Tag Archives: Cost Estimation

Acquisition Challenge: The Importance of Incompressibility in Comparing Learning Curve Models


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Authors: Capt Justin R. Moore, USAF, John J. Elshaw, Adedeji B. Badiru, and Lt Col Jonathan D. Ritschel, USAF

The Department of Defense (DoD) cost estimating methodology currently employs T. P. Wright’s 75-plus-year-old learning curve formula. The goal of this research was to examine alternative learning curve models and determine if a more reliable and valid cost estimation method exists, which could be incorporated within the DoD acquisition environment. This study tested three alternative learning models (the Stanford-B model, DeJong’s learning formula, and the S-Curve model) to compare predicted against actual costs for the F-15 A-E jet fighter platform. The results indicate that the S-Curve and DeJong models offer improvement over current estimation techniques, but more importantly—and unexpectedly—highlight the importance of incompressibility (the amount of a process that is automated) in learning curve estimating.

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Enhancing Cost Realism through Risk-Driven Contracting: Designing Incentive Fees Based on Probabilistic Cost Estimates


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Authors: Maj Sean P. Dorey, USAF, Josef Oehmen, and Ricardo Valerdi

A risk-driven contract structure is proposed to enhance the cost realism of competitive proposals for the Engineering and Manufacturing Development (EMD) phase of the acquisition life cycle. The authors employ an economic theory framework to discuss how cost-plus contracts typically used during this phase have inadvertently reinforced the sources of contractor and government optimism bias. By mapping probabilistic cost estimates to profit distributions, risk-driven contracts offer a structured method to expose contractors to more cost risk during EMD. Holding contractors accountable for their cost estimates and cost performance should enhance the realism of cost proposals, limit the government’s ability to commit to too many programs, and reduce the cost growth that continues to plague the defense acquisition system.

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