Cost Risk & Uncertainty

TA20.1 Justifying Management Reserve Requests by Allocating Risk Dollars Among Project Elements Steve Book --- The Aerospace Corp., PO Box 92957, Los Angeles, CA 90009-2957, (book@courierl.aero.org)

Because of uncertainty in actual cost, it is useful to model project¨ cost as a random variable and express cost estimates in terms of¨ percentile of its probability distribution. After a project is¨ budgeted at its best-estimate cost, it is prudent to prepare a¨ 'management reserve' of additional funds to overcome contingencies.¨ We suggest a mathematical procedure to allow analysts to allocate¨ risk dollars among the project elements...

TA20.2 A Method for Simulating Correlated Random Variables from Partially- Specified Distributions Matthew S. Goldberg, Philip M. Lurie --- Institute for Defense Analyses, 1801 N Beauregard St., Alexandria, VA 22311 , (mgoldb@ida.org)

An algorithm is presented for generating correlated vectors of¨ random numbers. The user need not fully specify the joint¨ distribution function; instead, the user 'partially specifies' only¨ the marginal distributions and the correlation matrix. The¨ correlation matrix is first checked for mathematical consistency¨ (positive definiteness) and adjusted if necessary.

TA20.3 Environmental Cost in Weapon System Development Roderick B. Duke --- EER Systems, Corp., Huntsville, AL ,

Environmental cost is causing cost risk concerns at major milestone¨ reviews. Cost estimating and analysis are vital parts of the DoD¨ weapon system milestone review process. Environmental costs have not¨ been a separate line item in system life cycle cost estimates. We¨ review the new laws governing this process.

TA20.4 Cost Risk & Uncertainty Associated with DoD Programs Thomas P. Frazier --- Institute for Defense Analysis, 1801 N Beauregard St., Alexandria, VA 22311 , (tfrazier@ida.org)

Cost estimates for major defense acquisitions must be accompanied by¨ a formal risk analysis. This presentation will include evaluations¨ of quantitative methods of assessing risk including analytical¨ methods and simulation methods. Application of risk analysis to¨ specific DoD programs will be presented.