i

RISK

MANAGEMENT

GUIDE FOR

DOD ACQUISITION

Fifth Edition

(Version 2.0)

Department of Defense

Defense Acquisition University

June 2003
ii

PUBLISHED BY THE

DEFENSE ACQUISITION UNIVERSITY PRESS

FORT BELVOIR, VIRGINIA 22060-5565

Please e-mail comments or recommended changes to:

Bill.Bahnmaier@dau.mil

For sale by the

U.S. Superintendent of Documents, Government Printing Office

Internet: bookstore.gpo.gov Phone: (202) 512-1800 Fax: (202) 512-2250

Mail Stop: SSOP, Washington, DC 20402-0001
iii

OFFICE OF THE UNDER SECRETARY OF DEFENSE

3000 DEFENSE PENTAGON

WASHINGTON, DC 20301-3000

RISK

MANAGEMENT

GUIDE

Acquisition excellence has changed the way the Department of Defense (DoD) designs, develops,

manufactures, and supports systems. Our technical, business, and management approach for acquiring

and operating systems has, and continues to, evolve. For example, we no longer can rely on military

specifications and standards to define and control how our developers design, build, and support our

new systems. Today we use commercial hardware and software, promote open systems architecture,

and encourage streamlining processes, just to name a few of the initiatives that affect the way we do

business. At the same time, the Office of the Secretary of Defense (OSD) has reduced the level of

oversight and review of programs and manufacturers’ plants.

While the new acquisition model gives government program managers and their contractors broader

control and more options than they have enjoyed in the past, it also exposes them to new risks. OSD

recognizes that risk is inherent in any acquisition program and considers it essential that program

managers take appropriate steps to manage and control risks.

This document is a product of a joint effort by the Under Secretary of Defense (Acquisition, Technology

and Logistics (USD (AT&L)) staff and the Defense Acquisition University. It is based on the material

developed by the DoD Risk Management Working Group. Material in this Guide is also reflected in

the Risk Management Focus Area of the Program Management Community of Practice (PMCOP)

(http://www.pmcop.dau.mil), and in the Defense Acquisition Deskbook, which can be accessed via

the AT&L Knowledge Sharing System (AKSS) Website (http://deskbook.dau.mil/jsp/default.jsp).

Frank J. Anderson, Jr.

President

Defense Acquisition University
iv

PREFACE

In 1996, the USD (AT&L) established a Risk Management Working Group composed of members of

the Office of the Secretary of Defense (OSD) staff, representatives of the Military Services, and

members of other DoD agencies involved in systems acquisition. This group reviewed pertinent DoD

directives (DoDD) and regulations, examined how the Services managed risk, studied various examples of risk management by industry, and looked at DoD training and education activity in risk

management. Other sources of information were the Software Engineering Institute Risk Initiative,

the Open Systems Initiative, and the safety and cost estimating communities. The findings and results

of the Working Group investigation were presented to the USD (AT&L) and are summarized below:

Working Group members then wrote the risk management portions of the Defense Acquisition Deskbook. The Defense Acquisition Deskbook (sometimes referred to as the “Legacy” Deskbook) is accessible from the AT&L Knowledge Sharing System (AKSS) Website (http://deskbook.dau.mil/

jsp/default.jsp).

Industries

• Focus of efforts is to get a product to market at a competitive price.

• Industry has have either a structured or informal Risk Management process.

• Evolutionary approaches help avoid or minimize risk.

• Most approaches employ risk avoidance, early planning, continuous assessment, and problemsolving techniques.

• Structured approaches, when they exist, are similar to DoD’s approach to Risk Management.

The Working Group concluded that industry has no magic formula for Risk Management.

The Military Services

• The Services differ in their approaches to Risk Management.

• Each approach has its strengths but no one approach is comprehensive.

• Consolidation of the strengths of each approach could foster better Risk Management in DoD.

The Working Group recommended that the Defense Acquisition Deskbook contain a set of guidelines

for sound risk management practices, and further, that it contain a set of risk management definitions

that are comprehensive and useful by all the Components.

DoD Policy*

• The risk management policy contained in DoDD 5000.1 is not comprehensive.

The Working Group recommended that DoDD 5000.1 be amended to include a more comprehensive

set of risk management policies that focuses on:

• The relationship between the Cost As an Independent Variable (CAIV) concept and Risk

Management.

• Requirement that risk management be prospective (forward looking).

• Establishment of risk management as a primary management technique to be used by Program

Managers (PMs).

*Note: The DoD 5000 policy documents referred to in the 1996 Report have since been superseded by a new set of DoD

5000 policy and guidance documents issued in 2002–2003 time frame.
v

The recommendations of the Risk Management Working Group have been fully implemented over the

period 1996-2003. The Risk Management part of the Defense Acquisition Deskbook and material in the

Risk Focus Area of the Program Management Community of Practice (PMCoP) (http://

www.pmcop.dau.mil) form the basis for this Guide. The goal of the Risk Management Guide is to

provide acquisition professionals and program management offices with a practical reference for dealing with system acquisition risks. It has also been designed to be used as an aid in DAU course offerings.

This Guide reflects the efforts of many people. Mr. Mark Schaeffer, former Deputy Director, Systems

Engineering, who chaired the initial Risk Management Working Group, and Mr. Mike Zsak and Mr.

Tom Parry, formerly from the AT&L Systems Engineering Support Office, were the original driving

forces behind the risk management initiative. LtCol John Driessnack, USAF, from the DAU/DSMC

faculty; Mr. Greg Caruth, Ms. Debbie Gonzalez, and Ms. Frances Battle from the DAU Press; and

Ms. Patricia Bartlett from Bartlett Communications guided the composition of the Guide. Assistance

was also provided by Mr. Jeff Turner of the DAU Publications Distribution Center. Special recognition goes to the Institute for Defense Analyses team composed of Mr. Louis Simpleman, Mr. Ken

Evans, Mr. Jim Lloyd, Mr. Gerald Pike, and Mr. Richard Roemer, who compiled the data and wrote

major portions of the text. Also special thanks to Ms. Margaret Adcock for her detailed comments and

support, and to Dr. Edmund Conrow for his suggestions and recommendations that have vastly improved

the Guide.

Charles B. Cochrane William W. Bahnmaier

Director Editor

DAU Center for Program Management

DoD Procedures

• Risk Management procedures in DoD 5000.2-R (Note: Later changed to Interim Defense Acquisition Guidebook) are inadequate to fully implement the risk management policy contained in DoDD

5000.1.

Procedures are lacking regarding:

– Scope of Risk Management

– Purpose of Risk Management

– Role of Milestone Decision Authorities

– Risk Management’s support of CAIV

– Risk assessment during early acquisition phases.

• Some key procedures may have been lost in transition the DoD 5000.2-R, and need to be expanded upon in the Defense Acquisition Deskbook.

DoD Risk Management Training

• Risk management training for the DoD Acquisition Corps needs to be updated and expanded, and

Integrated Product Team (IPT) and Overarching IPT (OIPT) personnel need to be educated on the

new and expanding role of risk management in DoD systems acquisition.

• Risk Management knowledge level needs improvement.

• Education is a key to obtaining the support of OIPTs and PMs. The Defense Acquisition University (DAU) needs to include Risk Management training in all functional courses and develop a

dedicated risk management course for acquisition corps personnel.
vi

CONTENTS

Chapter 1 INTRODUCTION ............................................................................................... 1

1.1 Purpose and Scope ......................................................................................................... 1

1.2 Organization of the Guide .............................................................................................. 1

1.3 Approach to Risk Management ..................................................................................... 2

1.4 DoD Risk Management Policies and Procedures ........................................................... 2

Chapter 2 RISK AND RISK MANAGEMENT ................................................................... 5

2.1 Introduction .................................................................................................................... 5

2.2 Overview ........................................................................................................................ 5

2.3 Risk Management Structure and Definitions .................................................................. 7

2.4 Risk Discussion .............................................................................................................. 8

2.4.1 Characteristics of Acquisition Risk .................................................................... 8

2.4.2 Program Products, Processes, Risk Areas, and Risk Events ............................... 9

2.5 Risk Planning ............................................................................................................... 11

2.5.1 Purpose of Risk Plans ..................................................................................... 11

2.5.2 Risk Planning Process ...................................................................................... 11

2.6 Risk Assessment ........................................................................................................... 13

2.6.1 Purpose of Risk Assessments ............................................................................ 13

2.6.2 Risk Assessment Process .................................................................................. 13

2.6.3 Timing of Risk Assessments ............................................................................. 14

2.6.4 Conducting Risk Assessments .......................................................................... 15

2.7 Risk Handling ............................................................................................................... 20

2.7.1 Purpose of Risk Handling ................................................................................. 20

2.7.2 Risk-Handling Process ..................................................................................... 20

2.8 Risk Monitoring............................................................................................................ 23

2.9 Risk Documentation ..................................................................................................... 24

Chapter 3 RISK MANAGEMENT AND THE DOD ACQUISITION PROCESS.......... 27

3.1 Introduction .................................................................................................................. 27

3.2 Overview ...................................................................................................................... 27

3.3 DoD Acquisition Process .............................................................................................. 27

3.4 Characteristics of the Acquisition Process..................................................................... 28

3.4.1 Integrated Product and Process Development (IPPD) ...................................... 28

3.4.2 Continuous Risk Management.......................................................................... 28

3.4.3 Program Stability .............................................................................................. 29

3.4.4 Reduction of Life-Cycle Costs ......................................................................... 29
vii

3.4.5 Event-Oriented Management ............................................................................ 29

3.4.6 Modeling and Simulation.................................................................................. 29

3.5 Risk Management Activities during Acquisition Phases ............................................... 29

3.5.1 Concept Refinement (CR) and Technology Development (TD) Phases........... 30

3.5.2 Subsequent Phases............................................................................................ 31

3.6 Risk Management and Milestone Decisions ................................................................. 31

3.7 Risk Management and the Acquisition Strategy ........................................................... 31

3.8 Risk Management and CAIV ....................................................................................... 32

Chapter 4 RISK MANAGEMENT AND PROGRAM MANAGEMENT ....................... 35

4.1 Introduction .................................................................................................................. 35

4.2 Overview ...................................................................................................................... 35

4.3 Program Manager and Risk Management..................................................................... 35

4.3.1 Risk Management Is a Program Management Tool .......................................... 36

4.3.2 Risk Management Is a Formal Process ............................................................. 36

4.3.3 Risk Management Is Forward-Looking ............................................................ 36

4.3.4 Risk Management Is Integral to Integrated Product

 and Process Development (IPPD) ................................................................. 37

4.4 Risk Management Organization in the PMO ................................................................ 37

4.4.1 Risk Management Organizational Structure ..................................................... 37

4.4.2 Risk Management Responsibilities ................................................................... 39

4.5 Contractor Risk Management ....................................................................................... 41

4.5.1 Contractor View of Risk ................................................................................... 41

4.5.2 Government/Contractor Relationship ............................................................... 41

4.6 Risk Management and the Contractual Process ............................................................ 42

4.6.1 Risk Management: Pre-Contract Award ........................................................... 42

4.6.2 Early Industry Involvement: Industrial Capabilities Review ............................. 42

4.6.3 Developing the Request for Proposal ............................................................... 43

4.6.4 The Offeror’s Proposal ..................................................................................... 46

4.6.5 Basis for Selection ............................................................................................ 46

