Page images
PDF
EPUB

CHAPTER 2

COST-BENEFIT ANALYSIS USED BY NASA

On July 6, 1970, NASA awarded a cost-plus-fixed-fee contract (NASW-2081) to Mathematica for an independent analysis of the economic benefits of a new space transportation system. The objective of this analysis was to find the most economical system capable of meeting expected U.S. space transportation needs of the 1980's and beyond. Three alternative space transportation systems were considered in this analysis: the current expendable, new expendable, and space shuttle systems.

Originally Mathematica's analysis compared the total space program costs of the expendable systems with the cost of a two-stage, fully reusable space shuttle system. "Total space program cost" was defined by Mathematica as the sum of (1) launch system life-cycle costs and (2) payload system life-cycle costs. During the second half of the effort, NASA extended the analysis to include an evaluation of alternative space shuttle configurations--i.e., space shuttle configurations that could be developed within the peak-yearfunding constraints anticipated through the coming decade. The first part of Mathematica's analysis was summarized in a report dated May 31, 1971, the second part in a report dated January 31, 1972.

In both parts of the economic analysis, Mathematica did not include missions that would require the special capability of a reusable space shuttle system. Mathematica stated that this approach did not consider the potential additional benefits and options that a reusable system could offer the Nation.

Mathematica was responsible for establishing and approving the overall framework for the analysis, performing cost-effectiveness analyses of the three alternative space systems, conducting sensitivity analyses, and preparing and reporting output data. Since Mathematica's expertise lies mainly in economic analysis, a team of contractors, supported by data from NASA, DOD, and various hardware contractors, was established by NASA to provide the information necessary for Mathematica to conduct the analysis.

This team consisted of Lockheed and The Aerospace Corporation. The flow of data to Mathematica is shown below.

[blocks in formation]

Lockheed was responsible for investigating, in depth, the effects that a reusable space transportation system would have on the expected costs of payloads and space missions in the 1980's. The estimates of these effects in the economic analysis were called payload effects. These effects include possible cost reductions through reuse, updating, maintenance, and in-orbit checkout of satellite payloads in the operating phase of a shuttle system. In addition, Lockheed evaluated the cost of payloads in the 1980's using expendable systems.

The Aerospace Corporation was responsible for estimating total space program costs for the current expendable system, the new expendable system, and the fully reusable space shuttle system, assuming the level of space activity in the 1980's indicated in a DOD-NASA baseline mission model. For DOD, NASA, and commercial users, a total of about 80 different missions were projected in this model.

Each of the three space transportation systems has unique characteristics with respect to launch capability and the cost per launch. The Aerospace Corporation matched these capabilities and costs with the payload requirements from the DOD-NASA baseline missions model to obtain the minimun cost combinations of launch vehicle and payload for each of the three space transportation systems. To arrive at these minimum cost combinations, The Aerospace Corporation utilized data from various hardware contractors as well as the results of the Lockheed Payload Effects Analysis.

During the second part of the economic analysis, Mathematica accumulated the total space program costs for the alternative space shuttle configurations (i.e., those other than the two-stage, fully reusable concept that had been costed by The Aerospace Corporation). In doing this Mathematica received cost data directly from the hardware contractors and NASA.

Recognizing the uncertainty of predicting space activities and costs in the 1979-90 period, Mathematica introduced many variations of the DOD-NASA baseline mission model into the economic analysis. These variations were referred to as scenarios. The scenario approach measured the economic effects of substantially reducing or expanding the overall level of space program activity in the 1980's and assessed the effects of a substantially different mix of space programs among DOD, NASA, and commercial space activities. The scenarios resulted in total space program costs for each of the three space transportation systems, including the various configurations of the space shuttle.

CHAPTER 3

GAO METHOD

In accordance with Senator Mondale's request, our review was concerned primarily with the economic justification for the space shuttle program. This emphasis should not be construed as an indication that we believe that the sole, or even the primary, justification for the space shuttle is economic. Nonetheless much of the opposition and support voiced for the program has been couched in terms of the program's economic justification. The purpose of this chapter is to provide a comprehensive framework in which the program's economic justification should be examined.

CRITERIA FOR INVESTMENT DECISION

A review of the shuttle's economic justification requires identification of criteria to provide a basis for judgment. We used a criterion Mathematica regarded as the basic economic decision criterion in the evaluation of proposed space transportation systems to meet U.S. needs in the 1979-90 period. This criterion is based on the net-presentvalue concept of an investment project. For our review the most convenient form of the criterion is--the space transportation system having the lowest total space program cost, considering the time value of money, should be acquired by

the Government.

Use of this criterion requires selection of an interest or discount rate as a means of considering the time value of money. In accordance with Mathematica's proposal in the January 31, 1972, economic analysis of the Space Shuttle Program, we have used a representative discount rate of 10 percent. This rate also was suggested by the Office of Management and Budget. Accordingly the criterion employed throughout our review is--the space transportation system having the lowest discounted-at-10-percent total space program cost should be acquired by the Government.

The space transportation system satisfying this criterion is defined as the economically justified system. others are considered to be not economically justified. Application of this criterion assumes that the candidate

systems are equally effective. This assumption is maintained throughout the review for the two space transportation systems considered--the space shuttle and the current expendable systems. The new expendable system is included only for illustrative purposes.

An investment decision, such as the selection of a space transportation system, should consider all costs affected by the decision. Accordingly the economic decision to invest in a space transportation system should be based on combined launch system and payload system life-cycle costs--the total space program cost. Launch system lifecycle costs are approximately one-third of the estimated total space program cost affected by the investment decision on the Space Shuttle Program, and payload life-cycle costs are the remainder of the affected costs. The reported savings in cost (benefit) for the space shuttle are due primarily to estimated reductions in payload costs and launch

costs.

Mathematica's analysis included the life-cycle costs of both the launch system and the payload system for many configurations of the space shuttle. These configurations were studied by hardware contractors, and Mathematica used the results of these studies to select the most economical configuration. At our request Mathematica provided us with total space program costs for the following two configurations which they felt typified all configurations considered and economically favored by NASA and Mathematica.

1. Solid rocket motor, thrust-assisted orbiter shuttle.

2. Pressure-fed, liquid booster, thrust-assisted or

biter shuttle.

For simplicity, we will refer to these configurations as the solid booster shuttle and the liquid booster shuttle, respectively.

We examined into these total space program costs and identified many of the significant assumptions which influenced the estimates. We also examined into the sensitivity of the shuttle economic justification to major areas of uncertainty in the supporting studies. In doing this we used NASA's cost model developed by Mathematica.

« PreviousContinue »