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- Newsgroups: sci.space
- Path: sparky!uunet!hela.iti.org!aws
- From: aws@iti.org (Allen W. Sherzer)
- Subject: Re: Stupid Shut Cost arguements
- Message-ID: <1992Dec28.180732.2643@iti.org>
- Organization: Evil Geniuses for a Better Tomorrow
- References: <BzzAGI.5v4.1@cs.cmu.edu>
- Distribution: sci
- Date: Mon, 28 Dec 1992 18:07:32 GMT
- Lines: 105
-
- In article <BzzAGI.5v4.1@cs.cmu.edu> ssi!lfa@uunet.UU.NET ("Louis F. Adornato") writes:
-
- >>>In military procurement, the development costs are charged against
- >>>the prototypes, X, Y, etc, and the operational vehicles of the procurement
- >>>are charged at "flyaway" cost.
-
- >>Which I suspect is done largely to hide the true cost. I point out that if
- >>the contractors in question ran their accounts this way they would all be
- >>in jail and out of buisness.
-
- >Wrong. Many major corporations consider research and/or development a
- >"sunk" cost - it's something that's considered part of the cost of
- >staying in business,
-
- Sure, but that is not what we are talking about here. Research and some
- conceptual development are part of overhead. However, when a decision
- is made to productize something, it always gets a separate account and
- costs are charged to that. These costs are amortized over the expected
- life of the product.
-
- Boeing, for example, is currently designing the 777. There is a section
- on it in the corporate budget and costs associated with it WILL be
- specifically included in costing the product. If they didn't, then they
- couldn't be sure they where recouping development costs and thus would
- go out of buisness.
-
- Can you name a product ever made by a successful company which DIDN'T
- keep track of product development costs (as opposed to pure research)
- and assign those costs to the product? Outside government, you won't.
-
- >>But why should we follow that model?
-
- >Because NASA paid for the design and development work (and precious
- >little research) up front, and doesn't have to pay anyone back for
- >those costs.
-
- I wouldn't say nobody. There is after all, the taxpayers. I think they
- would like to see their money spent wisely.
-
- The other issue is what we want from space. If your happy with a few
- Shuttle launches a year then your all set. On the other hand, if you
- want an active space program you need commercial involvement which
- you won't get by forcing them to amortize development costs when the
- government competition doesn't need to.
-
-
- >> Hiding costs like you advocate only
- >>encourages waste and inefficiency.
-
- >On the contrary, by keeping development and operational costs separate,
- >there's less opportunity for waste and inefficency in one phase to get
- >buried in the lifecycle costs.
-
- Of course, that 'waste and inefficiency' also tells you that you simply
- can't build the product so it should be cancled. That is very useful
- information which is suppressed under government procurement systems. It
- also encourages designers to take the short view and minimize design
- costs which tends to maximize operations cost.
-
- I have worked on more than one project where the company decided that
- development costs couldn't be made back with the product. In these cases
- they cancel the project so they can invest it in other products which
- CAN recoup costs.
-
- >Besides, development and operations are
- >two completely different kinds of costs, so drawing a clean line
- >between the two also provides better historical information for
- >budgeting, forecasting, and cost control on the next project.
-
- Of course. Such a clean line is indeed drawn. There is a development
- line item and an operations (or manufacturing) line item.
-
- >Of course, amortizing the development costs does have one real
- >advantage; it ensures that the shuttle's per-flight costs will always
- >be astronomical,
-
- The advantage sir, is the realization that we are spending too much for
- a system which doesn't work very well. I consider realizing that fact
- (helped by reasonable cost accounting) a good thing since it allows us
- to spend our money more wisely.
-
- Why doesn't it bother you that we are spending (in your words) 'astronomical'
- amounts of money for launch services? Are you so carefree with your own
- money? If not, why are you so carefree here?
-
- >while allowing the DC program to hide it's own
- >development costs behind a vaporware figure of useful lifespan.
-
- If you have some specific technical justification for this, please post
- it. If not then it must fall under Gary's 'is doesn't exsit so it won't
- work' line of arguement.
-
- I am happy to compare DC (or existing expendables) to Shuttle. No matter
- what rules you pick, Shuttle looses.
-
- We simply aren't going to get into space by shoveling money under a
- SSME and waching it burn.
-
- Allen
-
- --
- +---------------------------------------------------------------------------+
- | Allen W. Sherzer | "A great man is one who does nothing but leaves |
- | aws@iti.org | nothing undone" |
- +----------------------117 DAYS TO FIRST FLIGHT OF DCX----------------------+
-