4.6.6 Source Selection ............................................................................................... 46

4.7 Risk Management: Post-Contract Award ...................................................................... 47

4.8 Risk Management Reporting and Information System ................................................. 48

4.9 Risk Management Training........................................................................................... 48

Chapter 5 RISK MANAGEMENT TECHNIQUES........................................................... 53

5.1 Introduction .................................................................................................................. 53

5.2 Overview ...................................................................................................................... 53

5.3 Risk Planning Techniques ............................................................................................ 53

5.3.1 Description ....................................................................................................... 53

5.3.2 Procedures ........................................................................................................ 54
viii

5.4 Risk Assessment Techniques ........................................................................................ 55

5.4.1 Product (WBS) Risk Assessment...................................................................... 55

5.4.2 Process (DoD 4245.7-M) Risk Assessment ...................................................... 58

5.4.3 Program Documentation Evaluation Risk Identification ................................... 60

5.4.4 Threat and Requirements Risk Assessment ...................................................... 61

5.4.5 Cost Risk Assessment ....................................................................................... 63

5.4.6 Quantified Schedule Risk Assessment .............................................................. 64

5.4.7 Expert Interviews.............................................................................................. 66

5.4.8 Analogy Comparison/Lessons-Learned Studies ............................................... 67

5.5 Risk Prioritization ......................................................................................................... 68

5.5.1 Description ....................................................................................................... 68

5.5.2 Procedures ........................................................................................................ 68

5.6 Risk-Handling Techniques ........................................................................................... 70

5.6.1 General ............................................................................................................. 70

5.6.2 Risk Control ..................................................................................................... 72

5.6.3 Risk Avoidance ................................................................................................. 76

5.6.4 Risk Assumption ............................................................................................... 77

5.6.5 Risk Transfer .................................................................................................... 77

5.7 Risk Monitoring............................................................................................................ 78

5.7.1 General ............................................................................................................. 78

5.7.2 Earned Value Management ............................................................................... 79

5.7.3 Technical Performance Measurement ............................................................... 79

5.7.4 Integrated Planning and Scheduling ................................................................. 80

5.7.5 Watch List ......................................................................................................... 80

5.7.6 Reports ............................................................................................................. 80

5.7.7 Management Indicator System.......................................................................... 82

5.8 Risk Management Information Systems and Documentation ....................................... 85

5.8.1 Description ....................................................................................................... 85

5.8.2 Risk Management Reports................................................................................ 85

5.9 Software Risk Management Methodologies ................................................................. 87

5.9.1 Software Risk Evaluation (SRE) ...................................................................... 87

5.9.2 Boehm’s Software Risk Management Method ................................................. 87

5.9.3 Best Practices Initiative Risk Management Method .......................................... 90

APPENDIX A –

DOD RISK MANAGEMENT POLICIES AND PROCEDURES ................................... A-1

DoD Directive 5000.1. The Defense Acquisition System, 12 May 2003 ........................... A-1

DoD Instruction 5000.2. Operation of the Defense Acquisition System, 12 May 2003 ..... A-1

Interim Defense Acquisition Guidebook (IDAG), 30 October 2002 .................................. A-4

DoD Directive 5000.4. OSD Cost Analysis Improvement Group (CAIG),

 24 November 1992 ..................................................................................................... A-12
ix

DoD 5000.4-M. Cost Analysis Guidance and Procedures, December 1992 .................... A-13

APPENDIX B –

GENERIC RISK MANAGEMENT PLAN........................................................................ B-1

Sample Risk Management Plan.......................................................................................... B-1

Preface ............................................................................................................................... B-1

Sample Format for Risk Management Plan ........................................................................ B-2

Sample Risk Management Plan for the XYZ Program (ACAT I, II).................................. B-4

1.0 Introduction ......................................................................................................... B-4

1.1 Purpose ............................................................................................................... B-4

1.2 Program Summary .............................................................................................. B-4

1.2.1 System Description ................................................................................. B-5

1.2.2 Acquisition Strategy ................................................................................ B-5

1.2.3 Program Management Approach............................................................. B-5

1.3 Definitions........................................................................................................... B-5

1.3.1 Risk ......................................................................................................... B-5

1.3.2 Risk Event............................................................................................... B-5

1.3.3 Technical Risk......................................................................................... B-6

1.3.4 Cost Risk................................................................................................. B-6

1.3.5 Schedule Risk ......................................................................................... B-6

1.3.6 Risk Ratings ............................................................................................ B-6

1.3.7 Independent Risk Assessor...................................................................... B-6

1.3.8 Templates and Best Practices .................................................................. B-6

1.3.9 Metrics .................................................................................................... B-7

1.3.10 Critical Program Attributes...................................................................... B-7

2.0 Risk Management Approach ............................................................................... B-7

2.1 General Approach and Status .............................................................................. B-7

2.2 Risk Management Strategy ................................................................................. B-8

2.3 Organization ........................................................................................................ B-8

2.3.1 Risk Management Coordinator ............................................................... B-8

2.3.2 Program Level Integrated Product Team (PLIPT)................................... B-9

2.3.3 PIPTs ...................................................................................................... B-9

2.3.4 XYZ Independent Risk Assessors........................................................... B-9

2.3.5 Other Risk Assessment Responsibilities................................................ B-10

2.3.6 User Participation .................................................................................. B-10

2.3.7 Risk Training......................................................................................... B-10

3.0 Risk Management Process and Procedures ....................................................... B-10

3.1 Overview .......................................................................................................... B-10

3.2 Risk Planning .................................................................................................... B-11
x

3.2.1 Process .................................................................................................. B-11

3.2.2 Procedures............................................................................................. B-11

3.3 Risk Assessment................................................................................................ B-12

3.3.1 Process .................................................................................................. B-12

3.3.2 Procedures............................................................................................. B-13

3.4 Risk Handling ................................................................................................... B-17

3.4.1 Process .................................................................................................. B-17

3.4.2 Procedures............................................................................................. B-18

3.5 Risk Monitoring ................................................................................................ B-18

3.5.1 Process .................................................................................................. B-18

3.5.2 Procedures............................................................................................. B-18

4.0 Risk Management Information System (RMIS) and Documentation ............... B-19

4.1 Risk Management Information System ............................................................. B-19

4.2 Risk Documentation.......................................................................................... B-20

4.2.1 Risk Assessment Documentation .......................................................... B-20

4.2.2 Risk-Handling Documentation.............................................................. B-20

4.2.3 Risk Monitoring Documentation ........................................................... B-20

4.3 Reports.............................................................................................................. B-20

4.3.1 Standard Reports................................................................................... B-20

4.3.2 Ad Hoc Reports..................................................................................... B-20

Annex A to XYZ Risk Management Plan –

 Critical Program Attributes ........................................................................... B-21

Annex B to XYZ Risk Management Plan –

 Program Risk Reduction Schedule............................................................... B-22

Annex C to XYZ Risk Management Plan –

 Program Metric Examples ............................................................................ B-23

Annex D to XYZ Risk Management Plan –

 Management Information System and Documentation ................................. B-25

1.0 Description ...................................................................................... B-25

2.0 Risk Management Reports – XYZ Program.................................... B-25

2.1 Risk Information Form ............................................................ B-25

2.2 Risk Assessment Report .......................................................... B-26

2.3 Risk Handling Documentation ................................................ B-26

2.4 Risk Monitoring Documentation ............................................. B-26

3.0 Database Management System (DBMS) ......................................... B-26

Sample Risk Management Plan for the ABC Program (ACAT III, IV)............................ B-31

1.0 Introduction ....................................................................................................... B-31

1.1 Purpose .................................................................................................... B-31

2.0 Program Summary ............................................................................................ B-31
xi

2.1 Description ............................................................................................... B-31

2.2 Acquisition Strategy ................................................................................. B-32

2.3 Program Management Approach.............................................................. B-32

3.0 Risk-Related Definitions ................................................................................... B-32

3.1 Technical Risk .......................................................................................... B-32

3.2 Cost Risk.................................................................................................. B-32

3.3 Risk Ratings............................................................................................. B-32

4.0 Risk Management Status and Strategy .............................................................. B-33

4.1 Risk Management Status .......................................................................... B-33

4.2 Risk Management Strategy ...................................................................... B-33

5.0 Risk Management Organization ........................................................................ B-33

5.1 Program Office......................................................................................... B-33

6.0 Risk Management Structures and Procedures ................................................... B-34

6.1 Risk Planning ........................................................................................... B-35

6.2 Risk Assessment....................................................................................... B-35

6.2.1 Risk Identification ........................................................................ B-36

6.2.2 Risk Analysis ............................................................................... B-37

6.2.3 Risk Rating .................................................................................. B-39

6.2.4 Risk Prioritization......................................................................... B-40

6.3 Risk Handling .......................................................................................... B-40

6.4 Risk Monitoring ....................................................................................... B-41

6.5 Risk Management Information System (RMIS),

 Documentation, and Reports ............................................................... B-42

Annex A to ABC Risk Management Plan – Critical Program Attributes .......... B-43

Annex B to ABC Risk Management Plan –

 Management Information System and Documentation................................. B-44

1.0 Description ...................................................................................... B-44

2.0 Risk Management Forms and Reports ............................................. B-44

2.1 Risk Information Form ............................................................ B-44

2.2 Risk Monitoring Documentation ............................................. B-44

2.3 PIPT Risk Summary Report .................................................... B-44

APPENDIX C –

GLOSSARY ........................................................................................................................... C-1

APPENDIX D –

QUANTIFYING EXPERT JUDGMENT .......................................................................... D-1

APPENDIX E –

BIBLIOGRAPHY ................................................................................................................. E-1
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FIGURES

2-1. Risk Management Structure ......................................................................................... 7

2-2. Critical Process Areas and Templates ........................................................................ 11

2-3. A Risk Management Plan Outline/Format ................................................................. 12

2-4. Risk Assessment ........................................................................................................ 14

2-5. Example of a WBS Dependent Evaluation Structure ................................................ 16

2-6. Overall Risk Rating (Example) .................................................................................. 20

4-1. Decentralized Risk Management Organization .......................................................... 38

5-1. Risk Planning Technique Input and Output ............................................................... 54

5-2. Sample Format for Risk Management Plan ............................................................... 56

5-3. Product (WBS) Risk Assessment Technique Input and Output ................................. 57

5-4. Process (DoD 4245.7-M) Risk Assessment Technique Input and Output ................. 59

5-5. Plan Evaluation Technique Input and Output ............................................................ 60

5-6. Concept Refinement (CR) and Technology Development (TD) Phases

 Correlation of Selected Documents (Example) ..................................................... 61

5-7. Threat and Requirement Risk Assessment Technique Input and Output ................... 62

5-8. Cost Risk Assessment Top-Level Diagram................................................................ 64

5-9. Schedule Risk Assessment Technique Input and Output ........................................... 65

5-10. Expert Interview Technique Input and Output ........................................................... 66

5-11. Analogy Comparison/Lessons-Learned Studies Top-Level Diagram ........................ 67

5-12. Risk Prioritization Technique Input and Output ......................................................... 68

5-13. Risk Aggregation Technique Input and Output ......................................................... 69

5-14. List of Aggregated Risks ........................................................................................... 70

