U.S. Aerospace Industry Cost Risk Analysis Survey
The purpose of this research paper is to summarize how the U.S. Aerospace Industry (Government and contractor) develops and applies cost risk analysis to aid business decisions. This paper is based on a survey provided to 2400 SCEA and SSCAG members in early 2008. It summarizes current risk assessment methods and tools, and the benefits to business decisions.
Survey responses (105) were received from 32 parent organizations, many with multiple sites. Organizations included 5 U.S. Government agencies, 12 major corporations, 13 support contractors, and 2 European agencies (Ministry of Defense and European Space Agency).
Tabulated results offer a “maturity metric” of prevailing practices, and depict positive trends versus the original 1998 survey. The 2008 survey contains four times as much information as the 1998 survey, with 12 new questions, expansion of old questions, and 60% more responses. New questions provide insight into decision benefits, $-thresholds, data sources, training, hurdles, and target confidence levels.
Aerospace program cost overruns and schedule slides have created considerable angst, funding issues, and negative headlines. As a result, DoD and NASA increasingly emphasize the importance of cost risk management and “cost realism” (i.e., “data-driven” estimates). Accordingly, the objectives of this survey and research paper are to …
• Assess current cost risk analysis practices and benefit to business decisions
• Identify preferred tools and methods
• Depict trends in methods and tools from 1998 to 2008
• Encourage analysts to be more proactive in assessing cost risk
Cost risk analysis supports business decisions in several important ways:
• Evaluate program strategies (e.g., bid/no-bid, make/buy, design trades)
• Avoid cost overruns and resist unwarranted cost reductions
• Manage and mitigate program risks
Several positive trends have surfaced during the past ten years:
• Historical actuals, as the basis of cost uncertainty, are used twice as often (37%)
• Finance Estimating is much more responsible for cost risk analysis (53%)
• Cost risk analysis is seen as less specialized (48%)
• Training has been dramatically improved
The survey finds several continuing concerns among cost risk managers and analysts:
• Cost risk analysis seen as “difficult” to do well
• Key hurdles include lack of data and weak management support
• Programs appear less pro-active, and more “wait-and-see” in resolving risk issues
On the whole, steady progress has been made since 1998, due to initiatives by government agencies, contractors, tool providers, and professional associations. Professional conferences (e.g., SCEA, ISPA, SSCAG) offer excellent training in techniques and tools to quantify and manage cost risk.
This research paper strives to advance the state of the art, promote risk analysis, and thereby support sound business decisions. The author is deeply indebted to SSCAG Risk Sub-Group members who helped develop the questions, and to SCEA and SSCAG for distributing the survey to their membership.
Hollis M. Black
The author has been with the Boeing Company for 27 years, with experience in business operations, Finance management, division planning, and cost estimating. He assumed his present position in 1990, leading Parametric Estimating for Missile Defense Systems, Huntsville.
In recent years, he has led estimating teams and been responsible for large competitive cost proposals. He has developed estimating tools, prepared parametric estimates, assessed cost risk, and estimated cost trends for new technologies and processes. He has had the opportunity to cost estimate a wide variety of programs: Space, Lunar-Mars, Launch vehicles, Missiles and launchers, Defensive systems, Satellite, Ground communication.
Hollis was recently selected to receive Boeing’s “Estimating Best Practice Champion” award. This high honor recognizes his career efforts in advancing the estimating profession. For twenty years he has helped implement “best-practice” initiatives within Boeing. Recently, he implemented a parametric cross-training series across Boeing, with over 150 Boeing estimators, using an on-line virtual classroom.
He provides subject-matter-expert (SME) advice to colleagues across Boeing Defense Systems, with emphasis on risk management, software estimating, and cost-trends. He frequently speaks in company day-long forums on risk and affordability.
Outside Boeing, he has presented papers on these subjects since 1990 (e.g., SCEA New Orleans’07 and Denver’05, ISPA Italy’04, SSCAG, and AIAA.
He is serving on an industry forum (Aerospace Industries Association) to request cost risk analysis within contractor proposals.
He earned an MBA from the University of Texas in 1967 with an emphasis in Management Science. He holds CMA (NAA/IMA) and CCEA (SCEA) certifications, and is a former President of the Huntsville SCEA chapter.
Hollis is a native of San Francisco. Married for 38 years, he has one daughter and four “grand-munchkins.” Favorite interests include swimming, photography, and mountaineering (e.g., Mt. Rainier, The Crestone Needle, Mt. Whitney, The Grand Teton).