Approximating the Effects of Changes in the Business Base,
Abstract
The effects of changes in the business base are often ignored in estimating the costs of large development and production programs. However, these effects may be significant, not just for the program being changed, but also for other programs produced by the same contractors. Indeed, these effects are increasingly important with the dramatic reductions occurring in the defense budget. Assessing the effects of changes in the scope of programs is substantially complicated by the pattern of inter-locking subcontracted arrangements, which cause the business base effects to ripple throughout the defense industrial base. This paper presents a coarse method for approximating the implications of program scale changes on both prime and major subcontractors that is relatively easy to apply. The method begins with budget profiles which form a base case for the programs of interest and for the other programs in the industrial sector. From the base case, the contractors' revenues, direct costs and fixed overhead are estimated. A proposed plan, which varies the scope of the programs, is costed with the fixed costs from the base case. The programs' revised direct costs are determined, and the fixed overhead for each firm is reallocated among that firm's programs. In our application, we modeled tactical aircraft acquisitions.
Document Details
- Document Type
- Technical Report
- Publication Date
- Sep 01, 1993
- Accession Number
- ADA275785
Entities
People
- Gary R. Bliss
- Mark A. Gallagher
Organizations
- Office of the Secretary of Defense