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

  • Edwin Mansfield
  • John Rapoport
  • Jerome Schnee
  • Samuel Wagner
  • Michael Hamburger

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 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Notes

  1. 1.
    A. Marshall and W. Meckling, “Predictability of the Costs, Time, and Success of Development,” in The Rate and Direction of Inventive Activity (Princeton, N.J.: Princeton University Press, 1962).Google Scholar
  2. 2.
    Merton Peck and F. M. Scherer, The Weapons Acquisition Process (Cambridge: Harvard University Press, 1962).Google Scholar
  3. 5.
    Edwin Mansfield, Industrial Research and Technological Innovation (New York: W. W. Norton for the Cowles Foundation for Research in Economics at Yale University, 1968), Chap. 3.Google Scholar
  4. M. Hastay, “The Dun and Bradstreet Surveys of Businessmen’s Expectations,” Proceedings of the Business and Economics Statistics Section of the American Statistical Association (September 1954), pp. 93–123;Google Scholar
  5. H. Theil, Economic Forecasts and Policy (Amsterdam: North Holland Publishing Company), 1961, Chaps. 3 and 4;Google Scholar
  6. 9.
    See the discussion of military cost estimating errors in Thomas Marschak, Thomas Glennan, and Robert Summers, Strategy for R and D (New York: Springer-Verlag, 1967).Google Scholar
  7. 21.
    For a discussion of this conflict see S. Marcson, The Scientist in American Industry (New York: Harper, 1960)Google Scholar
  8. William Kornhauser, Scientists in Industry: Conflict and Accommodation (Berkeley: University of California Press, 1962).Google Scholar

Copyright information

© W. W. Norton & Company, Inc. 1971

Authors and Affiliations

  • Edwin Mansfield
    • 1
  • John Rapoport
    • 2
  • Jerome Schnee
    • 3
  • Samuel Wagner
    • 4
  • Michael Hamburger
    • 5
  1. 1.Wharton SchoolUniversity of PennsylvaniaUSA
  2. 2.Mount Holyoke CollegeUSA
  3. 3.Columbia UniversityUSA
  4. 4.Temple UniversityUSA
  5. 5.Federal Reserve Bank of New YorkUSA

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