Some Empirical Evidence on the Non-Normality of Cost Variances on Defense Contracts
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This study tested the hypothesis that defense cost variances reported on the Cost Performance Report are normally distributed. The DOD requires that all defense cost variances which breech a pre-specified threshold be investigated. The present variance investigation model has been criticized because it can prompt frivolous investigations. In theory, statistical models could reduce the number of frivolous investigations, but they are not used because they require too much information about the cost variance, including its distributional form. Often such models assume a normal distribution, but ...
This study tested the hypothesis that defense cost variances reported on the Cost Performance Report are normally distributed. The DOD requires that all defense cost variances which breech a pre-specified threshold be investigated. The present variance investigation model has been criticized because it can prompt frivolous investigations. In theory, statistical models could reduce the number of frivolous investigations, but they are not used because they require too much information about the cost variance, including its distributional form. Often such models assume a normal distribution, but researchers have shown that the models do not work properly if the assumption is fallacious. Two prior studies have investigated the normality of cost variances with mixed results, and neither investigated defense cost variances. Here, fifty series of cost variances from two defense contracts were extracted from Cost Performance Reports and evaluated using four popular tests of normality (Bowman-Shenton, Shapiro-Wilks, Kolmogorov-Smirnov, and Chi-square). The results show that the vast majority of the series of cost variances were not normally distributed. These results were insensitive to the normality test used and to the effects of inflation. The statistical variance investigation models may still be used, but normality should not be assumed. This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work was reproduced from the original artifact, and remains as true to the original work as possible. Therefore, you will see the original copyright references, library stamps (as most of these works have been housed in our most important libraries around the world), and other notations in the work. This work is in the public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. As a reproduction of a historical artifact, this work may contain missing or blurred pages, poor pictures, errant marks, etc. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.
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