An Analysis of Incentive Contracts with Respect to Risk.
ARMY COMMAND AND GENERAL STAFF COLL FORT LEAVENWORTH KANS
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The study discusses incentive contracts and cost overruns as related to industrial risk categories. The various aspects of risk considered by the Department of Defense have had contract modifications as a common factor reflecting risk. Based on the average percentage of contract modifications, industrial commodity categories are rated in terms of risk. Statistical tests were performed to analyze the tendency of incentive contracts, grouped by commodity categories, to over or underrun target costs. A conclusion is reached on high risk commodity categories in relation to target costs. Methods of reducing risk are discussed.
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