ANALYSIS OF PROGRAM CHANGES AND INTERNAL LABOR ADJUSTMENT COSTS IN SHIPBUILDING

COLIN PAUL HAMMON, University of Rhode Island

Abstract

Changes in ship design or specifications disrupt work on a ship, and can disrupt work throughout an entire shipyard. This increases costs. Shipbuilding claims develop when the Navy and the shipbuilder cannot agree on the cost of changes initiated during ship construction. Government-directed changes may also be the legal basis for claims when the contractor overruns costs and schedule for any reason. Outstanding claims for equitable adjustment to the contract price, based primarily on alleged delay and disruption due to Government changes, reached the unprecedented level of $2.7 billion in 1977. Many within the Navy would like to move the disruption issue out of the courts by paying the full cost of changes as they are implemented. Hammon and Graham (1980) estimated the full manhour cost of changes for the Avondale FF 1052 and the Litton DD 963 programs using a statistical costing method. Their findings showed that disruption exists and that it can be measured. This study extends their work in two dimensions. First, a dynamic shipbuilding model is developed using optimal control theory. This model incorporates convex labor adjustment costs in addition to learning, changes and labor quality variables. The model is developed as a system of differential and constraint equations which can be solved numerically. Second, the parameters of the model including labor adjustment coefficients are estimated statistically using the Litton DD 963 program data. It was found that estimated manhour costs of changes do not differ significantly from those estimated by Hammon and Graham for total operations labor (1.2 disruption hours per hardcore added work change hour versus 1.5 estimated in the earlier study). However, for some crafts the differences when labor adjustment costs were included, were significantly different. The estimates of manhour cost elasticity with respect to some labor quality variables were different for both total operations and craft labor when adjustment cost variables were included. A major finding was that total operations labor adjustment costs were significantly different from those estimated for individual labor departments. The findings for total operations labor showed that internal labor adjustment costs are convex. Both positive and negative changes in the stock of labor affect manhour costs positively at the program level. For two of the seven crafts, however, a negative time rate of change in manning affected craft manhour costs negatively. For one craft the effect on manhour costs of positive adjustments was negative and for two crafts frictional costs were not significant. It is concluded that changes in labor are more manageable at the department than at the program or yard level. A plan for further research intended to resolve the questions raised in this study is presented in the final chapter. Hammon and Graham's analysis of the Litton DD 963 program by craft and the complete Avondale 1052 program analysis are presented in Appendices.

Subject Area

Economics

Recommended Citation

COLIN PAUL HAMMON, "ANALYSIS OF PROGRAM CHANGES AND INTERNAL LABOR ADJUSTMENT COSTS IN SHIPBUILDING" (1981). Dissertations and Master's Theses (Campus Access). Paper AAI8215335.
https://digitalcommons.uri.edu/dissertations/AAI8215335

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