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The Implementation of Risk Analysis in Proposal Evaluation and Cost Models

Risk Track



Herren Associates has been performing cost analyses and proposal evaluations for many Navy clients over the past 20 years. After the receipt of a sole source production proposal, Herren Associates provides a cost and pricing evaluation to determine if the proposal is fair and reasonable. To enhance this service offering and respond to our clients’ need to incorporate risk and uncertainty into its cost modeling process, we developed a solution using Monte Carlo simulation and innovative statistical methods to provide negotiation cost ranges rather than simply a point cost estimate.

Using Crystal Ball simulation in addition to Excel cost models, Herren Associates was able to incorporate this dynamic modeling process into the proposal evaluation process. Our consultants provide this innovative approach by attaching one of a variety of statistical distributions to any cost element in the model that is subject to uncertainty, risk, or variation. These distributions are added to all essential cost elements such as labor hours, learning curve slopes, inflation indices, material quotes/pricing, engineering estimates, etc. The specific distribution used for each element was determined based on the relevant information that exists for that cost element. Analysts used the opinions of Subject Matter Experts (SMEs), fact-finding information, and historical data as a basis for these distributions. Herren Associates’ consultants have worked effectively with client organizations and technical experts to determine the most critical cost elements and the most accurate method of statistical estimation. The Crystal Ball simulation allowed our consultants to simulate different outcomes using 1,000 or more trials, leading to a dependable and realistic range for possible contract values. The Crystal Ball simulation was also used to identify the primary cost elements driving the contract price via a Tornado chart, which provided valuable focus during the negotiation process and enabled negotiators to focus on elements with the most significant impact on the bottom line.

Herren Associates provided increased value in cost analysis deliverables by providing an interval, or range, for recommended negotiation values based on the inclusion of risk, uncertainty, and variability. This analysis provides greater negotiation leverage and provides the client valuable information and options for consideration. In conjunction with Herren Associates’ extensive knowledge of cost analysis techniques and past expertise in proposal analysis, Crystal Ball simulations have aided our consultants in providing a more relevant expert opinion with an unparalleled level of knowledge and visibility for clients, which was necessary to achieving program objectives and goals. Since 2003, Herren Associates analysts’ have recommended nearly $800 million dollars in total savings to various program offices throughout the Navy.

For this presentation, we will explain in detail the process that Herren Associates uses when evaluating sole source proposals, including the steps used to complete the implementation of Crystal Ball such as the selection of cost drivers, choice of statistical distributions, and a demo of a trial simulation.


Marcus Oberholzer
Herren Associates
Mr. Oberholzer has worked at Herren Associates as a management consultant and has more than four years of Industrial Engineering experience, including providing cost engineering expertise to minimize total system cost and managing acquisition of commercial technology for the Navy’s Aegis Weapons System, and other Navy program offices. He has been responsible for managing level-of-effort technical instruction activities, analysis of contractor price proposals, budgetary planning, and risk identification/mitigation. Mr. Oberholzer has analyzed over $1.2B of service and equipment procurement proposals, and has identified in excess of $200M of potential savings.
Prior to working at Herren Associates, Mr. Oberholzer worked at ExxonMobil as a Procurement Associate, where he managed contracts with vendors that supply US facilities with equipment ranging from maintenance supplies to engineered equipment. Additionally, he was responsible for determining appropriate pricing, performing market research, and developing vendor recommendations. Mr. Oberholzer also led Business Process Re-engineering efforts to redesign several key business processes in the US Procurement Center.

Prior to working at ExxonMobil, Mr. Oberholzer worked as a process engineer for General Electric’s Winchester Lamp Plant, where he responsible for tracking production efficiency, acted as data manager, tracked production trends, and participated in Lean Six Sigma events to eliminate non-value added steps from the production and material flow processes.

Mr. Oberholzer obtained his Bachelors of Science degree in Industrial Engineering from Penn State University, and he is currently pursuing his Masters of Business Administration degree.

His experience in the defense and private sector has proved valuable in producing cost savings and cost avoidance. Additionally, Mr. Oberholzer is ASQ certified as a Six Sigma Green Belt, and is a member of SCEA.

Travis Winstead
Herren Associates
Mr. Winstead has over three years of professional experience. He was part of the Test Engineering team at Northrop Grumman that tested shipboard systems on aircraft carriers to ensure these systems were compliant with Navy specifications. He has also worked with various Program Offices in the Navy in the area of Program Management and has also done extensive cost analysis and engineering in the form of proposal evaluation. Mr. Winstead has also written multiple Microsoft Excel databases using Visual Basic for Applications that have helped to standardize and automate processes and tools within Herren Associates. He has also delivered an Excel tool to the Navy as part of an initiative to track Ordering Data Sheets (ODS) more effectively. Mr. Winstead currently manages all of the Raytheon Missile Systems Technical Instructions for the North Atlantic Treaty Organization (NATO) SeaSparrow Project Office. He has created numerous budgetary spreadsheets and databases to ensure that requirements are captured when planning TIs and has also contributed to the improvement of the TI system as a whole and the relationship with Raytheon with regards to TIs. Mr. Winstead is currently working with the TI manager from Raytheon Missile Systems to overhaul the process for how TIs are processed and handled. Mr. Winstead has also evaluated numerous proposals for the NSPO, which includes participating in fact-finding activities, working with technical leads to determine validity of labor hour and material dollar bids, submitting a Technical Analysis Report (TAR), and participating in contract negotiations. Mr. Winstead graduated with a Bachelor’s of Science in Industrial and Systems Engineering with a Minor in Business from Virginia Tech in 2008.