5-15. Example Showing Detailed List of Top-Level Risk Information ............................... 82

5-16. Example of More Complex Combination of Risk Level and Scheduled Tasks ......... 83

5-17. Conceptual Risk Management and Reporting System ............................................... 86

B-1. Risk Management and the Acquisition Process ....................................................... B-7

B-2. XYZ Risk Management Organization ..................................................................... B-9

B-3. Risk Management Structure ................................................................................... B-10

B-4. Risk Assessment Process ....................................................................................... B-16

B-5. XYZ Program Risk Handling Plan Schedule (Example) ....................................... B-22

B-6. Conceptual Risk Management and Reporting System ........................................... B-25

B-7. Risk Information Form .......................................................................................... B-28

B-8. Risk Tracking Report Example .............................................................................. B-29

B-9. ABC Risk Management Organization ................................................................... B-33

B-10. Risk Assessment Process ....................................................................................... B-39

B-11. Example Risk Tracking Report.............................................................................. B-46
xiii

TABLES

2-1. Risk Assessment Approaches .................................................................................... 18

2-2. Probability/Likelihood Criteria (Example) ................................................................. 18

2-3. Consequences/Impacts Criteria (Example) ................................................................ 18

2-4. Overall Risk Rating Criteria (Example) ..................................................................... 19

2-5. Risk Ratings (Example) ............................................................................................. 19

4-1. Notional Description of Risk Management Responsibilities ...................................... 40

4-2. Significant Risks by Critical Risk Areas .................................................................... 44

4-3. Risk Management Reference Documents .................................................................. 50

5-1. Critical Risk Areas and Example Elements................................................................ 58

5-2. Examples of Demonstration Events ........................................................................... 76

5-3. Watch List Example................................................................................................... 81

5-4. Examples of Product-Related Metrics........................................................................ 83

5-5. Examples of Process Metrics ..................................................................................... 84

5-6. Examples of Cost and Schedule Metrics .................................................................... 85

5-7. Database Management System Elements................................................................... 88

5-8. Software Risk Management Steps ............................................................................. 89

5-9. Top 10 Software Risks .............................................................................................. 89

5-10. Best Practices Initiative Risk Management Method ................................................... 90

5-11. Software Risk Grouping ............................................................................................ 91

B-1. Critical Program Attributes .................................................................................... B-21

B-2. Examples of Product-Related Metrics.................................................................... B-23

B-3. Examples of Process Metrics ................................................................................. B-23

B-4. Examples of Cost and Schedule Metrics ................................................................ B-24

B-5. DBMS Elements .................................................................................................... B-27

B-6. Watch List Example............................................................................................... B-30

B-7. Likelihood Levels .................................................................................................. B-38

B-8. Risk Consequence ................................................................................................. B-40

B-9. Critical Program Attributes .................................................................................... B-43

B-10. DBMS Elements .................................................................................................... B-45

B-11. Sample Watch List ................................................................................................. B-47

B-12. Example PIPT Risk Summary Report ................................................................... B-47

B-13. Examples of Process Metrics ................................................................................. B-48

B-14. Examples of Cost and Schedule Metrics ................................................................ B-48
xiv
1

1

INTRODUCTION

classroom instruction and as a reference book for

practical applications. Most of the material in this

Guide is derived from the Defense Acquisition

Deskbook of the Acquisition, Technology, and

Logistics (AT&L) Knowledge Sharing System

(AKSS) and from the Risk Focus Area of the

Program Management Community of Practice

(PMCoP). Readers should refer to the PMCoP

Website (http://www.pmcop.dau. mil) for any

new risk management information that is disseminated between publishing of updated Guide editions or versions of editions.

1.2 ORGANIZATION OF THE GUIDE

The Risk Management Guide discusses risk and

risk management, defines terms, and introduces

basic risk management concepts (Chapter 2).

Chapter 3 examines risk management concepts

relative to the DoD acquisition process. It

illustrates how risk management is an integral

part of program management, describes interaction with other acquisition processes, and identifies and discusses the various types of acquisition risks.

Chapter 4 discusses the implementation of a risk

management program from the perspective of a

PMO. This chapter focuses on practical application issues such as risk management program

design options, PMO risk management organizations, and criteria for a risk management information system (MIS).

Risk has always been a concern in the acquisition of Department of Defense (DoD) systems.

The acquisition process itself is designed, to a

large degree, to allow risks to be controlled from

conception to delivery of a system. Unfortunately, in the past, some Program Managers

(PMs) and decision makers have viewed risk

as something to be avoided. Any program that

had risk was subject to intense review and oversight. This attitude has changed. DoD managers recognize that risk is inherent in any program and that it is necessary to analyze future

program events to identify potential risks and

take measures to handle them.

Risk management is concerned with the outcome of future events, whose exact outcome is

unknown, and with how to deal with these uncertainties, i.e., a range of possible outcomes.

In general, outcomes are categorized as favorable or unfavorable, and risk management is

the art and science of planning, assessing, and

handling future events to ensure favorable outcomes. The alternative to risk management is

crisis management, a resource-intensive process

that is normally constrained by a restricted set

of available options.

1.1 PURPOSE AND SCOPE

This Risk Management Guide is designed to

provide acquisition professionals and program

management offices (PMOs) with a practial reference book for dealing with system acquisition

risks. It is also intended to be useful as an aid in
2

Chapter 5, the final chapter, describes a number

of techniques that address the aspects (phases)

of risk management, i.e., planning, assessment,

handling, and monitoring.

This Guide is a source of background information and provides a starting point for a risk management program. None of the material is mandatory. PMs should tailor the approaches and

techniques to fit their programs.

The Risk Management Guide also contains

appendices that are intended to serve as reference material and examples, and provide

backup detail for some of the concepts presented in the main portion of the Guide.

1.3 APPROACH TO RISK

MANAGEMENT

Based on the DoD model contained in the Defense Acquisition Deskbook (described in Chapter 2), this Guide emphasizes a risk management

approach that is disciplined, forward looking, and

continuous.

In 1986, the Government Accounting Office

(GAO), as part of an evaluation of DoD policies and procedures for technical risk assessments, developed a set of criteria as an approach

to good risk assessments. These criteria, with

slight modification, apply to all aspects of risk

management and are encompassed in the

Guide’s approach. They are:

(1) Planned Procedures. Risk management

is planned and systematic.

(2) Prospective Assessment. Potential future

problems are considered, not just current

problems.

(3) Attention to Technical Risk. There is

explicit attention to technical risk.

(4) Documentation. All aspects of the risk management program are recorded and data

maintained.

(5) Continual Process. Risk assessments are

made throughout the acquisition process;

handling activities are continually evaluated

and changed if necessary; and critical risk

areas are always monitored.

While these criteria are not solely sufficient to

determine the “health” of a program, they are

important indicators of how well a risk

management process is being implemented. A

pro-active risk management process is a good

start toward a successful program.

1.4 DOD RISK MANAGEMENT

POLICIES AND PROCEDURES

DoD policies and procedures that address risk

management for acquisition programs are contained in five key DoD documents. DoD Directive (DoDD) 5000.1 (The Defense Acquisition

System) contains overall acquisition policy —

with a strong basis in risk management. The

policy on risk management is amplified further

by the information in DoD Instruction (DoDI)

5000.2 (Operation of the Defense Acquisition

System) and the Interim Defense Acquisition

Guidebook (IDAG). These documents integrate

risk management into the acquisition process, describe the relationship between risk and various

acquisition functions, and establish some

reporting requirements. DoDD 5000.4 and DoD

5000.4-M address risk and cost analysis guidance

as they apply to the Office of the Secretary of

Defense. Appendix A is an extract of existing

risk management policies and procedures from

all of these documents.

The DoD 5000 series contains strong statements

on risk management but requires elaboration to

help the PM establish an effective risk management program. The information furnished in the
3

Risk Management section of the Defense Acquisition Deskbook and in the Risk Focus Area

of the PMCoP supports and expands the contents of the DoD 5000 series. This Guide in turn

is derived from and reflects those sources.
4
5

2

RISK AND

RISK MANAGEMENT

insight into risk areas, thereby allowing the development of effective handling strategies. The

net result promotes executable programs.

Effective risk management requires involvement of the entire program team and also requires help from outside experts knowledgeable in critical risk areas (e.g., threat, technology, design, manufacturing, logistics, schedule,

and cost). In addition, the risk management process should cover hardware, software, the human element, and integration issues. Outside

experts may include representatives from the

user, laboratories, contract management, test,

logistics, and sustainment communities, and

industry. Users, essential participants in program trade analyses, should be part of the assessment process so that an acceptable balance

among cost, schedule, performance, and risk

can be reached. A close relationship between

the Government and industry, and later with the

selected contractor(s), promotes an understanding of program risks and assists in developing

and executing the management efforts.

Successful risk management programs generally have the following characteristics:

€ Feasible, stable, and well-understood user

requirements and threat;

• A close relationship with user, industry, and

other appropriate participants;

2.1 INTRODUCTION

This Chapter introduces the concepts of risk and

risk management by explaining the DoD riskrelated definitions and by identifying the characteristics of acquisition risks. It also presents

and discusses a structured concept for risk

management and its five subordinate processes.

2.2 OVERVIEW

The DoD risk management concept is based on

the principles that risk management must be

forward-looking, structured, informative, and

continuous. The key to successful risk management is early planning and aggressive execution. Good planning enables an organized, comprehensive, and iterative approach for identifying and assessing the risk and handling options necessary to refine a program acquisition

strategy. To support these efforts, assessments

should be performed as early as possible in the

life cycle to ensure that critical technical, schedule, and cost risks are addressed with handling

actions incorporated into program planning and

budget projections.

PMs should update program risk assessments

and tailor their management strategies accordingly. Early information gives them data that

helps when writing a Request for Proposal and

assists in Source Selection planning. As a program progresses, new information improves
6

• A planned and structured risk management

process, integral to the acquisition process;

• An acquisition strategy consistent with risk

level and risk-handling strategies;

• Continual reassessment of program and

associated risks;

• A defined set of success criteria for all cost,

schedule, and performance elements, e.g.,

Acquisition Program Baseline (APB)

thresholds;

• Metrics to monitor effectiveness of riskhandling strategies;

• Effective Test and Evaluation Program; and

• Formal documentation.

PMs should follow the guidelines below to

ensure that a management program possesses

the above characteristics.

• Assess program risks, using a structured process, and develop strategies to manage these

risks throughout each acquisition phase.

• Identify early and intensively manage those

design parameters that critically affect cost,

capability, or readiness.

• Use technology demonstrations/modeling/

simulation and aggressive prototyping to

reduce risks.

• Use test and evaluation as a means of

quantifying the results of the risk-handling

process.

• Include industry and user participation in risk

management.

• Use Developmental Test and Evaluation

(DT&E) and early operational assessments

when appropriate.

• Establish a series of “risk assessment reviews” to evaluate the effectiveness of risk

handling against clearly defined success

criteria.

• Establish the means and format to communicate risk information and to train participants

in risk management.

• Prepare an assessment training package for

members of the program office and others,

as needed.

• Acquire approval of accepted risks at the

appropriate decision level.

In general, management of software risk is the

same as management of other types of risk

and techniques that apply to hardware programs

are equally applicable to software intensive

programs. Nevertheless, some characteristics of

software make this type of risk management different, primarily because it is difficult to:

• Identify software risk.

