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, and
(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, 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 ORD 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, 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 objectives.