ACAP Cost Risk and Uncertainty Analysis 1 — Questions and Answers
Question 1: Which statistical technique is most commonly used in DoD cost risk analysis to model the probability distribution of a program's total cost?
- Monte Carlo simulation (Correct answer)
- Linear regression
- Moving average
- Chi-square test
Correct answer: Monte Carlo simulation
Monte Carlo simulation is the standard DoD method for propagating input uncertainties through a cost model to produce a probability distribution of total program cost.
Question 2: In cost risk analysis, what does 'S-curve' represent?
- Cumulative probability distribution of cost outcomes (Correct answer)
- Schedule growth over time
- Cost growth plotted against schedule slip
- Sensitivity of cost to a single input
Correct answer: Cumulative probability distribution of cost outcomes
An S-curve displays the cumulative probability that actual cost will fall at or below a given value, showing the full range of likely outcomes.
Question 3: What is a 'point estimate' in the context of cost analysis?
- A single deterministic value representing expected cost (Correct answer)
- The midpoint of a cost range
- The 50th percentile of a Monte Carlo simulation
- A cost estimate prepared at a single program milestone
Correct answer: A single deterministic value representing expected cost
A point estimate is a single value used to represent the expected cost without explicitly capturing uncertainty or range.
Question 4: Which risk percentile does DoD policy typically require programs to budget to when using probabilistic cost estimates?
- 80th percentile (Correct answer)
- 50th percentile
- 95th percentile
- 65th percentile
Correct answer: 80th percentile
DoD Instruction 5000.02 and related guidance direct programs to budget to the 80th percentile of the cost risk distribution to provide adequate funding confidence.
Question 5: What is the primary purpose of a sensitivity analysis in cost estimating?
- To identify which input variables have the greatest impact on total cost (Correct answer)
- To determine the probability of cost overrun
- To validate historical analogies
- To establish a cost baseline
Correct answer: To identify which input variables have the greatest impact on total cost
Sensitivity analysis reveals which cost drivers, when varied, produce the largest swings in the total estimate, guiding where risk mitigation effort should focus.
Question 6: What does 'correlation' between cost elements mean in a Monte Carlo cost risk model?
- When risks in different elements tend to occur together, driving costs up simultaneously (Correct answer)
- The statistical fit of a regression line to historical data
- The ratio of standard deviation to mean for a cost element
- The dependency of cost on schedule
Correct answer: When risks in different elements tend to occur together, driving costs up simultaneously
Positive correlation means that if one cost element runs over, related elements are likely to run over as well, which increases overall cost risk and widens the distribution.
ACAP Cost Risk and Uncertainty Analysis 1
Which statistical technique is most commonly used in DoD cost risk analysis to model the probability distribution of a program's total cost?