• Estimate the time and resources required to

develop new software, resulting in potential

risks in cost and schedule.

• Test software completely because of the

number of paths that can be followed in the

logic of the software.

• Develop new programs because of the rapid

changes in information technology and an

ever-increasing demand for quality software

personnel.
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2.3 RISK MANAGEMENT

STRUCTURE AND DEFINITIONS

Although each risk management strategy

depends upon the nature of the system being

developed, research reveals that good strategies

contain the same basic processes and structure

shown in Figure 2-1. This structure is sometimes also referred to as the Risk Management

Process Model. The application of these processes vary with acquisition phases and the degree of system definition; all should be integrated into the program management function.

The elements of the structure are discussed in

the following paragraphs of this Chapter; however, in order to form a basis for discussion,

the Defense Acquisition Deskbook definitions for

the processes and elements of risk management

include:

Risk is a measure of the potential inability to

achieve overall program objectives within defined cost, schedule, and technical constraints

and has two components: (1) the probability/

likelihood of failing to achieve a particular outcome, and (2) the consequences/impacts of failing to achieve that outcome.

Figure 2-1. Risk Management Structure

Risk events, i.e., things that could go wrong for

a program or system, are elements of an acquisition program that should be assessed to determine the level of risk. The events should be defined to a level that an individual can comprehend the potential impact and its causes. For example, a potential risk event for a turbine engine

could be turbine blade vibration. There could

be a series of potential risk events that should be

selected, examined, and assessed by subjectmatter experts.

The relationship between the two components

of risk — probability and consequence/impact

— is complex. To avoid obscuring the results of

an assessment, the risk associated with an event

should be characterized in terms of its two components. As part of the assessment there is also

a need for backup documentation containing

the supporting data and assessment rationale.

Risk management is the act or practice of dealing with risk. It includes planning for risk, assessing (identifying and analyzing) risk areas,

developing risk-handling options, monitoring

risks to determine how risks have changed, and

documenting the overall risk management

program.

Risk Management

Risk

Assessment

Risk

Planning

Risk

Handling

Risk

Monitoring

Risk

Identification

Risk

Analysis

Risk Documentation
8

Risk planning is the process of developing and

documenting an organized, comprehensive, and

interactive strategy and methods for identifying and tracking risk areas, developing riskhandling plans, performing continuous risk assessments to determine how risks have changed,

and assigning adequate resources.

Risk assessment is the process of identifying

and analyzing program areas and critical technical process risks to increase the probability/

likelihood of meeting cost, schedule, and performance objectives. Risk identification is the

process of examining the program areas and

each critical technical process to identify and

document the associated risk. Risk analysis is

the process of examining each identified risk

area or process to refine the description of the

risk, isolating the cause, and determining the

effects. It includes risk rating and prioritization

in which risk events are defined in terms of their

probability of occurrence, severity of consequence/impact, and relationship to other risk

areas or processes.

Risk handling is the process that identifies,

evaluates, selects, and implements options in

order to set risk at acceptable levels given program constraints and objectives. This includes

the specifics on what should be done, when it

should be accomplished, who is responsible,

and associated cost and schedule. The most appropriate strategy is selected from these handling options. For purposes of the Guide, risk

handling is an all-encompassing term whereas

risk mitigation is one subset of risk handling.

Risk monitoring is the process that systematically tracks and evaluates the performance of

risk-handling actions against established

metrics throughout the acquisition process and

develops further risk-handling options, as

appropriate. It feeds information back into the

other risk management activities of planning,

assessment, and handling as shown in Figure

2-1. This feedback mechanism was first suggested by Dr. Edmund Conrow in his book

Effective Risk Management: Some Keys to

Success.

Risk documentation is recording, maintaining,

and reporting assessments, handling analysis

and plans, and monitoring results. It includes

all plans, reports for the PM and decision

authorities, and reporting forms that may be

internal to the PMO.

2.4 RISK DISCUSSION

Implicit in the definition of risk is the concept

that risks are future events , i.e., potential problems, and that there is uncertainty associated

with the program if these risk events occur.

Therefore, there is a need to determine, as much

as possible, the probability of a risk event

occurring and to estimate the consequence/

impact if it occurs. The combination of these two

factors determines the level of risk. For example,

an event with a low probability of occurring, yet

with severe consequences/impacts, may be a candidate for handling. Conversely, an event with a

high probability of happening, but the consequences/impacts of which do not affect a

program, may be acceptable and require no

handling.

To reduce uncertainty and apply the definition

of risk to acquisition programs, PMs must be

familiar with the types of acquisition risks, understand risk terminology, and know how to

measure risk. These topics are addressed in the

next several sections.

2.4.1 Characteristics of Acquisition Risk

Acquisition programs tend to have numerous,

often interrelated, risks. They are not always

obvious; relationships may be obscure; and they

may exist at all program levels throughout the

life of a program. Risks are in the PMO (program
9

plans, etc.); in support provided by other Government agencies; in threat assessment; and in

prime contractor processes, engineering and

manufacturing processes, and technology. The

interrelationship among risk events may cause

an increase in one because of the occurrence of

another. For example, a slip in schedule for an

early test event may adversely impact subsequent tests, assuming a fixed period of test time

is available.

Another important risk characteristic is the time

period before a risk future event occurs; because

time is critical in determining risk-handling

options. If an event is imminent, the PMO must

resort to crisis management. An event that is

far enough in the future to allow management

actions may be controllable. The goal is to avoid

the need to revert to crisis management and

problem solving by managing risk up front.

An event’s probability of occurrence and consequences/impacts may change as the development process proceeds and information becomes available. Therefore, throughout the development phase, PMOs should reevaluate

known risks on a periodic basis and examine

the program for new risks.

2.4.2 Program Products, Processes,

Risk Areas, and Risk Events

Program risk includes all risk events and their

relationships to each other. It is a top-level assessment of impact to the program when all risk

events at the lower levels of the program are

considered. Program risk may be a roll-up of

all low-level events; however, most likely, it is

a subjective evaluation of the known risks by

the PMO, based on the judgment and experience of experts. Any roll-up of program risks

must be carefully done to prevent key risk issues

from “slipping through the cracks.” Identifying program risk is essential because it forces

the PMO to consider relationships among all

risks and may identify potential areas of concern

that would have otherwise been overlooked.

One of the greatest strengths of a formal, continuous risk management process is the proactive quest to identify risk events for handling and

the reduction of uncertainty that results from handling actions.

A program office has continuous demands on

its time and resources. It is, at best, difficult,

and probably impossible, to assess every

potential area and process. To manage risk, the

PMOs should focus on the critical areas that

could affect the outcome of their programs.

Work Breakdown Structure (WBS) product and

process elements and industrial engineering

and manufacturing processes contain most of

the significant risk events. Risk events are determined by examining each WBS element and

process in terms of sources or areas of risk.

Broadly speaking, these sources generally can

be grouped as cost, schedule, and performance,

with the latter including technical risk.

Following are some typical risk areas:

• Threat. The sensitivity of the program to

uncertainty in the threat description, the

degree to which the system design would

have to change if the threat’s parameters

change, or the vulnerability of the program

to foreign intelligence collection efforts

(sensitivity to threat countermeasure).

• Requirements. The sensitivity of the program

to uncertainty in the system description and

requirements except for those caused by

threat uncertainty.

• Design. The ability of the system configuration to achieve the program’s engineering

objectives based on the available technology,

design tools, design maturity, etc.

• Test and Evaluation (T&E). The adequacy

and capability of the T&E program to assess
10

attainment of significant performance specifications and determine whether the systems

are operationally effective and suitable.

• Modeling and Simulation (M&S). The adequacy and capability of M&S to support all

phases of a program using verified, valid,

and accredited M&S tools.

• Technology. The degree to which the technology proposed for the program has been

demonstrated as capable of meeting all of

the program’s objectives.

• Logistics. The ability of the system configuration to achieve the program’s logistics objectives based on the system design, maintenance concept, support system design, and

availability of support resources.

• Production. The ability of the system configuration to achieve the program’s production objectives based on the system design,

manufacturing processes chosen, and availability of manufacturing resources such as

facilities and personnel.

• Concurrency. The sensitivity of the program to uncertainty resulting from the combining or overlapping of life-cycle phases or

activities.

• Capability of Developer. The ability of the

developer to design, develop, and manufacture the system. The contractor should have

the experience, resources, and knowledge to

produce the system.

• Cost/Funding. The ability of the system to

achieve the program’s life-cycle cost objectives. This includes the effects of budget and

affordability decisions and the effects of

inherent errors in the cost estimating

technique(s) used (given that the technical

requirements were properly defined).

• Management. The degree in which program

plans and strategies exist and are realistic and

consistent. The Government’s acquisition

team should be qualified and sufficiently

staffed to manage the program.

• Schedule. The adequacy of the time allocated

for performing the defined tasks, e.g., developmental, production, etc. This factor includes the

effects of programmatic schedule decisions, the

inherent errors in the schedule estimating technique used, and external physical constraints.

Critical risk processes are the developer’s engineering and production processes which, historically, have caused the most difficulty during the

development and/or production phases of acquisition programs. These processes include, but are

not limited to, design, test, production, facilities, logistics, and management. These processes are included in the critical risk areas and

are addressed separately to emphasize that they

focus on processes. DoD 4245.7-M, Transition

from Development to Production, describes them

using templates. See Figure 2-2 for an example

of the template for product development. The

templates are the result of a Defense Science

Board task force, composed of Government and

industry experts, who identified engineering processes and control methods to minimize risk in

both Government and industry. The task force

defined these critical events in terms of the templates, which are briefly discussed later. A copy

of DoD 4245.7-M may be obtained at the Defense Technical Information Center (DTIC)

Website: http://www.dtic.mil/whs/directives.

Additional areas, such as manpower, environmental impact, systems safety and health, and

systems engineering, that are analyzed during

program plan development provide indicators

for additional risk. The PMO should consider

these areas for early assessment since failure

to do so could cause dire consequences/impacts

in the program’s latter phases.
11

In addition, PMs should address the uncertainty

associated with security — an area sometimes

overlooked by developers but addressed under

the topic of acquisition system protection in the

Defense Acquisition Deskbook. However, in addition to the guidance given there, PMs must recognize that, in the past, classified programs have

experienced difficulty in access, facilities, clearances, and visitor control. Failure to manage these

aspects of a classified program could adversely

affect cost and schedule.

2.5 RISK PLANNING

2.5.1 Purpose of Risk Plans

Risk planning is the detailed formulation of a

program of action for the management of risk. It

is the process to:

Figure 2-2. Critical Process Areas and Templates

• Develop and document an organized, comprehensive, and interactive risk management

strategy.

• Determine the methods to be used to execute

a PM’s risk management strategy.

• Plan for adequate resources.

Risk planning is iterative and includes describing and scheduling the activities and process to

assess (identify and analyze), handle, monitor,

and document the risk associated with a program. The result is the Risk Management Plan

(RMP).

2.5.2 Risk Planning Process

The PMO should periodically review the plan and

revise it, if necessary. Some events such as: (1) a

change in acquisition strategy, (2) preparation for

PRODUCT

FUNDING

DESIGN TEST PRODUCTION FACILITIES LOGISTICS MANAGEMENT

Money

Phasing

Design Ref.

