SpaceX vs. NASA: Cost

Source: Medium, Atif Ansar and Bent Flyvbjerg
Photo: Wikipedia

SpaceX is 10X cheaper with 30X lower cost overrun than NASA in lifting payload into space. Why? Because SpaceX is platform-based, NASA not.

“The space race is dominated by new contenders,” claims The Economist (18 October 2018).† Chief among them is SpaceX that has gone from a ridiculed upstart in 2002, when Elon Musk founded it, to capturing nearly two-thirds of the global commercial launch market by 2018. SpaceX deployed a disciplined platform strategy to outperform its competitors, public and private.

We report comparative results — NASA vs SpaceX — on four variables (cost, speed-to-market, schedule, and scalability), measured for a sample of 203 space missions. This article covers cost.

Across these metrics, SpaceX’s platform strategy has vastly outperformed NASA’s bespoke strategy in some cases by multiple orders of magnitude.

Before reporting the results in detail, it is worth reiterating with emphasis that the aim is not to put down the public sector and aggrandize private enterprise. The aim is to illustrate that platform-based projects, whether adopted by public or private enterprise, systematically outperform quantum-leap projects. Moreover, the success of SpaceX is the success of NASA because NASA is the largest user and hence beneficiary of SpaceX’s platform strategy, together with the U.S. Department of Defence. Conversely, SpaceX owes its very existence to contracts and revenues from NASA. Although SpaceX has executed a platform strategy with skill since 2002, it was NASA, frustrated by the underperformance of its own projects, that provided the impetus toward a platform strategy from spaceflight in the mid-2000s, by rejecting the conventional approach “using cost-plus contracts (in which NASA shouldered all the economic risk of investing in space) to fixed-price contracts (in which risk was distributed between NASA and their contractors)” (Weinzierl and Sarang, 2021, p. 6; also see Zapata, 2017a on NASA’s COTS/CRS Program).

The rise of SpaceX can be seen as a natural experiment pitting the NASA of before the mid-2000’s against the NASA after 2005 when it began to seriously pursue a platform strategy, via SpaceX in addition to its traditional approach.

With respect to cost performance, we make the following observations:

Using cost per kilogram to Low-Earth Orbit (LEO) — a standard industry metric to compare costs across space systems — Figure 1 shows that SpaceX’s rockets have dramatically reduced costs to orbit. SpaceX Falcon Heavy’s cost of US$1,400 per kg is 700 times cheaper than Vanguard — the first family of NASA’s rockets — 44 times cheaper than the retired Space Shuttle programme and 4 times cheaper than Saturn V — the rocket that took humans to the Moon in 1969 on the Apollo 11 mission.

But SpaceX rockets are not only competitive when compared with historic flights. They are also competitive for present-day flights. Thus, prices for payload on a Falcon Heavy launch start as low as US$90 million — about 5 times cheaper than the Delta IV Heavy made by United Launch Alliance (ULA) — jointly owned by Boeing and Lockheed Martin. And less than a third of the price of its closest competitor, the Russian Proton family of rockets, which has been in service since the 1960s.

SpaceX also outperforms in terms of development cost. NASA (2010) verified SpaceX’s total development cost for the Falcon 9 rocket at approximately US$390 million (including US$90 million towards the Falcon 1 rocket) in year-of-expenditure prices 2002–2009. NASA’s 2010 report goes on to estimate “the predicted cost to develop the Falcon 9 if done by NASA would have been between $1.7 billion and $4.0 billion.” SpaceX’s Falcon 9 system was thus 4–10 times cheaper in development cost than NASA’s own estimate.

Similarly, for heavy-lift rockets, SpaceX’s Falcon Heavy far outperforms rivals. For the Apollo programme (which included 15 flight-capable Saturn V’s rockets) the US spent US$25.4 billion in year-of-expenditure prices (1961–1972) or approximately US$150–160 billion in today’s prices (United States Congress, 1973 p. 1271). The development cost of the Saturn V rockets accounted for about 40% of the total spend on the programme or roughly US$60 billion today. NASA’s contemporary heavy-lift rocket, the Space Launch System (SLS) has a cost over US$21.2 billion in year-of-expenditures dollars 2011–2021. In comparison, SpaceX’s Falcon Heavy, with seven total landings under its belt as of January 2022, has a development cost between US$500–750 million (CNBC 8 February 2018). Berger (2018) correctly observes, “The Falcon Heavy is an absurdly low-cost heavy lift rocket.”

SpaceX’s platform strategy also outperforms NASA in terms of cost adherence, measured as cost overrun on the final approved baseline budget. Figures 2a & 2b and Table 2 show cost overruns of NASA versus SpaceX’s missions.

We observe:

In terms of frequency of cost overrun: Of the 181 NASA missions in our refence class, we had cost overrun data for 118 missions: 9 in 10 suffered a cost overrun. For SpaceX, the comparable number is 5 in 10, which is exactly what a good portfolio manager would aim for.

In terms of magnitude of cost overrun: NASA’s actual costs were on average +90.0% higher than estimated costs with a median of +45.8% indicating that the distribution of cost overrun has a heavy skew to the right (i.e., going over budget). A Mann-Whitney U test of overall cost neutrality provided conclusive evidence that NASA’s budgets were systematically biased towards underestimation (p = 0.004). Thus, there is a strong bias towards adverse outcomes with NASA, as shown in Figure 2a. For SpaceX the comparable numbers are an average cost overrun of +1.1% and a median of +1.5%, indicating little skew, and in the opposite direction. Unlike NASA, SpaceX cost under/overruns are tightly distributed around a mean forecasting error that approximates zero.

Finally, we tested whether the NASA distribution of cost overruns is different form the SpaceX distributions. Using a Wilcoxon test (p<0.0001), we found overwhelming evidence that SpaceX outperform NASA. SpaceX distribution of cost overruns is far more attractive (lower average than median, much fewer extreme values) than the NASA distribution. In sum, SpaceX is 10X cheaper with 30X lower cost overrun than NASA in lifting payload into space. https://medium.com/geekculture/spacex-vs-nasa-cost