Overruns and Errors in Estimating Development Cost, Time, and Outcome

Edwin Mansfield, John Rapoport, Jerome Schnee, Samuel Wagner and Michael Hamburger
Additional contact information
Edwin Mansfield: University of Pennsylvania
John Rapoport: Mount Holyoke College
Jerome Schnee: Columbia University
Samuel Wagner: Temple University
Michael Hamburger: Federal Reserve Bank of New York

Chapter 5 in Research and Innovation in the Modern Corporation, 1971, pp 86-109 from Palgrave Macmillan

Abstract: Abstract In recent years, cost and time overruns in military development have made the front pages of newspapers. Long before these overruns reached the headlines, economists were interested in them. For example, studies carried out by the RAND Corporation in the late fifties showed that there were substantial errors in the estimates (made prior to development) of the costs of producing various types of military hardware. When adjusted for unanticipated changes in factor prices and production lot-sizes, the average ratios of actual to estimated cost were 1.7 (fighters), 3.0 (bombers), 1.2 (cargoes and tankers), and 4.9 (missiles). The extent to which costs were understated was directly related to the extent of the technological advance. In cases where a “large” technological advance was required, the average ratio was 4.2; in cases where a “small” technological advance was required, the average ratio was 1.3.1

Keywords: Average Ratio; Technical Success; Chemical Entity; Development Cost; Weapon System (search for similar items in EconPapers)
Date: 1971
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DOI: 10.1007/978-1-349-01639-6_5

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