ACAP Cost Risk and Uncertainty Analysis 3

Question 1

What is 'program uncertainty' as distinguished from 'estimating uncertainty' in cost risk analysis?

Accepted Answer

Program uncertainty stems from unknown future events; estimating uncertainty stems from imprecision in the cost model itself

Answer

Program uncertainty reflects future events (requirements changes, technology immaturity) while estimating uncertainty reflects the analyst's limited knowledge of the true cost relationship.

Question 2

Which term describes the practice of assigning probability distributions to cost estimating relationships (CERs) to reflect statistical uncertainty in the regression?

Accepted Answer

Parametric risk analysis

Answer

Parametric risk analysis applies uncertainty bounds derived from the CER's regression statistics (e.g., standard error) directly to the CER outputs in the Monte Carlo simulation.

Question 3

In DoD cost risk analysis, what is the 'most likely cost' (MLC)?

Accepted Answer

The mode of the cost probability distribution

Answer

The most likely cost is the modal value—the peak of the probability density function—representing the single most probable cost outcome.

Question 4

What is a 'risk register' and how does it relate to cost risk analysis?

Accepted Answer

A documented list of identified risks with their likelihood, impact, and mitigation strategies used to inform cost uncertainty ranges

Answer

The risk register captures identified program risks, and cost analysts use it to set the uncertainty ranges and correlation assumptions in the cost risk model.

Question 5

Why is a log-normal distribution often preferred over a normal distribution for cost element uncertainty?

Accepted Answer

Because costs cannot be negative and log-normal is bounded at zero with a right-skewed tail

Answer

Cost growth is typically right-skewed (can overrun significantly but not underrun below zero), and the log-normal distribution naturally captures this behavior.

ACAP - Army Cost Analysis Position Practice Test

ACAP - Army Cost Analysis Position Practice Test

ACAP Cost Risk and Uncertainty Analysis 3