3.8 RISK MANAGEMENT AND CAIV
The intention of CAIV is to establish balance between cost, schedule,
performance, and risk early in the acquisition process and to manage to a cost
objective. CAIV requires that PMs establish aggressive cost objectives,
defined to some degree by the maximum level of acceptable risk. Risks in
achieving both performance and aggressive cost goals must be clearly
recognized and actively managed through:
(1) continuing iteration of cost/performance/schedule/risk tradeoffs,
(2) identifying key performance and manufacturing process uncertainties,
(3) demonstrating solutions before production.
Whereas DoD has traditionally managed performance risk, equal emphasis must
be placed on managing cost and schedule risks. An underlying premise of CAIV
is that if costs are too great, and there are ways to reduce them, then the
user and developer may reduce performance requirements to meet cost
objections. Cost control and effective risk management involve planning and
scheduling events and demonstrations to verify solutions to cost, schedule,
and performance risk issues.
User participation in the trade-off analysis is essential to attain a
favorable balance between cost, schedule, performance, and risk. The PM and
user representatives should identify risk and cost driving requirements during
the generation of the CDD to know where tradeoffs may be possible. Risk
assessments are critical to the CAIV process since they provide users and
developers with essential data to assist in the cost, schedule, performance,
and risk trade decisions.
Cost for risk management is directly related to the level of risk and
affects a program in two ways. First, costs are associated with specific
handling activities, for example, a parallel development. Second, funds are
needed to cover the known risks of the selected system approach (i.e., funds
to cover cost uncertainty). PMs must include the anticipated expense of
managing risk in their estimates of program costs. Decision makers 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