Posted by

Cost Risk Allocation Objectives, Tendencies, and Limitations

Risk Track

Downloadable Files:

RISK-4 JAS Cost Risk Allocation Objectives Tendencies and Limitations (26Apr2007)


Allocating cost risk for building a budget is sweeping through the cost estimating community faster than cost estimators can keep up. Few understand the goals, behavior, implementation, or limitations of results generated by popular risk allocation methods. This paper provides perspective on the issue by going beyond the basic mechanics to examine general tendencies, trade-offs, and objectives of cost risk allocation heuristics with focus on the quantification and verification of the allocated results. Some important limitations of existing heuristics are discussed, including the inability to capture program priorities, schedule impacts, and contract vehicles, followed by recommendations on how to capture these in future allocation methods. Most importantly, the paper reveals some misconceptions about program confidence and monetary fluidity that inevitable leads to some rather sobering disappointments. The paper steps through numerous examples to clarify various points made throughout. By the end of the presentation, a cost estimator will be better prepared to understand, produce, and defend cost risk allocated reports.


John Sandberg
Master Programmer for the Software Products/Service Group of Tecolote Research, Inc. ACEIT technical team lead for all C++ product development since 1998. Implementer of ACE RI$K, co-designer and implementer of ACE RI$K Allocation, designer and implementer of ACE RI$K parent level correlation, and key integrator for every other significant algorithm within ACE since 1996. Worked in the software industry since 1988 in fields ranging from entertainment to telecommunications. Education: 1995 University of California at Santa Barbara B.S. Computer Science with Highest Honors.