Mission Profile

Trade Studies

Build-in Test

Design Studies

Parts & Materials

Selection

Computer-Aided

Design (CAD)

Design Reviews

Design

Requirements

Design Policy

Design Analysis

Software

Design

Design for

Testing

Design Reviews

Configuration

Control

Failure Reporting

System

Integrated Test

Life

Software Test

Uniform Test

Report

Field

Feedback

Design Limit

Test Analysis

and Fix (TAFF)

Manufacturing

Screening

Manufacturing

Plan

Tool Planning

Piece Part

Control

Computer-Aided

Mfg. (CAM)

Defect Control

Special Test

Equipment (STE)

Quality Mfg.

Process

Subcontractor

Control

Factory

Improvements

Modernization

Productivity

Center

Logistics Support

Analysis

Support & Test

Equipment

Spares

Manpower &

Personnel

Training Materials

& Equipment

Manufacturing

Strategy

Data

Management

Production Breaks

Personnel

Requirements

Technical Risk

Assessment

Transition Plan
12

a major decision point, (3) technical audits and

reviews, (4) an update of other program plans,

and (5) preparation for a Program Objective

Memorandum (POM) submission may drive the

need to update an existing plan.

Planning begins by developing and documenting a risk management strategy. Early efforts

establish the purpose and objective, assign responsibilities for specific areas, identify additional technical expertise needed, describe the

assessment process and areas to consider,

delineate procedures for consideration of handling options, define a risk rating scheme,

dictate the reporting and documentation needs,

and establish report requirements and monitoring metrics. This planning should also address evaluation of the capabilities of potential

sources as well as early industry involvement and

program.

The PM’s strategy to manage risk provides the

program team with direction and basis for planning. Initially formalized during a program’s

Concept Exploration Phase and updated for

each subsequent program phase, the strategy

should be reflected in the program’s acquisition strategy, which with requirement and threat

documents, known risks, and system and program characteristics are sources of information

for PMO use to devise a strategy and begin deFigure 2-3. A Risk Management Plan Outline/Format

veloping a Risk Management Plan. Since the

program’s risks are affected by the Government

and contractor team’s ability to develop and

manufacture the system, industry can provide

valuable insight into this area of consideration.

The plan is the road map that tells the Government and contractor team how to get from where

the program is today to where the PM wants it

to be in the future. The key to writing a good

plan is to provide the necessary information so

the program team knows the objectives, goals,

and the PMO’s risk management process. Since

it is a map, it may be specific in some areas,

such as the assignment of responsibilities for

Government and contractor participants and

definitions, and general in other areas to allow

users to choose the most efficient way to proceed. For example, a description of techniques

that suggests several methods for evaluators to

use to assess risk is appropriate, since every

technique has advantages and disadvantages

depending on the situation.

Appendix B contains two examples of a risk

plan and a summary of the format is shown in

Figure 2-3.

In a decentralized PMO risk management organization, the program’s risk management coordinator may be responsible for risk management

Introduction

Program Summary

Definitions

Risk Management Strategy and Approach

Organization

Risk Management Process and Procedures

Risk Planning

Risk Assessment

Risk Handling

Risk Monitoring

Risk Management Information System, Documentation and Reports
13

planning. See Sections 4.4, Risk Management

Organization in the PMO, and 5.3, Risk Planning Techniques.

2.6 RISK ASSESSMENT

2.6.1 Purpose of Risk Assessments

The primary objective of assessments is to

identify and analyze program risks so that the

most critical among them may be controlled.

Assessments are factors that managers should

consider in setting cost, schedule, and performance objectives because they provide an

indication of the probability/likelihood of

achieving the desired outcomes.

2.6.2 Risk Assessment Process

Risk assessment is the problem definition stage

of management that identifies and analyzes

(quantifies) prospective program events in terms

of probability and consequences/impacts. The

results form the basis for most risk management

actions. It is probably the most difficult and

time-consuming part of the management process. There are no quick answers or shortcuts.

Tools are available to assist evaluators in assessing risk, but none are totally suitable for any

program and may be highly misleading if the

user does not understand how to apply them or

interpret the results. Despite its complexity, risk

assessment is one of the most important phases

of the risk process because the caliber and quality

of assessments determine the effectiveness of a

management program.

The components of assessment, identification

and analysis, are performed sequentially with

identification being the first step.

Risk identification begins by compiling the

program’s risk events. PMOs should examine

and identify program events by reducing them

to a level of detail that permits an evaluator to

understand the significance of any risk and identify its causes, i.e., risk drivers. This is a practical way of addressing the large and diverse number of potential risks that often occur in acquisition programs. For example, a WBS level 4

or 5 element may generate several risk events

associated with a specification or function, e.g.,

failure to meet turbine blade vibration requirements for an engine turbine design.

Risk events are best identified by examining

each WBS product and process element in terms

of the sources or areas of risk, as previously

described in Paragraph 2.4.2.

Risks are those events that evaluators (after

examining scenarios, WBS, or processes)

determine would adversely affect the program.

Evaluators may initially rank events by probability and consequence/impact of occurrence

before beginning analysis to focus on those

most critical.

Risk analysis is a technical and systematic process to examine identified risks, isolate causes,

determine the relationship to other risks, and

express the impact in terms of probability and

consequences/impacts.

In practice, the distinction between risk identification and risk analysis is often blurred because

there is some risk analysis that occurs during the

identification process. For example, if, in the process of interviewing an expert, a risk is identified,

it is logical to pursue informa-tion on the probability of it occurring, the consequences/impacts,

the time associated with the risk (i.e., when it might

occur), and possible ways of dealing with it. The

latter actions are part of risk analysis and risk handling, but often begin during risk identification.

Prioritization is the ranking of risk events to determine the order of importance. It serves as the

basis for risk-handling actions. Prioritization is

part of risk analysis.
14

Integrated Product Teams (IPTs) typically perform risk assessments in a decentralized risk management organization as described in Paragraph

4.4. If necessary, the team may be augmented

by people from other program areas or outside

experts. Paragraph 5.4, Risk Assessment Techniques, elaborates on this for each of the described assessment techniques.

Figure 2-4. Risk Assessment

2.6.3 Timing of Risk Assessments

The assessment process begins during the

Concept Refinement (CR) Phase and continues

throughout the subsequent acquisition phases.

The PMO should continually reassess the program at increasing levels of detail as the program progresses through the acquisition

phases and more information becomes available. There are, however, times when events

Risk Planning

Handling Phase

Support Key Events Risk Handling

Identification of

Risk Events

List WBS product/

process elements

Examine each in terms

of risk sources/areas

Determine what could

go wrong

Compile list of

“Risk Events”

Planning Phase

Assessment

Phase

R

I

S

K

A

S

S

E

S

S

M

E

N

T

Risk Identification Activity

• Identify Risk Events

• Examine Events for Consequences

• Preliminary Analysis

• Document the Results

Risk Analysis Activity

• Develop Probability/Consequence Scales

• Perform Supporting Analysis

• Determine Probability and Consequence

Levels/Ratings

• Document the Results

• Rate, Prioritize, and Aggregate Risks

• Establish Watch List

Pre-Risk Assessment Activity

• Determine Needs to Conduct Assessment

• Train the Teams

• Define Evaluation Structure

• Identify Outside Experts
15

may require new assessments, i.e., a major

change in the acquisition strategy. Paragraph

2.5.2 lists other events that could cause risk

assessments to be performed.

2.6.4 Conducting Risk Assessments

There is no standard approach to assessing risk

because methods vary according to the technique employed, the phase of the program, and

the nature of the program itself; however, some

top-level actions are typically common to all

methods. They are grouped in Figure 2-4 into

pre-risk assessment activities, risk identification activities, and risk analysis activities. Each

risk category or area, e.g., cost, schedule, and

performance, includes a core set of assessment

tasks and is related to the other two categories.

This relationship requires supportive analysis

among areas to ensure the integration of the assessment process. For example, a technical assessment probably should include a cost and

schedule analysis in determining the technical

risk impact. The results of the assessments, normally conducted by IPTs follow:

Performance/Technical Assessment (Includes

technical areas of risk shown in Paragraph

2.4.2.)

• Provides technical foundation,

• Identifies and describes program risks, i.e.,

threat, technology, design, manufacturing,

etc.,

• Prioritizes risks with relative or quantified

weight for program impact,

• Analyzes risks and relates them to other

internal and external risks,

• Quantifies associated program activities with

both time duration and resources,

• Quantifies inputs for schedule assessment

and cost estimate,

• Documents technical basis and risk definition

for the risk assessment.

Schedule Assessment

• Evaluates baseline schedule inputs,

• Incorporates technical assessment and

schedule uncertainty inputs to program

schedule model,

• Evaluates impacts to program schedule

based on technical team assessment,

• Performs schedule analysis on program

integrated master schedule,

• Quantifies schedule excursions reflecting

effects of cost risks, including resource

constraints,

• Provides Government schedule assessment

for cost analysis and fiscal year planning,

• Reflects technical foundation, activity definition, and inputs from technical and cost areas,

• Documents schedule basis and risk impacts

for the risk assessment.

Cost Estimate and Assessment

• Builds on technical and schedule assessment

results,

• Translates technical and schedule risks into

cost,

• Derives cost estimate by integrating technical risk and schedule risk impacts with

resources,
16

• Establishes budgetary requirements consistent

with fiscal year planning,

• Determines if the phasing of funds supports

technical and acquisition approach,

• Provides program cost excursions from:

– Near-term budget execution impacts,

– External budget changes and constraints.

• Documents cost basis and risk impacts.

2.6.4.1 Pre-Risk Assessment Activities. The Risk

Management Plan may describe the actions that

compose this activity. Typically, a program-level

IPT may conduct a quick-look assessment of the

program to identify the need for technical experts

(who are not part of the team) and to examine areas that appear most likely to contain risk. The

program’s risk coordinator, or an outside expert,

may train the IPTs, focusing on the program’s risk

strategy, definitions, suggested techniques, documentation, and reporting requirements. Paragraph

4.9, Risk Management Training,provides some suggestions for training.

2.6.4.2 Risk Identification Activity. To identify risk events, IPTs should break down program elements to a level where they, or subjectmatter experts, can perform valid assessments.

The information necessary to do this varies according to the phase of the program. During the

early phases, requirement, threat documents, and

acquisition plans may be the only program-specific data available. They should be analyzed to

identify events that may have adverse consequences/impacts. A useful initial identification

exercise is to perform a mission profile for the

system as suggested in DoD 4245.7-M, Transition from Development to Production. Using this

methodology, the developer creates a functional

and environmental profile for the system and examines the low-level requirements that the system must meet to satisfy its mission requirements.

The IPTs may then study these requirements to

determine which are critical. For example, in an

aircraft profile, it may be apparent that high speed

is critical. If the speed requirement is close to

that achieved by existing aircraft, this may not

be a concern. However, if the speed is greater

than that achieved by today’s aircraft, it may be

a critical risk area. Since aircraft speed depends,

among other things, on weight and engine thrust,

it would be desirable to enlist the help of a materials expert to address weight and an engine expert to assess engine-associated risk.

