Parametric Costing and Institutionalized Inefficiency

Publisher Website
Google Scholar
Abstract
The parametric costing methodology, developed by the RAND Corporation as a means for improving the capability for estimating project costs, is essentially a sophisticated form of historical costing in which the cost experience of past systems becomes a baseline for estimating the cost of future systems. This paper argues that such a procedure, interacting with the special characteristics of the environment in which it operates, tends to institutionalize the inefficiencies of previous production operations, reducing the critically important pressures for increased efficiency that are a central concern of the industrial engineering function. A simple model illustrating the tendency of parametric costing type techniques to exacerbate cost growth is presented. An alternative approach, more in line with traditional industrial engineering is suggested—one that is likely to not only improve cost estimates but enhance rather than degrade productive efficiency.

This publication has 0 references indexed in Scilit: