You are missing the larger problem: it isn't a fixed capital cost you can put in the budget.

Modern accounting (for some good reasons) counts different costs in different buckets. If you invest in a system, the cost should be spread out over all the years the system is in use. However if you investing long term we want to be sure it is worth the investment - there is a point where something is not worth the cost. For things that are only for this year we can easially understand if the cost was worth it, but if we need to spread it out over many years it is much harder. If we can set a cost today we can have a debate on if it is worth the investment.

However designing something is not an fixed cost process. I cannot say if it will take me 1 week or another year to get the current bug I'm working on fixed, but if it takes more than a month my boss will say it isn't worth the cost of fixing it. (and then we get to sunk costs: what if I put in 1 month and am only 1 day from the fix, should I quit now?)

When you put a design contract out for bids they have to go big. They have to deliver for $54M even if things are harder. When someone says the real cost is likely to be $100M they really mean that once you have the $54M version you will realize what you wanted wasn't what you needed, and there is $46M in extras to turn what you specified into what you really need.

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drfloyd51 an hour ago | parent | next [-]

> and then we get to sunk costs: what if I put in 1 month and am only 1 day from the fix, should I quit now?

This is the wrong question. But one often asked because of the sunk cost fallacy.

The real question is: what if I am only 1 day from the fix, should I quit now?

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pjc50 4 hours ago | parent | prev [-]

> When you put a design contract out for bids they have to go big. They have to deliver for $54M even if things are harder.

Yes - and they also have to deliver for $54m if things are much easier.

The tender process often imposes an overhead of several million $ per bid, which has to get rolled back into the margin on the projects.

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bluGill 4 hours ago | parent [-]

You would be a fool to not ensure that things will go at least a little easier in even the worst case.

The other option: cost plus bids (that is you pay their actual costs plus a fixed amount of profit) is even easier to game because you can add costs in so many ways. That is why most large bids are fixed cost despite that downside - they are much harder to hide extra costs in.

There is no alternative to carefully watching your suppliers. Some are more honest than others (and you should blacklist the worst).

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pjc50 4 hours ago | parent [-]

> There is no alternative to carefully watching your suppliers

Hence: inhouse.

	▲	bluGill 3 hours ago \| parent [-]
		You still have to watch your suppliers even when they are in house. Things change, but not the fundamental problems. In many cases out sourcing really is the better cheaper option (this seems to be when an expert can be a deeper expert because they do the same thing for multiple different groups)