Another method of decomposition is to create a

WBS as early as possible in a program. Figure

2-5 is a simple example of a decomposition based

Figure 2-5. Example of a WBS Dependent Evaluation Structure

Risk Goals/

Level 1 Level 2 Level 3 Level 4 Event Objectives

Weight Weight

Budget

Aircraft Wings

Aircraft

System Airframe

(too heavy)
17

on the WBS for an aircraft. The figure shows an

important requirement of the decomposition process, the establishment of goals (e.g., don’t exceed the weight budget or objective). Risk events

are determined by matching each WBS element

and process to sources or areas of risk. Risk areas/sources are described in Paragraph 2.4.2 and

Table 4-2.

During decomposition, risk events are identified

from experience, brainstorming, lessons learned

from similar programs, and guidance contained

in the risk management plan. A structured approach previously discussed matches each WBS

element and process in terms of sources or areas

of risk. The examination of each element against

each risk area is an exploratory exercise to identify

the critical risks. The investigation may show that

risks are interrelated. For example, the weight of

an aircraft affects its speed, but also impacts the

payload, range, and fuel requirements. These have

design and logistics consequences/impacts and

may even affect the number of aircraft that must

be procured to meet objectives.

Critical risks need to be documented as specified in the Risk Management Plan and may include the scenario that causes the risk, planned

management controls and actions, etc. It may also

contain an initial assessment of the consequences/impacts to focus the risk assessment effort. A risk watch list should be initiated as part

of risk identification. It is refined during handling, and monitored/updated during the monitoring phase. Watch lists provide a convenient

and necessary form to track and document activities and actions resulting from risk analysis.

Watch lists frequently evolve from the input of

each “expert” functional manager on a program.

(See paragraph 5.7.5.)

2.6.4.3 Risk Analysis Activity. Analysis begins

with a detailed study of the critical risk events

that have been identified. The objective is to

gather enough information about the risks to

judge the probability of occurrence and the impact on cost, schedule, and performance if the

risk occurs.

Impact assessments are normally subjective and

based on detailed information that may come

from:

• Comparisons with similar systems,

• Relevant lessons-learned studies,

• Experience,

• Results from tests and prototype development,

• Data from engineering or other models,

• Specialist and expert judgments,

• Analysis of plans and related documents,

• Modeling and simulation,

• Sensitivity analysis of alternatives.

Depending on the particular technique and the

risk being analyzed, some supporting analysis

may be necessary, i.e., analysis of contractor processes, such as design, engineering, fault tree

analysis, engineering models, simulation, etc.

Analyses provide the basis for subjective

assessments.

A critical aspect of risk analysis is data

collection. Two primary sources of data are

interviews of subject-matter experts and analogy

comparisons with similar systems. Paragraph 5.4

contains a procedure for collecting both types

of data for use in support of the techniques listed

in Table 2-1. Periodically, sets of risks need to

be prioritized in preparation for risk handling,

and aggregated to support program management

reviews. Paragraph 5.5, Risk Prioritization,

describes methods for accomplishing this.
18

2.6.4.3.1 Risk Rating and Prioritization/

Ranking

Risk ratings are an indication of the potential impact of risks on a program; they are a measure

of the probability/likelihood of an event

occurring and the consequences/impacts of the

event. They are often expressed as high,

Table 2-1. Risk Assessment Approaches

Applicable Risk Areas &

Risk Assessment Technique Applicable Acquisition Phases Processes

Program Plans and critical comPlan Evaluation/Risk Identification All phases munications with the developer

Product (WBS) Risk Assessment All phases starting with the All critical risk areas except threat,

completion of the Contract WBS requirements, cost, and schedule

Process (DoD 4265.7-M) Risk

Assessment All phases, but mainly late SDD All critical risk processes

Cost Risk Assessment All phases Cost critical risk areas

Schedule Risk Assessment All phases Schedule critical risk areas

Table 2-2. Probability/Likelihood Criteria (Example)

Level What is the Likelihood the Risk

Event Will Happen?

a Remote

b Unlikely

c Likely

d Highly Likely

e Near Certainty

Table 2-3. Consequences/Impacts Criteria (Example)

Performance Schedule Cost

a Minimal or no impact Minimal or no impact Minimal or no impact

b Acceptable with some Additional resources <5%

reduction in margin required; able to meet

need dates

c Acceptable with significant Minor slip in key milestones; 5-7%

reduction in margin not able to meet need date

d Acceptable; no remaining Major slip in key milestone 7-10%

margin or critical path impacted

e Unacceptable Can’t achieve key team or >10%

major program milestone

Level Given the Risk Is Realized, What Is the Magnitude of the Impact?

moderate, and low. Risk rating and prioritization/ranking are considered integral parts of risk

analysis.

A group of experts, who are familiar with each

risk source/area (e.g., design, logistics, production, etc.) and product WBS element, are best

qualified to determine risk ratings. They should
19

identify rating criteria for review by the PMO,

who includes them in the Risk Management

Plan. In most cases, the criteria will be based

on the experience of the experts, as opposed to

mathematically derived, and should establish

levels of probability/likelihood and consequences/ impacts that will provide a range of

possibilities large enough to distinguish differences in risk ratings. At the program level, consequences/impacts should be expressed in

terms of impact on cost, schedule and performance. Tables 2-2 and 2-3 are examples of

probability/ likelihood and consequence/impact

criteria, and Table 2-4 contains an example of

overall risk rating criteria, which considers both

probability/likelihood and consequences/

impacts. Table 2-5 provides a sample format

for presenting risk ratings.

Using these risk ratings, PMs can identify

events requiring priority management (high or

moderate risk probability/likelihood or consequences/impacts). The document prioritizing

the risk events is called a Watch List. Risk ratings also help to identify the areas that should

be reported within and outside the PMO, e.g.,

milestone decision reviews. Thus, it is important that the ratings be portrayed as accurately

as possible.

Table 2-4. Overall Risk Rating Criteria (Example)

Risk Rating Description

High Major disruption likely

Moderate Some disruption

Low Minimum disruption

A simple method of representing the risk rating

for risk events, i.e., a risk matrix, is shown in

Figure 2-6. In this example matrix, the PM has

defined high, moderate, and low levels for the

various combinations of probability/likelihood

and consequences/impacts. The matrix is structured somewhat symmetrically; programs should

tailor the scales and risk rating blocks to match

their unique risk management requirements.

There is a common tendency to attempt to develop a single number to portray the risk associated with a particular event. This approach may

be suitable if both probability/likelihood (probability) and consequences/impacts have been

quantified using compatible cardinal scales or

calibrated ordinal scales whose scale levels have

been determined using accepted procedures (e.g.,

Analytical Hierarchy Process). In such a case,

mathematical manipulation of the values may be

meaningful and provide some quantitative basis

for the ranking of risks.

In most cases, however, risk scales are actually

just raw (uncalibrated) ordinal scales, reflecting only relative standing between scale levels

and not actual numerical differences. Any mathematical operations performed on results from

uncalibrated ordinal scales, or a combination

Table 2-5. Risk Ratings (Example)

Priority Area/Source Location Risk Event Proba- Conse- Risk

Process bility quence Rating

1 Design WBS 3.1 Design not Highly Can’t achieve High

completed on time Likely key milestone

2

3
20

of uncalibrated ordinal and cardinal scales, can

provide information that will at best be misleading, if not completely meaningless, resulting in

erroneous risk ratings. Hence, mathematical operations should generally not be performed on

scores derived from uncalibrated ordinal scales.

(Note: risk scales that are expressed as decimal

values (e.g., a 5 level scale with values 0.2, 0.4,

0.6, 0.8 and 1.0) still retain the ordinal scale limitations discussed above.) For a more detailed discussion of risk scales, see Appendix G of the

reference Effective Risk Management: Some

Keys to Success.

One way to avoid this situation is to simply show

each risk event’s probability/likelihood and consequences/impacts separately, with no attempt

to mathematically combine them. Other factors

that may significantly contribute to the risk rating, such as time sensitivity or resource availability, can also be shown. The prioritization or

ranking — done after the rating — should also

be performed using a structured risk rating approach (e.g., Figure 2-6) coupled with expert

opinion and experience. Prioritization or ranking is achieved through integration of risk events

from lower to higher WBS levels. This means

that the effect of risk at lower WBS elements

needs to be reflected cumulatively at the top or

system level.

Figure 2-6. Overall Risk Rating (Example)

Likelihood

Consequence

eM M H H H

dL M M H H

cL L M M H

bL L L M M

aL L L L M

a bc d e

2.7 RISK HANDLING

2.7.1 Purpose of Risk Handling

Risk handling includes specific methods and

techniques to deal with known risks and a

schedule for accomplishing tasks, identifies who

is responsible for the risk area, and provides an

estimate of the cost and schedule associated with

handling the risk, if any. It involves planning and

execution with the objective of handling risks at

an acceptable level. The IPTs that assess risk

should begin the process to identify and evaluate

handling approaches to propose to the PM, who

selects the appropriate ones for implementation.

2.7.2 Risk-Handling Process

The risk-handling phase must be compatible with

the risk management plan and any additional

guidance the PM provides. Paragraph 5.3 describes a technique that concentrates on planning. A critical part of planning involves refining and selecting of the most appropriate handling options.

The IPTs that evaluate the handling options may

use the following criteria as a starting point for

assessment:

• Can the option be feasibly implemented and

still meet the user’s needs?
21

• What is the expected effectiveness of the handling option in reducing program risk to an

acceptable level?

• Is the option affordable in terms of dollars and

other resources (e.g., use of critical materials,

test facilities, etc.)?

• Is time available to develop and implement

the option, and what effect does that have

on the overall program schedule?

• What effect does the option have on the

system’s technical performance?

Risk-handling options can include risk control,

risk avoidance, risk assumption, and risk

transfer. An acronym used to identify these options is “CAAT.” Although the control riskhandling option is commonly used in defense

programs, it should not automatically be chosen. All four options should be evaluated and

the best one chosen for a given risk issue.

Risk Control does not attempt to eliminate the

source of the risk but seeks to reduce or mitigate

the risks. It monitors and manages the risk in a

manner that reduces the probability/likelihood

and/or consequence/impact of its occurrence or

minimizes the risk’s effect on the program. This

option may add to the cost of a program; however, the selected approach should provide an

optional risk among the candidate approaches

of risk reduction, cost effectiveness, and schedule impact. A sampling is listed below of the

types of risk control actions available to the

PMO. Paragraph 5.6.2 discusses them in more

detail.

• Multiple Development Efforts. Create

competing systems in parallel that meet the

same performance requirements.

• Alternative Design. Create a backup design

option that uses a lower risk approach.

• Trade Studies. Arrive at a balance of engineering requirements in the design of a

system.

• Early Prototyping. Build and test prototypes

early in the system development.

• Incremental Development. Design with the

intent of upgrading system parts in the future.

• Technology Maturation Efforts. Normally,

technology maturation is used when the desired technology will replace an existing

technology which is available for use in the

system.

• Robust Design.This approach, while it could

be more costly, uses advanced design and

manufacturing techniques that promote quality through design.

• Reviews, Walk-throughs, and Inspections.

These three actions can be used to reduce the

probability/likelihood and potential consequences/impacts of risks through timely assessment of actual or planned events.

• Design of Experiments. This engineering

tool identifies critical design factors that are

sensitive, therefore potentially high risk, to

achieve a particular user requirement.

