Committed Costs vs. Uncertainty in New Product Development

Committed Costs vs. Uncertainty in New Product Development
Authors/editors: Phillips, Fred Y.; Srivastava, R.
Type: working paper
Publisher: IC² Institute
Series: IC² Institute Working Papers; WP-1993-02-01
Date: 1993-01
Full text: http://hdl.handle.net/2152/18565

Description

Discusses the nature of committed and determined costs in a new product development project, and quantifies their relationship to project uncertainty. Introduces the concept of product, process, schedule and market (PPSM) intelligence and emphasizes its use for jointly considering marketing and production factors in project evaluation. Uses a discriminate function-based measure of information gain to compare committed cost, incurred cost and information gain over the life of a development project leading to a risk profile that may be constructed from the observed behavior of the firm, without the use of hypothetical lotteries. Shows, using data from two companies, that this cost-risk construct is meaningful and can provide guidance for operational decisions in the new product development process.

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