DTIC ADA610513: A Macro Stochastic Approach to pdf

DTIC ADA610513: A Macro Stochastic Approach to

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Inaccurate cost estimates are a recurrent problem for Department of Defense (DoD) acquisition programs, with cost overruns exceeding billions of dollars each year. These estimate errors hinder the ability of the DoD to assess the affordability of future programs and properly allocate resources to existing programs. In this research, the author employs a novel approach called macro-stochastic cost estimation for significantly reducing cost estimate errors in Major Defense Acquisition Programs (MDAPs). To achieve this reduction, the author first extracts and catalogs key programmatic data from 936 Selected Acquisition Reports. The author then analyzes historical trends in the data using mixed-model regression with high-level descriptive program parameters. Based on these trends, the model is found to reduce estimate errors by 18.7 percent on average, when applied to a randomly selected, historical cost estimate. However, the model is most beneficial when applied early in program life; when applied to the first cost estimate of each program in the database, the macro-stochastic technique reduces cost estimate error by over one-third.

This statistically and economically significant reduction could potentially allow for reallocation of $6.25 billion, annually, if applied consistently to the DoD’s portfolio of MDAPs

• Creator/s: Defense Technical Information Center
• Date: 3/27/2014
• Year: 2014
• Book Topics/Themes: DTIC Archive, , AIR FORCE INSTITUTE OF TECHNOLOGY WRIGHT-PATTERSON AFB OH GRADUATE SCHOOL OF ENGINEERING AND MANAGEMENT, *COST ESTIMATES, *DEFENSE SYSTEMS, ACQUISITION, ALLOCATIONS, COST OVERRUNS, RESOURCES, THESES

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