• Open Systems. Carefully selected commercial specifications and standards whose use

can result in lower risks.

• Use of Standard Items/Software Reuse.

Use of existing and proven hardware and

software, where applicable, can substantially

reduce risks.

• Two-Phase Development. Incorporation of

formal risk reduction into System Development and Demonstration (SDD). The first

part of SDD is System Integration (SI), where
22

prototypes are developed and tested. In the

second part, System Demonstration (SD),

Engineering Development Models (EDMs)

are developed and tested.

• Use of Mock-ups. The use of mock-ups,

especially man-machine interface mock-ups,

can be used to conduct early exploration of

design options.

• Modeling/Simulation. Modeling and simulation can be used to investigate various design options and system requirement levels.

• Key Parameter Control Boards. The practice of establishing a control board for a

parameter may be appropriate when a particular feature (such as system weight) is

crucial to achieving the overall program

requirements.

• Manufacturing Screening. For programs

in SDD, various manufacturing screens

(including environmental stress screening

(ESS)) can be incorporated into test article

production and low rate initial production

(LRIP) to identify deficient manufacturing processes. ESS is a manufacturing process for stimulating parts and workmanship defects in electronic assemblies and

units.

• Test, Analyze, and Fix (TAAF). TAAF is

the use of a period of dedicated testing to

identify and correct deficiencies in a design.

• Demonstration Events. Demonstration

events are points in the program (normally

tests) that determine if risks are being

successfully abated.

• Process Proofing. Similar to Program Metrics, but aimed at manufacturing and support

processes which are critical to achieving system requirements. Proofing simulates actual

production environments and conditions to

insure repeatedly conforming hardware and

software.

As you can see, there are numerous means that

can be used to actively control risks.

Risk Avoidance involves a change in the concept, requirements, specifications, and/or practices that reduce risk to an acceptable level. Simply stated, it eliminates the sources of high or

possibly medium risk and replaces them with a

lower risk solution and may be supported by a

cost/benefit analysis. Generally, this method may

be done in parallel with the up-front

requirements analysis, supported by cost/

requirement trade studies, which can include

Cost As an Independent Variable (CAIV) trades.

Risk Assumption. Risk assumption is an

acknowledgment of the existence of a particular risk situation and a conscious decision to

accept the associated level of risk, without

engaging in any special efforts to control it.

However, a general cost and schedule reserve

may be set aside to deal with any problems

that may occur as a result of various risk assumption decisions. This method recognizes

that not all identified program risks warrant

special handling; as such, it is most suited for

those situations that have been classified as

low risk. The key to successful risk assumption is twofold:

• Identify the resources (time, money, people,

etc.) needed to overcome a risk if it materializes. This includes identifying the specific

management actions (such as retesting,

additional time for further design activities)

that may occur.

• Ensure that necessary administrative actions

are taken to identify a management reserve

to accomplish those management actions.
23

Risk-handling options have broad cost implications. The magnitude of these costs are circumstance-dependent. The approval and funding of handling options should be part of the

process that establishes the program cost and performance goals. This should normally be done

by the Program-Level Risk Management IPT or

Risk Management Board. The selected handling

option should be included in the program’s acquisition strategy.

Once the acquisition strategy includes riskhandling approaches, the PMO can derive the

schedule and identify cost, schedule, and

performance, impacts to the basic program.

Risk Transfer. This action may reallocate risk

during the concept development and design processes from one part of the system to another,

thereby reducing the overall system risk, or redistributing risks between the Government and

the prime contractor or within Government

agencies; or between members of the contractor team. It is an integral part of the functional

analysis process. Risk transfer is a form of risk

sharing and not risk abrogation on the part of

the Government, and it may influence cost objectives. An example is the transfer of a function from hardware implementation to software

implementation or vice versa. The effectiveness

of risk transfer depends on the use of successful system design techniques. Modularity and

functional partitioning are two design techniques that support risk transfer. In some cases,

risk transfer may concentrate risk areas in one

area of the design. This allows management to

focus attention and resources on that area.

2.8 RISK MONITORING

The monitoring process systematically tracks

and evaluates the effectiveness of risk-handling actions against established metrics.

Monitoring results may also provide a basis

for developing additional handling options and

identifying new risks. The key to the monitoring process is to establish a cost, schedule, and

performance management indicator system over

the entire program that the PM uses to evaluate

the status of the program. The indicator system

should be designed to provide early warning of

potential problems to allow management actions.

Risk monitoring is not a problem-solving technique, but rather, a proactive technique to observe

the results of risk handling and identify new risks.

Some monitoring techniques can be adapted to

become part of a risk indicator system:

• Test and Evaluation (T&E). A well-defined

(T&E) program is a key element in monitoring

the performance of selected risk-handling options and developing new risk assessments.

• Earned Value (EV). This uses standard DoD

cost/schedule data to evaluate a program’s

cost and schedule performance in an integrated fashion. As such, it provides a basis

to determine if risk-handling actions are

achieving their forecasted results.

• Technical Performance Measurement

(TPM). TPM is a product design assessment

which estimates, through engineering analysis and tests, the values of essential performance parameters of the current design as

effected by risk-handling actions.

• Program Metrics. These are used for formal, periodic performance assessments of

the various development processes, evaluating how well the system development process is achieving its objective. This technique

can be used to monitor corrective actions that

emerged from an assessment of the critical

risk processes.

• Schedule Performance Monitoring. This

is the use of program schedule data to evaluate how well the program is progressing to

completion.
24

Paragraph 5.7 describes several monitoring techniques, e.g., earned value, etc.

The indicator system and periodic reassessments

of program risk should provide the PMO with

the means to incorporate risk management into

the overall program management structure.

2.9 RISK DOCUMENTATION

A primary criteria for successful management is

formally documenting the ongoing risk

management process. This is important because:

• It provides the basis for program assessments

and updates as the program progresses.

• Formal documentation tends to ensure more

comprehensive risk assessments than if it is

not documented.

• It provides a basis for monitoring riskhandling actions and verifying the results.

• It provides program background material for

new personnel.

• It is a management tool for the execution of

the program.

• It provides the rationale for program

decisions.

The documentation should be done by those

responsible for planning, collecting, and

analyzing data, i.e., IPT level in most cases.

Risk management reports vary depending on

the size, nature, and phase of the program.

Examples of some risk management documents

and reports that may be useful to a PM are:

• Risk management plan,

• Risk information form,

• Risk assessment report,

• Prioritized list of risks,

• Risk handling plan,

• Aggregated risk list,

• Risk monitoring documentation:

– Program metrics,

– Technical reports,

– Earned value reports,

– Watch list,

– Schedule performance report,

– Critical risk processes reports.

Most PMOs can devise a list of standard reports

that will satisfy their needs most of the time; however, since there will always be a need for ad

hoc reports, briefings, and assessments, it is advisable to store risk information in a management

information system (MIS). This allows the creation of both standard and ad hoc reports, as

needed. Paragraphs 4.8 and 5.8 discuss an MIS

to support a risk management program.

Acquisition reform discourages Government

oversight; therefore, formal contractor-produced risk documentation may not be available

for most programs. However, program insight

is encouraged, and PMOs can obtain information about program risk from contractor

internal documentation such as:

• Risk Management Policy and Procedures.

This is a description of the contractor’s corporate policy for the management of risk. The

procedures describe the methods for risk identification, analysis, handling, monitoring, and

documentation. It should provide the baseline

planning document for the contractor’s

approach to risk management.

• Corporate Policy and Procedures Documents. Corporations have policy and
25

rocedures documents that address the functional areas that are critical to the design, engineering, manufacture, test and evaluation,

quality, configuration control, manufacture,

etc., of a system. These documents are based

on what the company perceives as best practices, and although they may not specifically

address risk, deviation from these policies represents risk to a program. Internal company

reports that address how well programs comply with policy may be required and will provide valuable information.

• Risk Monitoring Report. Contractors

should have internal tracking metrics and

reports for each moderate- or high-risk item.

These metrics may be used to determine the

status of risk reduction programs.
26
27

3

RISK MANAGEMENT AND THE

DOD ACQUISITION PROCESS

The application of risk management processes

(planning, assessment, identification, analysis,

handling, and monitoring) is particularly important during Concept Refinement (CR) and Technology Development (TD) Phases of any program, when alternatives are evaluated, program

objectives are established, and the acquisition

strategy is developed. All of these activities require acceptance of some level of risk and development of plans to manage the risk.

As a program evolves into subsequent phases,

the nature of the risk management effort will

change. New assessments will be built on

previous ones. Risk areas will become more

specific as the system is defined.

Risk management should also be an integral

part of any Source Selection process, from request for proposal (RFP) preparation, through

proposal evaluation, and after contract award.

Throughout the program life, IPTs will play a key

role in risk management activities.

3.3 DOD ACQUISITION PROCESS

The phases and milestones of the acquisition

process provide a streamlined structure that

emphasizes risk management and affordability.

The phases are a logical means of progressively

translating broadly-stated mission needs into

well-defined system-specific requirements, and

ultimately into operationally effective, suitable,

3.1 INTRODUCTION

This Chapter discusses the relationship between

risk and the acquisition process, describes how

risk is considered in design of the Acquisition

Plan, and expresses the need to consider risk as

early in the program as possible. Appendix A

is a summary of the risk management requirements that are contained in DoDD 5000.1,

DoDI 5000.2, Interim Defense Acquisition

Guidebook (IDAG), DoD 5000.4, and DoD

5000.4-M.

3.2 OVERVIEW

The DoD acquisition process for the management of programs consists of a series of phases

designed to reduce risk, ensure affordability,

and provide adequate information for decision

making. Acquisition officials are encouraged

to tailor programs to eliminate phases or activities that result in little payoff in fielding time

or cost savings. To effectively tailor a program,

one needs to understand the risks present in the

program and to develop a plan for managing

these risks. DoD policy calls for the continual

assessment of program risks, beginning with

the initial phase of an acquisition program, and

the development of management approaches

before any decision is made to enter all

subsequent phases.
28

and survivable systems. It is important to

remember that the term “system” includes

hardware, software, and the human element.

Each phase is designed, among other things, to

manage risks. Milestones are points in time that

allow decision makers to evaluate the program

status and determine if the program should proceed to the next phase. The Milestone Decision

Authority (MDA) and PM tailor milestones and

phases so that each milestone decision point

allows assessment of program status and the opportunity to review plans for the next phase and

beyond. The MDA should explicitly address

program risks and the adequacy of risk management planning during the milestone reviews

and establish exit criteria for progression to the

next phase.

The contract schedule normally allows time for

milestone decisions before spending begins in

subsequent phases and should also permit

demonstration of the exit criteria in time to support the milestone review. There are exceptions

to this — driven by funding availability and

option award dates. However, the objective is to

provide proper fiscal control without delaying

the acquisition decisions or contracts while adequately considering risk.

The acquisition strategy defines the business and

technical management approach to meet objectives within program constraints with a primary

goal to minimize the time and cost of satisfying

a valid need, consistent with common sense and

sound business practices. A PM prepares a preliminary acquisition strategy — called a Technology Development Strategy (TDS) — at Milestone A (that includes TD Phase activities that

focus on identifying technical risk and handling

options). Later, the PM updates the TDS at Milestone B into a Program Acquisition Strategy.

