OTHER PROGRAMS, FOR EXAMPLE THE MBT-70 TANK HAVE BEEN
CANCELLED BECAUSE THEY WERE TOO EXPENSIVE.

THIS AVERAGE BASED ON 13 MAJOR SETS OF NEW AND OLD SYSTEMS (SOURCE: ODDR&E)

1

d

COST GROWTH IMPLICATIONS

IF SIGNIFICANT UNANTICIPATED INCREASES CONTINUE

THEN, DOD WILL BE FORCED

• EITHER TO REDUCE FORCES BELOW

PLANNED LEVELS

• OR, TO SACRIFICE DESIRED PERFORMANCE

FURTHER LOSS IN CONGRESSIONAL AND PUBLIC CONFIDENCE

WILL OCCUR

THE SECOND CAUSE OF
COST GROWTH IS

MANAGEMENT AND TIMING FACTORS

THESE ARE THE PROBLEMS THE PUBLIC SEES AS "COST OVERRUNS"

* AS CURRENTLY REPORTED ON DOD SAR'S IN JUNE 1972

DATA TAKEN FROM ANALYSIS OF COST CHANGES IN 45 WEAPON SYSTEMS REPORTED IN JUNE 30, 1972 SAR'S

ESTIMATING ERRORS (25%)

BOTH BUYER AND SELLER HAVE STRONG MOTIVATIONS TO ACCEPT LOW COST ESTIMATES IN A COMPETITIVE ENVIRONMENT

THE BUYER OVERSTATES PERFORMANCE TO GAIN

APPROVAL OVER COMPETING SYSTEMS

THE SELLER UNDERSTATES THE COST DUE
TO OPTIMISM

BOTH UNDERESTIMATE THE SHEER DIFFICULTY OF

PREDICTING THE UNKNOWN

INFLATION (30%)

DOD HAS REPORTED ITS FINDINGS TO THE COMMITTEE

• THE GOVERNMENT IS LEARNING HOW TO COPE WITH THIS PROBLEM IN CONTRACT ESCALATION CLAUSES

SPECIFICATION CHANGES (45%)

THIS MAY BE THE MOST IMPORTANT CAUSE OF OVERRUNS
WHICH RESULT FROM-

- TRYING TO DO TOO MUCH CHALLENGING THE STATE OF THE ART FRONTIER

- TRYING TO DEVELOP AND PRODUCE THE SYSTEM TOO FAST

THESE CHANGES AFFECT QUANTITY, SCHEDULE AND
PERFORMANCE SPECIFICATIONS