Extending technology: The estimation and control of costs

When firms undertake new development projects designed to extend technology, there is considerable uncertainty as to the amount of cost that will eventually be incurred. This study examines product technology as a driver of product development and production costs. Our study tests hypotheses concerning the relationships between extensions in technology and costs, and provides insights into estimating and controlling costs. Our study relies on techniques available for measuring the state-of-the-art of technology and for quantifying the incremental progress represented by a particular project. First, relationships among technology measures, development time, and development cost are formulated and tested. Next, variance measures related to development cost are developed. Finally, associations between technological complexity, development cost, and production cost are examined. The viability of this approach for cost prediction is demonstrated by using technological and cost data from 18 satellite programs.