GUIDANCE
Investment Analysis > Investment Analysis Standard Guidance > Risk Analysis Basis of Estimate

Standard Basis of Estimate for Risk Analyses
 Investment Analysis Standardization Working Group
July 22, 2002

Usage

In order to maintain a high level of quality for risk analysis conducted in the Initial (JRC 2(a) ) or Final (JRC 2(b)), a number of principles must be adhered to in conducting a risk analysis. These principles are listed below, by Investment Decision. The risk analyst is encouraged to review these principles before the conduct of the risk analysis, and affirm adherence to them after the completion of the analysis.

General Principles for both Initial (JRC 2 (a)) and Final (JRC 2 (b)) Investment Analyses

  • Risk assessment is done by a risk team whose members is objective and can represent multiple viewpoints and stakeholders.

  • Risk mitigation actions are integrated with appropriate cost, benefit, schedule, and other relevant Work Breakdown Structures to facilitate their adoption in Solution Implementation, and In-Service Phases of their life-cycle.

    •

    Principles for Initial Investment Analysis (JRC 2(a))

    2(a)-1 Findings of the Portfolio Risk Assessment in the Mission Need Analysis Phase of AMS are used to inform the risk analysis for the Initial Investment Analysis.

    2(a)-2 A common agreed to description of viable alternatives exists.

    2(a)-3 The description relates to the given requirements or mission need statement.

    2(a)-4 The Risk Assessment Team consists of individuals that are very knowledgeable with each risk facet and all alternatives.

    2(a)-5 Facet weights are determined prior to evaluation of any alternative to avoid structural bias. Weights for the reference case may be different than weights for all alternatives. The rationale for relative weights selected is explained.

    2(a)-6 Issues and attendant risks have been identified and commonly acknowledged for each facet.

    2(a)-7 The risk score for each investment alternative has been developed independently of other investment alternatives.

    2(a)-8 Each team member determines the risk score for each alternative independently of other team members (blind scoring) and writes an explanation for the qualitative or quantitative basis for such scoring.

    2(a)-9 The risk team is brought together as a group to discuss and reconcile the team members’ scoring for each alternative.

    2(a)-10 Each team member is given an opportunity to consider input from the team and independently rescore risk for each alternative.

    2(a)-11 The risk team lead documents the strategy taken to synthesize the scoring into a final rating for each alternative.

    2(a)-12 The risk team lead writes a technical memorandum or report which documents the reasons for the risk scores for the most viable candidate, and the actions and strategies which must be employed (including implementation schedule, cost, and performance impacts) to mitigate all medium and high risks.

    2(a)-13 The risk assessment results are incorporated in the Acquisition Program Baseline and the Investment Analysis Report consistent with AMS guidelines.

    2(a)-14 The risk team lead coordinates with the selected IPT after JRC 2 (a) to facilitate transition of risk issues and information for a more detailed assessment as part of the Final Investment Analysis Decision (JRC 2(b).

    2(a)-15 The results of the risk analysis are made usable in maintaining and updating a NAS-wide portfolio management framework of NAS investments.

     

    Principles for Final Investment Analysis (JRC 2(b))

    2(b)-1 The risk team considers the risk issues identified in JRC 2 (a) as a starting point for the JRC 2 (b) decision and complements this with other available information from the Integrated Product Team.

    2(b)-2 The risk team ensures an independent validation of how the risk issue will affect the program’s baseline elements: cost, schedule, benefit, technical performance, and interdependency (with other NAS elements) risks.

    2(b)-3 The risk team checks estimates against historical data, such as trade studies, whenever possible.

    2(b)-4 Detailed analysis of risk has the following information:

    1. · Technical description

    2. · Related baseline element changes

    3. · Detailed rationale element changes

    2(b)-5 Detailed analysis is based on:

    1. · Past performance (actual baseline element changes, e.g. cost/schedule/performance history) when available

    2. · Discrete estimate (Simulated, scenario analysis, or other approach)

    2(b)-6 The risk team determines the tasks on the work breakdown structure (WBS) that could be affected by the risk, and whether the consequences of the risk would require adding tasks that are not on the WBS.

    2(b)-7 The Basis of Estimate for Risk Analysis is reviewed for incomplete and or bias implementation.

    2(b)-8 The model for quantifying risk is reviewed by Subject Matter Experts (SME) to affirm that it is based on the appropriate quantitative analysis techniques based on available data.

    2(b)-9 The risk analysis is a probabilistic analysis (whether quantitative or scenario analysis) for the four key Acquisition Program Baseline Metrics of Cost, Schedules, Benefits, Performance estimates.

    2(b)-10 Correlation between sub components of an APB metric is noted, isolated, and accounted for, by coordination with Cost and Benefit Analysis Teams.

    2(b)-11 A risk management plan is prepared to guide risk mitigation and risk monitoring in the Solution Implementation and In-Service Phases of the Acquisition Management System.

    2(b)-12 The results of the risk analysis are made usable in maintaining and updating a NAS-wide portfolio management framework of NAS investments.