Living Down To Expectations

NEWYou can now listen to Fox News articles!

Picking up on my theme from last week's column on why space is so expensive (which by the way, elicited some heated emails--see below), I found an interesting quote from Gregg Maryniak, director of the X-Prize Foundation, and former director of the Space Studies Institute.

"Bottom line is that space stuff costs perhaps 500 times as much to develop historically as (very challenging) undersea stuff. Why? It may be largely because of the expectation that it should (based on the history of governments racing each other without regard to normal engineering cost contraints.) When I speak to big audiences of traditional government space program engineers and program managers I usually pray that one of them will ask me: 'You mean to say that mere expectations can be cost drivers--ridiculous' which I say, I have two words for them....'stock market.'"

Is Gregg right? Is space hardware and operations expensive because we expect it to be?

There's actually quite a bit of evidence that it is, at least to a degree.

Most space contracts, particularly government contracts, are cost plus fixed fee. This means that the contractors are reimbursed for the actual costs of executing the contract, as reported by them, plus some amount for profit (typically a few percent of the contract value). This is because high-technology research and development is recognized to be high risk--that the schedule might slip, or the costs be greater than originally estimated, and few if any private companies are willing to absorb those costs. NASA knows that none would bid on any other basis.

The problem with this, of course, is that it skews incentives in a way that are bad for the taxpayer (though not necessarily for the true constituencies of the space program--the contractors themselves, and the congresspeople in whose districts the contractors employ people). Perversely, the more they spend, the more they earn. There are occasionally attempts to mitigate this by putting in bonuses for hitting cost targets, and penalties for missing schedules or overrunning the budget, but they're largely ineffective, at least judging by the space station program.

But there's a more pernicious result of this, that's less often considered. In order for NASA to project the cost of the contract, they have to have a way of estimating the costs, even if it's something that may have never been done before. The way they (and the contractors) typically do this is called parametric cost analysis. They have cost models that are built up by examining many past programs, and incorporating the cost and schedule data from those programs. The models might use factors such as complexity (which is hard to measure), weight, technology level, and so on. The hope is that a good cost estimator can come up with a valid estimate for the program cost and schedule, based on similar efforts that have been performed in the past.

One problem with this is that it's more art than science, and heavily dependent on the assumptions that the modeler uses. Another problem, of course, is that it reinforces notions of how expensive things will be, because by definition, it's based on how expensive things were in the past. It doesn't provide any way to model true innovation. In addition, because almost all of the experience comes from government programs, the data base for private space activities is very sparse, so they don't have any way of modeling that with any degree of credibility. And it turns even government programs, given the right team and incentives, can beat the estimates. As an example, consider what Steven J. Höeser, author of The Cost Impact of True Spaceships had to say to the U.S. House of Representatives Committee on Science Subcommittee on Space and Aeronautics about the DC-X program:

"Prior to letting the DC-X contract our program office conducted a cost estimating study. We used three models, one developed internally, one used by the US Air Force and one from NASA. The results were that our cost estimate based on the rapid program assumptions I described earlier and projected a cost between $60 and $70 million, the Air Force model using standard aerospace procurement practices produced an estimate of $365 million, the NASA model based on highly technology development based shuttle program experience projected the program would cost over $600 million. The actual DC-X program cost through the first test series came in around $65 million."

In other words, they beat the conventional Air Force costing model by a factor of more than five, and its NASA equivalent by almost an order of magnitude, or factor of 10.

Sadly, here's the process (slightly oversimplified). NASA comes up with a program idea. They come up with a cost estimate for it. They request a budget. If Congress authorizes it, they put out a procurement for that budget target. The contractors write their proposals, and then come up with their own cost estimates that magically, and almost invariably, turn out to be close to what NASA has money for. And thus the expensive game is perpetuated.

