Cost Risk and Uncertainty Analysis Flashcards

What is the coefficient of variation (CV) used for in cost risk analysis?

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.

In cost risk terminology, what is 'aleatory uncertainty'?

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.

Which distribution is most commonly used to represent a cost element's uncertainty when only minimum, most likely, and maximum values are known?

Answer: Triangular distribution

The triangular distribution requires only three expert-supplied parameters (min, mode, max) and is widely used when historical data are limited.

What does a 'tornado chart' display in cost risk analysis?

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.

What is 'risk-adjusted cost estimate' in Army cost analysis?

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.

Which Army organization is responsible for providing independent cost estimates (ICEs) for major Army programs?

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.