The Correlation of Human Capital on Costs of Air Force Acquisition Programs

Abstract

Previous studies have linked human capital with performance. The studies have shown performance, measured as output, of a firm can be increased by adding more personnel and/or increasing education levels. This research uses the Cobb-Douglas Production function to build upon that relationship of inputs to outputs. The output in this study is the average cost overrun of Aeronautical Systems Center research, development, test, and evaluation contracts managed from 1994 to 2008. The inputs are the numbers of military/government employee financial managers, program managers, engineers, rated personnel, and military/government employees in those career fields possessing a graduate degree or higher. A time series regression was conducted using those inputs to outputs while controlling for other factors such as budgetary fluctuations, inflation, and individuals doing defense related work in the private sector as a proxy for contractors working in program offices. The results indicate a negatively correlated relationship exists between human capital and cost overruns.