The Effect of Processes and Incentives on Acquisition Cost Growth

Report Number: NPS-AM-11-C8P15R01-055

Series: Acquisition Management

Category: Decision Support

Report Series: Proceedings Paper

Authors: Doug Bodner, Bill Rouse, I-Hsiang Lee

Title: The Effect of Processes and Incentives on Acquisition Cost Growth

Published: 2011-04-01

Sponsored By: Acquisition Research Program

Status: Published--Unlimited Distribution

Research Type: Other Research Faculty

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Keywords: Cost Growth, Incentive-Based Systems, Organizational Simulation, Multi-Actor Behavior


Cost growth continues to be a serious concern in major acquisition programs. A variety of causes have been identified for cost growth, including low initial cost estimates, complex acquisition processes, and immature technologies. Incentive-based systems have been employed in an attempt at cost savings, with mixed results at best. This paper examines the role of process and incentive characteristics in cost growth. In particular, we study process concurrency, types of incentive contracts employed and the transfer point from cost-plus to fixed-price contracts, and the resulting effects on cost growth in the F-35 Joint Strike Fighter program. The F-35 program currently is in low-rate initial production. The emerging paradigm of organizational simulation is used in this study, since it combines process representations to model acquisition processes and agent representations to model multi-actor behavior, including reaction to incentives. Simulation experiments are conducted and analyzed to determine the effects of the factors described above on cost growth.