Research Reports from the Department of Operations

Document Type

Report

Publication Date

3-1-1979

Abstract

This paper presents a general model for cost evaluation in Research and Development and other projects, where it is necessary to predict both the expected cost and its variance. The model shows means of accounting for interdependencies between various cost elements in both the expected value and variance calculation. The model does not require any explicit knowledge of the exact probability distribution of any of the cost elements, but only some approximate values for their expected values, variances and correlations with other variables. If the user of this model is not willing to account for all the interdependencies between various cost elements, but only some of the important ones, a special case of the model can be derived for any such situation. The special case when all cost elements are independent can also be derived from this general model. Though discounting has not been incorporated in the model, it can easily be done. The model is applicable to any level of cost aggregation or deaggregation, and it is not necessary that costs be broken down to its lowest levels.

Keywords

Operations research, Research and development projects, Project management--Mathematical models, Cost control, Research--Finance, Risk assessment, Industrial management--Mathematical models

Publication Title

Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University

Issue

Technical memorandum no. 451

Rights

This work is in the public domain and may be freely downloaded for personal or academic use

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