But as one more example of how such estimates and quotes can be voodoo, let me relate a story (possibly apocryphal, but it's certainly believable to anyone with experience in the business) that was told to me by a program manager from the 1970s. In the process of submitting a proposal, a small, almost insignificant typo found its way into the final version as delivered to the customer. It was a decimal point, misplaced one place to the right, resulting in a bid for that part of the program ten times too high, relative to the contractor's internal estimate.

The contractor was downselected for a Best And Final Offer, which is an opportunity to negotiate a little bit. The contractor fully expected to be raked over the coals for their outrageously high bid (I think that it was something like $10 million, when it should have been one), and they weren't disappointed. The NASA contracting officer excoriated them, calling them crooks and cheats, and other names not mentionable in a family web site, and finally finished up his lecture with the words, "...and we're not going to give you a dime over nine million!"

And of course, the outraged response from the contractors' representatives (as they sighed with relief) was, "But we can't do it for that!"

Perhaps it's time to start giving the job to contractors for whom research and development is a recognized cost of doing business, rather than a profit center.


As I wrote above, I got some highly charged and amusingly angry responses to last week's column about expensive satellites. Some people accused me, bizarrely, of blaming NASA for Hurricane Isabel.

A fuming John Sherwitz, of Houston, Texas writes:

You are just another lying politician, Mr Simberg. Just like Republican politicians blame Bill Clinton for the decline and fall of America and Democrat politicians blame George Bush for anything and everything, you blame NASA for "billions of dollars of property and lives lost" due to hurricane Isabel. You know if you make enough false charges some people will believe some of them. Sling that mud, maybe some of it will stick. So when are you going to run for Congress? Just think of the power you would have to harm NASA if you were in the Senate!

Thank you Fox News for making Fair and Balanced into False and Biased.

Well, I don't mind so much being called a liar, but he goes too far when he calls me a politician. At least he didn't accuse me of being a lawyer.

Thomas Chasens chastens me:

No amount of costly satellites, or pilots, or warnings will stop the destruction that is about to occur. You seem to have, unthinkingly, tried to solve the problem of shaving off a couple dollars of destruction with the use of more costly solutions.

No offense, but I think you need more time to recover from being an engineer.

Offense taken anyway...

Michael Scott, of Dallas, Texas, accuses:

The author is an idiot . . . because I'd rather ascribe that quality to him than that of a manipulative disingenuous profiteer.

Well, at least he didn't call me a politician...

The "for want of a bolt" analogy was cute. But the heart of the story was a request for greater resources to be spent on space commercialization and exploitation. And why? As the author describes it, because: "billions of dollars of property and lives, on the east coast of our nation, may be lost."

Actually, I never proposed that greater resources be spent on space commercialization and exploitation in that column. Perhaps he was reading some other column.

Really? Those satellites are actually going to stop that hurricane? Please! The real reason for the pitch was so that he could promote himself as a "consultant in space commercialization, space tourism and Internet security". He should quit using as his own personal business card, and Fox should hire someone who actually pays attention to what is being written to handle their internet content.

Ignoring all of the slanders on my character and motivations, there seems to be a common thread here--that I believe that satellites can stop hurricanes in general, and this one in particular. Of course, I wrote, nor implied nothing of the kind.

My point was that our ability to mitigate damage from such storms requires being able to know they're coming, and having as much information about their future track and strength as possible. More information would be better. We knew about Isabel because we did have a bird up there, but if it had died a couple weeks ago, we would have been severely crippled in our ability to track such storms, with no quick or affordable way to replace it, except perhaps to move another one from a different location, leaving some other area unseen. Cheaper launch and space hardware costs will allow us to have more, and better satellites, perhaps allowing us to better tune our responses to such natural disasters.

I actually got some positive comments as well, and have posted and responded to them at my weblog.

Rand Simberg is a recovering aerospace engineer and a consultant in space commercialization, space tourism and Internet security. He offers occasionally biting commentary about infinity and beyond at his Web log, Transterrestrial Musings.

Respond to the Writer