Year
2001
Abstract
Overhead costs and their allocations have been a hot topic for debate among project/program managers at the National Laboratories for quite some time. The success or ultimate failure at managing cost, schedule, and performance of many important projects has been attributed to a particular overhead cost allocation methodology. On the one hand, government funded projects have many contractual compliance requirements; on the other, competition for funds in specific areas can be fierce and fluctuate from year to year. In any given year, the impact of highallocated overhead charges can be significant (e.g., nuclear materials). In some cases where overhead charges are perceived to be high relative to others, it can lead to the closing down of certain research capabilities or losing the business to a competitor. To facilitate meeting specific programmatic and business objectives, Sandia National Laboratories (Sandia) have evaluated and implemented various methodologies for allocating overhead costs. They found that overhead or indirect cost allocations could significantly impact their product pricing and competitive strategies. At best, how overhead costs are allocated can support an organization's long term competitive positioning in specific markets; at worst, it can create an unhealthy incentive for sub-optimal decisions that do not support the company's strategic thrusts. In addition, the current R&D environment involves frequent partnership and cooperation between many entities (universities, government and industry), understanding the nuances and the related behavioral implications of overhead cost allocations can be a pivotal success factor.