Dynamics of cost uncertainty for innovative high value manufacturing products - a geometric phenomenon

Abstract

In practice the forecasting of cost uncertainty for high value manufacturing products is typically a statistical exercise focused on predicting a static cost range at a future point in time. This only leads to robust forecasts if sufficient historical data is available, robust knowledge of cost estimating relationships exists and these relationships do not change in the time between creating the forecast and verifying its accuracy. The more innovative the product is the less likely it however is that these prerequisites are met. Using cost data from the U.K. Ministry of Defence Royal Air Force A400M transport aircraft from 2002 to 2014 as an example, the dynamics of cost estimating relationships over time are examined using a novel non-statistical forecasting approach. The approach considers cost uncertainty as a geometric phenomenon, does not rely on prior information and permits easy identification of patterns in changes of cost estimating relationships over time.