NASA New Start Inflation Index
Inflation is an important factor for cost estimating and budgeting. The Office of Management and Budget (OMB) publishes annual inflation guidance for all government funded programs. In certain government programs actual inflation is higher than OMB guidance. This is especially true for “New Start” National Aeronautics and Space Administration (NASA) programs. These programs involve complex new design work requiring a specialized work force, limited production quantities (typically one), and limited opportunities for commercial applications. These projects span over many years and are very costly due to their large scale and unique materials. If the OMB directed inflation indices are too low compared to actual inflation, the compounding effect of even a small difference can cause programs to run well over their allotted budget. NASA recognized this and has published a unique “New Start” inflation index to more accurately plan for this. The “New Start” index typically has been 1% – 2% above the OMB directed inflation guidance. It has been several years since the components of this index have been examined.
The goal of this research is to first examine and document current NASA inflation indices. As mentioned previously it is very important that inflation indices for large, long term projects are current and accurate. Secondly, economic factors relevant to the aerospace industry and current NASA programs will be identified. There are many possible inflation categories that could represent inflation within NASA programs.
Organizations, such as the Bureau of Labor and Statistics (BLS) and Global Insight, publish indices which track inflation for various material, labor and manufacturing categories. Finally, it will be essential to study the mix of labor, materials, and other costs to compare against the current NASA inflation index and to construct a new and industry specific NASA inflation index.
This study looks at the current NASA inflation index, examines alternative inflation indexes, analyzes other relevant patterns and occurrences, and presents recommended improvements to the “New Start” Index.
Brian A. Welsh graduated from The University of Virginia’s School of Engineering and Applied Science in May 2006. There he earned a Bachelor of Science in Systems and Information Engineering and a minor in Engineering Business. In July 2006, he joined Northrop Grumman as an Operations Researcher. Mr. Welsh supports Northrop Grumman on cost and risk estimates specifically dealing with the constructing of new buildings within the Intelligence Community. He presented the paper DoD Military Construction Inflation Index vs. Construction Industry Inflation Indices at the 2007 SCEA conference. Mr. Welsh is also currently pursuing a Master of Science in Operations Research at George Mason University.
Kenneth D. Odom has over 14 years of experience performing cost and risk analysis of space systems and other systems for the Intelligence Community (IC), the DoD, and the Commercial Sector. He is a recognized industry leader of cost estimating and earned value management for IC Space and Ground systems. Back in 2004, he developed and defended the methods behind the custom NRO inflation guidance (presented at DoDCAS). Ken was one the key contributors to the original development of the acclaimed Cost Programmed Review Of Fundamentals (CostPROF) body of knowledge and training course materials and is currently involved in a comprehensive update thereof. He graduated from The University of Virginia’s School of Engineering and Applied Science and then went on to complete his Master’s of Engineering study at Virginia Tech.