OS4012 Cost Estimation III: Risk and Uncertainty Analysis

Risk and Uncertainty Analysis provides the foundation for an understanding of risk management as it relates to cost estimation. It addresses program risks that help ensure program costs, schedule, and performance objectives are met. Students are given an overview of how to model the cost/risk associated with a defense acquisition program. Topics covered include basic probability concepts, correlation, Cost drivers, subjective probability assessment, goodness-of-fit testing, and simulation concepts using spreadsheet-based simulation packages. Monte Carlo simulation based cost risk case reinforce the techniques taught.

Prerequisite

OS3080, OS3701

Lecture Hours

3

Lab Hours

0

Course Learning Outcomes

Understand the Concepts of Risk and Uncertainty in Cost Estimation:

• Define risk and uncertainty as they relate to cost estimation and distinguish between the two.
• Explain the impact of risk and uncertainty on project cost estimations and the importance of managing them effectively.

 

Identify and Analyze Risks Associated with Cost Estimation:

• Learn to identify potential risks in cost estimation processes and projects.
• Use qualitative and quantitative risk analysis techniques to assess the impact and likelihood of identified risks.

 

Model Risk and Uncertainty in Cost Estimates:

• Apply probability distributions (e.g., normal, lognormal, triangular) to represent uncertain costs.
• Use statistical methods and tools like sensitivity analysis and scenario planning to model and understand the impact of risk and uncertainty on cost estimates.
• Learn and become comfortable with software packages for Monte Carlo Simulation such as @Risk, ACEIT and Crystal Ball.

 

Apply Risk and Uncertainty Principles in Cost Estimation:

• Learn how and where to apply uncertainty to point cost estimates.
• Learn to assess the quality of risk and uncertainty quantification as applied to existing cost estimates.
• Starting with a point cost estimate, learn how to judiciously apply risk and uncertainty principles to develop a risk-adjusted cost estimate.

 

Advanced Techniques for Managing Uncertainty:

• Explore advanced methods for dealing with uncertainty in cost estimation, including analytical approaches such as scenario-based methods and Formal Risk Assessment of System Cost Estimates (FRISK).Understand how to update cost estimates and risk assessments as new information becomes available.