Measuring Transaction Costs in DoD Acquisition Programs
Abstract
This paper reports the preliminary results of a study to explore the influence of transaction costs on Department of Defense (DoD) cost estimates. It is an extension of previous work that established that Transaction Cost Economics has promising explanatory power in terms of costs of major DoD acquisition programs. The current work explores methods of measuring transaction costs as a first step in improving estimation methods by including explanatory variables that capture the coordination and motivation problems associated with a program. The preliminary results indicate that it is possible to measure contractor Systems Engineering/Program Management (SEPM) costs as a proxy for transaction costs. The ratio of SEPM to total costs was examined for two case studies (Javelin and ATACMS) for which ex-ante indicators of transaction costs had been assessed. The results are consistent in that the program with ex-ante indicators that indicated higher transaction costs also had a significantly higher SEPM ratio. Further research is required to better establish the relationship between transaction costs indicators and the quality of DoD cost estimates.
Document Details
- Document Type
- Technical Report
- Publication Date
- Sep 29, 2008
- Accession Number
- ADA494232
Entities
People
- Chip Franck
- Diane Angelis
- François Melese
- John Dillard
Organizations
- Naval Postgraduate School