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Uncertainty and risk affect countless aspects of our everyday life: What investments should I make? Is eating this food good for my health? Cost analysts too must predict — sometimes very far — into the future how much money the military will spend on weapon systems. Similar to those making decisions about everyday life uncertainties, an analyst does not have perfect knowledge about tomorrow’s technology, economic conditions, or any other future event. Actual costs could be substantially higher or lower than originally anticipated. Based on literature reviews, numerous interviews, and analysis of historical cost data, the authors of this book look at how estimates for future weapon systems can be more realistic than in the past and how cost uncertainty analyses can be more comprehensive and informative. To help set the Air Force’s cost uncertainty analysis policy, the authors recommend that the Air Force flexibly use multiple methods for different cases; have consistent, uniform communications formats between analysts and decisionmakers; periodically track and update cost estimate records; and consider risk reserves to fund costs that arise from unforeseen circumstances.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    History of Cost Growth

  • Chapter Three

    History of Cost Growth

  • Chapter Four

    Risk Analysis in Cost Estimation

  • Chapter Five

    Decisionmaker Perspectives on Cost Risk Analysis

  • Chapter Six

    Communicating Cost Risk to the Decisionmakers

  • Chapter Seven

    Setting a Cost Risk Analysis Policy

  • Appendix A

    Programs Included in the Cost Growth Analysis

  • Appendix B

    List of Those Interviewed for the Project

  • Appendix C

    Cost Risk Questions

Research conducted by

The research described in this report was sponsored by the United States Air Force and conducted by RAND Project AIR FORCE.

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