Inherent in the CAIV concept is the realization that risks are present and must be understood and managed in order to achieve performance, schedule and cost objectives. An understanding of risk is essential to setting realistic cost objectives.

DoD policy does not mandate a specific approach to risk management. In the past, aggressive performance requirements would drive technical, cost and schedule risks. Under the CAIV concept, aggressive cost objectives can drive performance and schedule requirements and risks. Moreover, requirements may be reduced or eliminated in coordination with the user to reduce risk to a level that increases the likelihood of meeting cost objectives. By establishing an effective risk management program, Program Managers may design and control their programs by using information about risk areas to set objectives, develop acquisition strategies to mitigate risk, and identify metrics that allow continual tracking and assessment of the program.

Users, who will be part of program trade-off analyses, should be provided risk assessments to contribute toward a favorable balance between performance, cost, schedule and risk. Risk assessments include the analysis of identified program risks for their consequences and probabilities of occurrence and the associated cost of possible outcomes. Under CAIV, risk assessments are critical since they provide users and developers with essential data to assist in cost-performance trade decisions.

Risk management affects program costs in two ways. First are costs associated with specific risk mitigation activities? Second are funds needed to cover the known risks of the selected system approach (i.e., funds to cover cost uncertainty)? Program Managers must include the anticipated expense of managing risk in their estimates of program costs. Decision makers (e.g., Program Executive Officers and Acquisition Executives) must weigh these costs against the level of risk in reaching program funding decisions. CAIV requires that program funds support the level of accepted program risk and that risk management costs are included in setting cost objectives. Program options that have the best cost/benefit ratios are the preferred choices for CAIV and should be considered in establishing performance, schedule and cost objectives, included in plans and acquisition strategies, and funded adequately.

Source: Defense Acquisition Deskbook, Version 3.1, 30 September 1999.

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