Development Phase Cost Drivers for Production Costs: The Case of Tracked Vehicles

Abstract

There are two different approaches, the disjoint and sequential models, which attempt to account for differences between development unit cost and production unit cost. The disjoint model uses a production cost improvement curve that is physically separate from the development cost improvement curve. For the sequential model, however, the first unit cost of production units directly follows the last development unit due to a carryover of the cost improvement process. This paper, using a sample of seven tactical armored tracked vehicles, first obtains the theoretical first unit production costs for the vehicles under both sequential and disjoint models. Then, using various measures of activities in the development phase, CERs are obtained for both models which relate activities in the development phase to theoretical first unit production cost. The results indicate that, for the disjoint model, first unit production costs depend on development first unit costs. For the sequential model, first unit production costs depend on the average development cost as well as the time span between the end of development and the beginning of production.