The Time-Cost Trade-Off Function, Overlapping Stages, and the Timing Decision
The previous chapter described the concept of the time-cost trade-off function and presented data concerning the shape of this function for twenty-nine product innovations. In this chapter, we explore this topic more fully. We analyze the determinants of the shape of the time-cost trade-off function, particular attention being given to the determinants of the elasticity of cost with respect to time. Also, we describe the extent to which various stages of the innovation process are carried out in parallel, and the relationship between such overlap and a project’s cost structure. Finally, we see how rapidly these projects should have been carried out, if the object was to maximize expected profits (and if the managers’ estimates of the relevant variables were correct); and we compare these durations with the actual durations. Our results shed new light on the nature, determinants, and application of the time-cost trade-off function.
Unable to display preview. Download preview PDF.
- 2.For example, see Jacob Schmookler, Testimony before Antitrust Subcommittee of Senate Judiciary Committee (May 27, 1965);Google Scholar
- A. Cooper, “R and D Is More Efficient in Small Companies,” Harvard Business Review, May 1964;Google Scholar
- Edwin Mansfield, Industrial Research and Technological Innovation (New York: W. W. Norton for the Cowles Foundation for Research in Economics at Yale University, 1968), Chap. 2. On the other hand, it could be argued that it is less expensive for a large firm to speed up a project because it is able to do many stages of a project simultaneously whereas this is beyond the capacities of a small firm. Clearly, the advantages of firms of various sizes depend on the nature of the project.Google Scholar
- 3.Merton Peck and F. M. Scherer, The Weapons Acquisition Process (Cambridge: Harvard University Press, 1962).Google Scholar
- 4.Thomas Marschak, Thomas Glennan, and Robert Summers, Strategy for R and D (New York: Springer-Verlag, 1967).Google Scholar