, Volume 1, Issue 3, pp 193-228

The effect of defense program uncertainty on cost, schedule, and capital investment

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Program instability, low levels of capital investment and uneconomical production rates have been recognized as significant problems in defense acquisition programs. In this paper, we use a dynamic programming model under uncertainty to investigate the relations among these problems. We show that capital investment and production rates that appear to be too low may be the result of cost minimizing responses by contractors to program instability. Attempts to change the level of capital investment or production rate on defense programs without regard to the nature of program instability may hinder efficient resource allocation.

The refereeing process of this paper was handled through J.F. Muth.