentagon will adopt program estimates developed by the Cost Analysis Improvement Group (CAIG1) in conjunction with a service estimate (Grossman, 2002, p. 2)." Realistic costing utilizes the CAIG's cost estimating expertise to provide higher quality estimates. DoD's dedication to realistic costing contributed significantly to the cancellation of the Navy Area missile defense program, sending a strong message to the acquisition community. If managers overrun their budget and breach the Nunn-McCurdy law, their program will be terminated (Grossman, 2002, p. 2).
For managers to understand and to contain cost growth, they must identify and control the root causes of cost growth. Program managers often resort to a process known as "buffering" in order to increase the accuracy of the baseline estimate and to limit the program's likelihood of incurring cost overruns. Buffering of an estimate entails assigning a cost estimate (dollar...