Offset Obligation in Defense Projects: Schedule, Budget, and Performance Implications

Abstract

Using the three criteria known as the “Iron Triangle,” this study examines and analyzes the ramifications and effects of offset constraints on defense projects. Such projects, managed vis-à-vis governments and international authorities, contend with a constraint that does not exist in other domains: offset, an obligation and condition for the sale of defense products to a purchasing government. The study combines qualitative tools, ten semi-structured interviews conducted with academics and professionals, with quantitative tools, surveys sent to project managers and other people employed in leading Israeli defense manufacturing companies. In-depth analysis of the responses and findings of the qualitative study reveals that offset risk must be managed as any other project risk. Its influence is evident in the failure to meet project budgets. This finding points to a factor to be considered when preparing for and managing a project, and even more during the early stages of examining a transaction, prior to acceptance. The present study examined three hypotheses, using chi-square tests of independence, goodness-of-fit tests, loglinear Poisson regression analyses and fluctuation charts. We found that low offset percentage levels are associated with low levels of project budget exception and with low levels of perception of project budget exception. No association was found between offset percentage and schedule, and between offset percentage and performance.