A proposed strategy against cost overruns in the space sector: The 5C approach

doi:10.1016/j.spacepol.2008.02.006

Space Policy

Volume 24, Issue 2, May 2008, Pages 80-89

https://doi.org/10.1016/j.spacepol.2008.02.006 Get rights and content

Abstract

The space sector has frequently been confronted with cost overruns, with a negative impact on its management reputation. There are many reasons for this effect, the main one being that space development contracts are unique and often do not allow proper cost benchmarking. On the other hand, tools have been developed to minimise this effect and it is important to train future space managers in applying such tools. In the International Space University, such methods are illustrated with workshops, which aim to be as close as possible to reality. This article will describe the different techniques, memo-technically called the 5C approach here, and develop the use of a computerised tool, PRICE, to support these techniques in the different phases of the projects.

Section snippets

The problem with cost overruns in the space sector

Cost overruns are not unique to the space sector but are a classical problem in public spending. Early examples can be found in Roman history, as quoted by Gibbon [1]:

The young magistrate (Herod, son of Atticus), observing that the town of Troas was indifferently supplied with water, obtained from the munificence of Hadrian 300 myriads of drachmas for the construction of a new aqueduct. But in the execution of the works the charge amounted to more than double the estimate, and the officers of

The 5C approach to avoid cost overruns

Because of the lack of benchmarking possibilities and a high level of technical uncertainty associated with space projects, it is evident that cost control for such one-shot development programmes can be very challenging.

A five-step approach to help future space managers has been developed as follows [5]:

Step 1: Realistic cost estimation.

Step 2: Consideration on the life cycle cost (LCC).

Step 3: An appropriate contractual framework.

Step 4: Cost control and risk management during the project

The use of computer tools to support these approaches

In order to train future space managers in this management technique, a number of lectures and workshops have been developed at ISU. The more realistic these workshops, the higher the probability that the future managers will be properly trained. Therefore the proper tools are needed.

The basis of these workshops is a simplified request for proposal (RFP) exercise, based upon the principles of standard industrial RFPs. The tendering is then executed on the basis of a competition between student

Conclusion

It is very important for managerial reputation in the space sector, and indeed also to recover from a bad reputation in this area, that cost overruns be reduced in future. One needs to recognise that development contracts have a higher risk in the space field and that this risk needs to be properly managed.

Control techniques have been developed for this purpose over the past few decades and are applied in procurement agencies by project controllers. However, there are two specific points to be

References (23)

Gibbon E. The decline and fall of the Roman Empire, vol. 1. 1962. p....
M. Peck et al.
The weapons acquisition process, an economic analysis
(1962)
M. Holman
The political economy of the space program
(1974)
S. Johnson
The secret of Apollo: system management in American and European Space Programs
(2002)
W. Peeters
Cost engineering lectures
(2007)
ISPA. Parametric estimating handbook. 3rd ed. 2003. Available on...
N. Augustine
Augustine's laws
(1997)
W. Peeters
Space marketing
(2000)
H. Kerner
Project management
(1995)
D. Cooper
Project risk management guidelines
(2005)

Cited by (10)

Project cost risk analysis: A Bayesian networks approach for modeling dependencies between cost items
2014, International Journal of Project Management
Citation Excerpt :
Magnussen and Olsson (2006) provided a comparative analysis of cost estimates of major public investment projects. Peeters and Madauss (2008) described the different techniques, memo-technically called the 5C approach, and developed the use of a computerized tool, PRICE, to support these techniques against cost overruns in the space sector. Chou (2009, 2011) introduced streamlining Monte Carlo simulation processes and input probability distribution selection via hypothesis, and specification of correlation between simulated variables to create an early-stage cost distribution for budget allocation.
Uncertainty of cost items is an important aspect of complex projects. Cost uncertainty analysis aims to help decision makers to understand and model different factors affecting funding exposure and ultimately estimate the cost of project. The common practice in cost uncertainty analysis includes breaking the project into cost items and probabilistically capturing the uncertainty of each item. Dependencies between these items are important and if not considered properly may influence the accuracy of cost estimation. However these dependencies are seldom examined and there are theoretical and practical obstacles in modeling them.
This paper proposes a quantitative assessment framework integrating the inference process of Bayesian networks (BN) to the traditional probabilistic risk analysis. BNs provide a framework for presenting causal relationships and enable probabilistic inference among a set of variables. The new approach explicitly quantifies uncertainty in project cost and also provides an appropriate method for modeling complex relationships in a project, such as common causal factors, formal use of experts' judgments, and learning from data to update previous beliefs and probabilities. The capabilities of the proposed approach are explained by a simple example.
Cost-benefit analysis of space exploration: Some ethical considerations
2009, Space Policy
Citation Excerpt :
Despite the considerable flexibility allowed by the CBA paradigm, CBA is commonly implemented with costs and benefits being measured in units of money [7]. This is the case, for example, in recent discussions of space policy appearing in this journal [8,9].1 Thus, while remaining open to the broader range of possible versions of CBA, this paper will pay particular attention to the commonly used CBA based on units of money.
Humanity faces many important decisions about space exploration. A major but controversial decision-making paradigm is cost–benefit analysis (CBA). This paper discusses some ethical considerations in CBA that are important to decision making about space exploration, including how we define costs and benefits; space exploration's non-market value; the standing of future humans and of extraterrestrials; and the role of discounting in evaluating long-term space exploration projects.
To boldly go where no one has gone before: a critical realist approach to space accounting
2023, Accounting, Auditing and Accountability Journal
Comparing risks assessment in construction projects using two program
2018, Journal of Engineering and Applied Sciences
Managing the architecture of life-cycle processes of unique technical objects
2017, Proceedings of the 30th International Business Information Management Association Conference, IBIMA 2017 - Vision 2020: Sustainable Economic development, Innovation Management, and Global Growth
Effect of project managers' skills on construction project delivery
2017, International Journal of Management and Decision Making

View all citing articles on Scopus

View full text

A proposed strategy against cost overruns in the space sector: The 5C approach

Abstract

Section snippets

The problem with cost overruns in the space sector

The 5C approach to avoid cost overruns

The use of computer tools to support these approaches

Conclusion

The weapons acquisition process, an economic analysis

The political economy of the space program

The secret of Apollo: system management in American and European Space Programs

Cost engineering lectures

Augustine's laws

Space marketing

Project management

Project risk management guidelines