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How to Capture Discrete Cost Risks in Your Project Cost Model

Risk Track

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Discrete cost risk analysis is defined in different ways by different cost analysts. It can mean the identification of specific risk under a specific scenario, the estimate of the cost impact due to that specific risk and/or the addition of the cost estimate for the risk

into the cost estimate of the element, subsystem or system. Almost always, it can involve more than one risk under a given scenario. However, each scenario requires a risk adjusted cost estimate and there is generally only enough time to develop a few specific scenarios. NASA PA&E/CAD cost analysts are exploring simulation methods to perform discrete cost risk analysis. We believe this is an efficient way to capture all possible combinations of scenario-based discrete cost-risk analysis without having to explicitly cost all possible combinations.

We are investigating three methods to model and roll up multiple discrete cost risk elements into a distribution that, in turn, can be rolled into the project cost uncertainty analysis. One is equivalent to the previous presentation’s approach, another incorporates the risk consequence at a confidence level ‘trigger point’ and a third incorporates consequences and likelihoods as explicit input distributions with the output distribution the result of expected values. The philosophy of when to use each will be discussed. The paper briefly reiterates discrete risk assessment in general and describes, complete with a realistic example, how to implement each of the methods. Uncertainty and correlation associated with the discrete risk probability of occurrence and its cost consequence is addressed. Adjusting the correlation at the parent levels of the discrete cost model is also addressed. Methods to capture the overall result and include it in a project cost uncertainty model are demonstrated. The paper discusses the pros and cons for each approach and compares the cost-risk distributions resulting from each approach as you move from the simplest to the most realistic approach. A common set of discrete risks are used to make the comparisons meaningful.


David Graham
Before coming back to the Air Force Cost Analysis Agency, David worked at NASA HQ’s in Washington DC from April 2003 – May 2008. Prior to his NASA assignment, he worked at the Aerospace Corporation for two years supporting the Intelligence Community Cost Analysis Improvement Group (IC CAIG). He began at the Space & Missile Systems Center (SMC), Los Angeles AFB, CA in Jan, 1979. He has held a variety of budget, cost performance, cost estimator, cost-risk and program analyst positions up to the present. His career has taken him from Los Angeles to Washington DC and back three times, finally coming back to where he started at SMC and living in the Hermosa Beach area. His work includes earned value analysis, cost estimating, cost-risk analysis, cost as an independent variable (CAIV), Activity Based Costing, aircraft modification financial analysis and space launch range pricing. Most recently, he is focusing on scenario-based discrete cost-risk assessment and analysis utilizing the likelihood vs consequence risk matrix and extending that qualitative analysis into more quantitative results expressed as statistical confidence levels. David is a SCEA Certified Cost Estimator and a present SCEA Board Member.

Alfred Smith
Alfred earned a Bachelor Mechanical Engineering degree from the Canadian Royal Military College and a Master of Science with Distinction in naval architecture from the University College, London, England. He spent 21 years in the Canadian Navy driving submarines (Navigator, Operations Officer) and ten years as a naval architect. He
has over 20 years experience leading, executing or contributing to life cycle cost model development and cost uncertainty analysis for a wide variety of military, Coast Guard, NASA and foreign projects. He has been with Tecolote since 1995 and since 2000 has been the General Manager for Tecolote’s Software Products/Services Group, responsible for the development, distribution and support of a variety of web and desktop tools including ACEIT. Alfred has delivered numerous papers on cost risk analysis topics and was the lead writer of the AFCAA Cost Risk an Uncertainty Handbook.

Melissa Cyrulik
Melissa A. Cyrulik, Tecolote Research Inc. – Chantilly, VA
Senior analyst in the Software Products/Services Group at Tecolote Research Inc. She has over 10 years of cost estimating experience, developing life cycle cost estimates and analysis of alternatives and supporting groups with their own estimates. She has over eight years experience as an ACEIT training instructor teaching cost estimating, statistical analysis and risk modeling. Currently, Ms. Cyrulik is the lead ACEIT Trainer responsible for developing the training materials and training the instructor team. Ms. Cyrulik holds a Bachelors of Science in Industrial Engineering from Northeastern University in Boston, Massachusetts.

Robert Kellogg
Robert Kellogg is a Senior Engineering Specialist in the Space Architecture Department at The Aerospace Corporation. He has 25 years of experience in systems engineering of optical and other sensors. His currently focused on the programmatic aspects of space systems for the Air Force, NASA, and other customers. Prior to joining The Aerospace Corporation, Mr. Kellogg was a senior engineering specialist specializing in the design and manufacture of optical systems at Pacific Optical and a member of the technical staff specializing in optical design at Hughes Aircraft Company. He has a B.S. and M.S. in Optics from the University of Rochester.

Robert Bitten
Bob Bitten works at The Aerospace Corporation and has conducted independent cost estimates for NASA proposal evaluations and independent assessments for a variety of different NASA missions and organizations. Bob is a winner of the President’s Award, The Aerospace Corporation’s highest honor, for his effort in assessing the cost effectiveness of different alternatives in the in the Hubble Space Telescope Remote Servicing Module (HST RSM) Analysis of Alternatives (AoA). Bob also recently won the NASA Cost Estimating Support Contractor of the Year Award for 2007 that is awarded to recognize an individual who has provided “outstanding contractor support to the NASA cost estimating community and significantly contributed to the field of cost estimating.”

Debra Emmons
Debra Emmons works at The Aerospace Corporation where she has developed a unique, quantitative schedule analysis tool using historical data. She has used this tool on several NASA proposal evaluations and independent assessments. In 2006, Ms. Emmons won The Aerospace Corporation’s highest honor, The President’s Award, for utilizing her unique methodology to conduct schedule analysis that was critical to the conclusions drawn in the HST RSM AoA. Debra is also a winner of The Aerospace Corporation’s Woman of the Year Award for 2007 which is awarded to Aerospace women who “demonstrate outstanding professional achievement, leadership, community involvement, and initiative”.