ACAP Cost Risk and Uncertainty Analysis 2 — Questions and Answers
Question 1: What is the coefficient of variation (CV) used for in cost risk analysis?
- To measure relative variability of a cost estimate as standard deviation divided by the mean (Correct answer)
- To determine the most likely cost outcome
- To compare schedule variance to cost variance
- To calculate the risk-adjusted budget
Correct answer: To measure relative variability of a cost estimate as standard deviation divided by the mean
The CV normalizes variability by the mean, allowing analysts to compare uncertainty levels across cost elements of different magnitudes.
Question 2: In cost risk terminology, what is 'aleatory uncertainty'?
- Irreducible variability inherent to a process or system (Correct answer)
- Uncertainty that can be reduced by gathering more data
- Risk arising from poor cost estimating methods
- Uncertainty due to changing government requirements
Correct answer: Irreducible variability inherent to a process or system
Aleatory uncertainty arises from natural randomness (e.g., actual manufacturing variation) and cannot be eliminated through better analysis, unlike epistemic uncertainty.
Question 3: Which distribution is most commonly used to represent a cost element's uncertainty when only minimum, most likely, and maximum values are known?
- Triangular distribution (Correct answer)
- Normal distribution
- Log-normal distribution
- Uniform distribution
Correct answer: Triangular distribution
The triangular distribution requires only three expert-supplied parameters (min, mode, max) and is widely used when historical data are limited.
Question 4: What does a 'tornado chart' display in cost risk analysis?
- Ranked sensitivity of total cost to each individual input variable (Correct answer)
- Probability of cost overrun at various thresholds
- Cumulative cost growth over program phases
- Correlation matrix between cost elements
Correct answer: Ranked sensitivity of total cost to each individual input variable
A tornado chart ranks input variables from most to least impactful on the output, with the widest bars at the top, showing where analysts should focus risk reduction efforts.
Question 5: What is 'risk-adjusted cost estimate' in Army cost analysis?
- An estimate that incorporates probability distributions for uncertain inputs rather than single point values (Correct answer)
- An estimate approved by the Army Cost Review Board
- An estimate that has been escalated to then-year dollars
- An estimate reflecting contractor-proposed risk fees
Correct answer: An estimate that incorporates probability distributions for uncertain inputs rather than single point values
A risk-adjusted estimate replaces point values with probability distributions and propagates uncertainty to produce a range of likely costs rather than a single number.
Question 6: Which Army organization is responsible for providing independent cost estimates (ICEs) for major Army programs?
- Army Cost and Economic Analysis Center (ACEA) (Correct answer)
- Army Materiel Command (AMC)
- Program Executive Office (PEO)
- Defense Contract Management Agency (DCMA)
Correct answer: Army Cost and Economic Analysis Center (ACEA)
ACEA (formerly SCEA/ACAA) produces independent cost estimates for Army programs, providing an objective check on program office and contractor estimates.
ACAP Cost Risk and Uncertainty Analysis 2
What is the coefficient of variation (CV) used for in cost risk analysis?