The Use of Index Numbers in Defense Contract Pricing.
AIR FORCE INST OF TECH WRIGHT-PATTERSON AFB OHIO SCHOOL OF SYSTEMS AND LOGISTICS
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This paper first surveys some different types of price index numbers, illustrates their construction and discusses some attributes and deficiencies of each. A weighted average of relatives is suggested as an instrument to combine previously constructed price index numbers and specially constructed price index numbers. A second section discusses some sources of previously constructed index number series developed and maintained by agencies external to the pricing office. Externally constructed index numbers may sometimes be substituted for index numbers tailored to a specific procurement, saving the analyst time in exchange for loss of accuracy. Forecasting index numbers is a time series analysis problem. Some statistical techniques such as regression analysis and exponential smoothing may be appropriate for this task. For short range forecasts, one may use graphical techniques with reasonable confidence. In recent years index number series no longer follow a linear pattern with respect to time. Price index numbers may be used to analyze prices, adjust final prices paid to compensate for escalation of costs and deflate data to facilitate cost analysis. Examples are included.
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- Economics and Cost Analysis