U.S. Aerospace Industry Cost Risk Analysis Survey
Black, H.
Boeing

The purpose of this research paper is to summarize how the U.S. Aerospace Industry (Government and contractor) develops and applies cost risk analysis to aid business decisions. This paper is based on a survey provided to 2400 SCEA and SSCAG members in early 2008. It summarizes current risk assessment methods and tools, and the benefits to business decisions.

Survey responses (105) were received from 32 parent organizations, many with multiple sites. Organizations included 5 U.S. Government agencies, 12 major corporations, 13 support contractors, and 2 European agencies (Ministry of Defense and European Space Agency).

Tabulated results offer a “maturity metric” of prevailing practices, and depict positive trends versus the original 1998 survey. The 2008 survey contains four times as much information as the 1998 survey, with 12 new questions, expansion of old questions, and 60% more responses. New questions provide insight into decision benefits, $-thresholds, data sources, training, hurdles, and target confidence levels.

Aerospace program cost overruns and schedule slides have created considerable angst, funding issues, and negative headlines. As a result, DoD and NASA increasingly emphasize the importance of cost risk management and “cost realism” (i.e., “data-driven” estimates). Accordingly, the objectives of this survey and research paper are to …

  • Assess current cost risk analysis practices
  • Identify preferred tools and methods
  • Depict trends in methods and tools from 1998 to 2008
  • Encourage analysts to be more proactive in assessing cost risk

    Cost risk analysis supports business decisions in several important ways:

  • Evaluate program strategies (e.g., bid/no-bid, make/buy, design trades)
  • Avoid cost overruns and resist unwarranted cost reductions
  • Manage and mitigate program risks

    Several positive trends have surfaced during the past ten years:

  • Historical actuals, as the basis of cost uncertainty, are used twice as often (37%)
  • Finance Estimating is much more responsible for cost risk analysis (53%)
  • Cost risk analysis is seen as less specialized (48%)
  • Training has been dramatically improved

    The survey finds several continuing concerns among cost risk managers and analysts:

  • Cost risk analysis seen as “difficult” to do well
  • Key hurdles include lack of data and weak management support
  • Programs appear less pro-active, and more “wait-and-see” in resolving risk issues

    On the whole, steady progress has been made since 1998, due to initiatives by government agencies, contractors, tool providers, and professional associations. Professional conferences (e.g., SCEA, ISPA, SSCAG) offer excellent training in techniques and tools to quantify and manage cost risk.

    This research paper strives to advance the state of the art, promote risk analysis, and thereby support sound business decisions.