Transaction Costs from a Program Manager's Perspective

Abstract

Abstract : This project continues ongoing efforts by the authors to understand transactions costs within DoD acquisition. Past studies by the authors have been constrained by the data available. As part of continuing effort to acquire more data and take advantage of first-hand knowledge of the issue, this study analyzes results from a survey of US Air Force Program Managers undertaken in 2008 by the National Research Council (NRC, 2009). The theoretical foundations of our supporting inquiry come from Transaction Cost Economics (TCE) and Agency Theory?well-established fields of study. In particular, we are concerned with the complications and costs of dealing with partners both outside DoD (TCE) and within (Principal-Agent Problem). The number of oversight reviews has steadily increased, with increasingly higher-level involvement. Accordingly, the resources and management attention devoted to these reviews has also increased. Within that context, the NRC study attempted to assess program reviews with respect to value added and various costs incurred. Our analysis of the survey results distinguishes between technical and programmatic reviews. Technical reviews are conducted by the program manager (as principal) to monitor technical progress of the system contractors (agents). Programmatic reviews provide management oversight of the program manager (as agent) by higher-level authorities in DoD or Congress (principals). Our results suggest that program managers found some real value in some of their programmatic reviews, despite the common perception that reviews create excessive and burdensome levels of oversight. In addition, we found that program mangers gave relatively less value to technical reviews, a result some might find counterintuitive.