This strategy is updated to support each milestone decision by describing activities and events

planned for the upcoming phase and relating the

accomplishments of that phase to the program’s

overall, long-term objectives. The risk associated

with a program will significantly influence the

acquisition strategy.

3.4 CHARACTERISTICS OF

THE ACQUISITION PROCESS

The acquisition process that has evolved can

be characterized in terms of the following

concepts that are particularly relevant to the

management of risk in programs.

3.4.1 Integrated Product and Process

Development (IPPD)

IPPD integrates all acquisition activities in order

to optimize system development, production,

and deployment. Key to the success of the IPPD

concept are the IPTs, which are composed of

qualified and empowered representatives from

all appropriate functional disciplines who work

together to identify and resolve issues. As such,

IPTs are the foundation for organizing for risk

management.

3.4.2 Continuous Risk Management

PMs should focus on risk management throughout the life of the program, not just in preparation for program and milestone reviews. Program risks should be continuously assessed, and

the risk-handling approaches developed, executed, and monitored throughout the acquisition process. Both the Government and contractors must understand risks as a program

progresses through the various phases and milestone decision points, and must modify the management strategy and plan accordingly. While

specific government and contractors risk management processes may likely be different, it is

important that each party have a common and

complete set of process steps (regardless of their

names), and be able to exchange and clearly understand the other party’s risk management

documentation.
29

3.4.3 Program Stability

Once a program is initiated, program stability is

a top priority. Keys to creating program stability

are realistic investment planning and affordability

assessments. They must reflect an accurate and

comprehensive understanding of existing or expected program risks. A risk management strategy must be developed early in the process, before actually initiating the program to ensure it is

a stable one, recognizing that key issues affecting program stability may be external.

3.4.4 Reduction of Life-Cycle Costs

DoD considers the reduction of total cost to acquire and operate systems while maintaining a

high level of performance for the user to be of

highest priority. This is reflected, in part,

through the introduction of the “Cost As an Independent Variable” (CAIV) concept. CAIV

entails setting aggressive, realistic cost objectives early in an acquisition program and then

managing all aspects of the program to achieve

those objectives, while still meeting the user’s

performance and schedule needs. Inherent in

the CAIV concept is the realization that risks

must be understood, taken, and managed in

order to achieve cost, schedule, and performance objectives. An understanding of risk is

essential to setting realistic cost objectives. The

PM and user representatives should identify risk

and cost driving requirements during the generation of the Capability Development Document (CDD) (formerly the Operational Requirement Document (ORD)) in order to know where

tradeoffs may be necessary.

3.4.5 Event-Oriented Management

Event-oriented management requires that decision makers base their decisions on significant events in the acquisition life cycle, rather

than on arbitrary calendar dates. This management process emphasizes effective acquisition

planning and embodies sound risk management.

Decisions to proceed with a program should be

based on demonstration of performance, through

test and evaluation, and on verification that program risks are well-understood and are being

managed effectively. Attainment of agreed-upon

exit criteria is an indication that the PMO is managing risk effectively.

3.4.6 Modeling and Simulation

Properly used, models and simulations can

reduce time, resources, and acquisition risk

and may increase the quality of the systems

being developed. Users of these models and

simulations must have a good understanding of

their capabilities and limitations and their

applicability to the issues being addressed.

From a risk perspective, modeling and simulation may be used to develop alternative concepts during system design; predict performance in support of trade-off studies; evaluate

system design and support preliminary design

reviews during design development; predict

system performance and supplement live tests

during testing; examine the military value of

the system; determine the impact of design

changes; hone requirements; and develop lifecycle support requirements and assessments.

However, a key limitation through models and

simulations is that the results are only as

accurate and certain as the quality of the underlying relationships and input data. Blindly believing and using the output from models and

simulations should never be done.

3.5 RISK MANAGEMENT

ACTIVITIES DURING

ACQUISITION PHASES

Risk management activities should be applied

continuously throughout all acquisition process

phases and in the technology opportunities and
30

requirements activities that feed into the process. However, because of the difference in

available information, the level of application

and detail will vary for technology opportunity activities and for each phase. For technological opportunity activities in the Technology Development (TD) Phase, DoD uses

three mechanisms to transition concepts and

technology to user and acquisition customers:

Advanced Technology Demonstrations

(ATDs), Advanced Concept Technology

Demonstrations (ACTDs), and Experiments.

When assessing the risk of these mechanisms,

descriptors called Technology Readiness Levels (TRLs) are used. TRLs provide consistent,

uniform descriptions of technical maturity —

across different types of technologies. Appendix 6 of the IDAG (also see Appendix A, page

A-12 of this Guide) contains guidance on use

of TRLs.

In the TD Phase, management focuses on assessing the risks in the alternative concepts available to satisfy users needs and on planning a strategy to address those risks. For each of the subsequent phases, all four risk management

activities may be applied with increasing focus

on risk handling and monitoring.

The PM identifies objectives, alternatives, and

constraints at the beginning of each phase of a

program and then evaluates alternatives, identifies sources of project risk, and selects a strategy

for resolving the risks. The PMO updates the

acquisition strategy, risk assessments, and other

aspects of program planning, based on analyses, for the phase of the acquisition.

Developers should become involved in the risk

management process at the beginning, when

users define performance requirements, and continue during the acquisition process until the system is delivered. The early identification and

assessment of critical risks allow PMs to formulate handling approaches and to streamline the

program definition and the RFP around critical

product and process risks.

The following paragraphs address risk management in the different phases in more detail.

3.5.1 Concept Refinement (CR) and

Technology Development (TD)

Phases

The Concept Refinement (CR) Phase normally

consists of studies and the Analysis of Alternatives (AoA) that define and evaluate the feasibility of alternative concepts and provide the

basis for the assessment of these alternatives in

terms of their advantages, disadvantages, and

risk levels. In addition to providing input to the

AoA, the PM develops a Technology Development Strategy (TDS) for the TD Phase. Later,

in the TD Phase, technology demonstrations

are conducted and decisions on technology

readiness are made. A program acquisition strategy is developed and an Acquisition Program

Baseline (APB) and exit criteria are established

for the System Integration (SI) part of the System Development and Demonstration (SDD)

Phase.

The APB documents the most important performance, cost, and schedule objectives and

thresholds for the selected concepts. The

parameters selected are such that a re-evaluation

of alternative concepts is appropriate if thresholds are not met. Exit criteria are events or accomplishments that allow managers to track

progress in critical technical, cost, or schedule

risk areas. They must be demonstrated to show

that a program is on track.

In defining alternative concepts, PMs should

pay particular attention to the threat and the

user’s requirements, which are normally stated

in broad terms at this time. Risks can be introduced if the requirements are not stable, or if

they are overly restrictive and contain specific
31

technical solutions. Requirements can also be

significant cost and schedule risk drivers if they

require a level of performance that is difficult

to achieve within the program budget and time

constraints. Such drivers need to be identified

as early in the program as possible.

The acquisition strategy should address the

known risks for each alternative concept, and

the plans to handle them, including specific

events intended to control the risks. Similarly,

the T&E strategy should reflect how T&E, with

the use of M&S, will be used to assess risk

levels and identify new or suspected risk areas.

A risk management strategy, derived in concert

with the acquisition strategy, should be developed during this phase and revised and updated

continually throughout the program. This strategy should include risk management planning

that clearly defines roles, responsibilities, authority, and documentation for program reviews,

risk assessments, and risk monitoring.

3.5.2 Subsequent Phases

During subsequent phases, concepts, technological approaches, and/or design approaches

(selected at the previous milestone decisions)

are pursued to define the program and program

risks. Selected alternative concepts continue to

be analyzed, and the acquisition strategy, and

the various strategies and plans derived from

it, continue to be refined.

Risk management efforts in these phases focus

on: understanding critical technology, manufacturing, and support risks, along with cost, schedule, and performance risks; and demonstrating

that they are being controlled before moving to

the next milestone. Note that the accuracy of cost,

schedule, performance risk assessments should

improve with each succeeding program phase

(e.g., more info, better design documentation,

etc.). Thus, particular attention should be placed

on handling and monitoring activities. Planning

and assessment should continue as new information becomes available and new risk events

are identified.

During these phases, the risk management program should be carried out in an integrated Government-contractor framework to the extent possible, that allows the Government to manage

program risks, with the contractor responsible

to the PM for product and process risks and for

maintaining design accountability. Both the

Government and contractors need to understand

the risks clearly, and jointly plan management

efforts. In any event, risk management needs

to be tailored to each program and contract

type.

3.6 RISK MANAGEMENT AND

MILESTONE DECISIONS

Before a milestone review, the PM should

update risk assessments, explicitly addressing

the risks in the critical areas, such as threat,

requirements, technology, etc., and identify

areas of moderate or high risk.

Each critical technical assessment should be

supported by subsystems’ risk assessments,

which should be supported by design reviews,

test results, and specific analyses.

The PM should present planned risk-handling

actions for moderate- or high-risk areas at the

milestone review to determine their adequacy and

to ensure the efficient allocation of resources.

3.7 RISK MANAGEMENT AND THE

ACQUISITION STRATEGY

In addition to providing the framework for

program planning and execution, the acquisition strategy serves several purposes that are

important to risk management:
32

• Provides a master schedule for research,

development, test, production, deployment,

and critical events in the acquisition cycle.

• Gives a master checklist of the important issues and alternatives that must be addressed.

• Assists in prioritizing and integrating functional requirements, evaluating alternatives,

and providing a coordinated approach to

integrate diverse functional issues, leading to

the accomplishment of program objectives.

• Documents the assumptions and guidelines

that led to the initiation and direction of the

program.

• Provides the basis for the development and execution of the various subordinate functional

strategies and plans.

The strategy structure should ensure a sound

program through the management of cost, schedule, and performance risk. A good acquisition

strategy acknowledges and identifies program

risks and forms the basis for implementing a

forward-looking, rather than reactive, effective

risk management effort.

Acquisition strategy should describe how risk

is to be handled and identify which risks are to

be shared with the contractor and which are to

be retained by Government. The key concept

here is that the Government shares the risk with

the contractor, but does not transfer risk to the

contractor. The PMO always has a responsibility to the system user to develop a capable system and can never absolve itself of that responsibility. Therefore, all program risks, whether

primarily managed by the PMO or by the contractor, must be assessed and managed by the

PMO.

Once the program office has determined how

much of each risk is to be shared with the

contractor, it should assess the total risk assumed

by the developing contractor (including subcontractors). The Government should not require

contractors to accept financial risks that are

inconsistent with their ability to handle them.

Financial risks are driven, in large measure, by

the underlying technical and programmatic risks

inherent in a program. The Government contracting officer should, therefore, select the proper

type of contract based on an appropriate risk

assessment, to ensure a clear relationship

between the selected contract type and program

risk. An example would be the use of costreimbursable-type contracts for development

projects.

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
33

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 de-velopers 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 objectives.
34
35

To use risk management as a program management tool, the information resulting from each

of the risk processes should be documented in

a usable form and available to members of the

Government/industry program team. This information will provide the basis for reporting

risk and overall program information, both internally and externally. Managing collection

and dissemination of risk information can be

enhanced through the use of a Management

Information System (MIS).

4.3 PROGRAM MANAGER AND RISK

MANAGEMENT

All PMs are responsible for establishing and

executing a risk management program that satisfies the policies contained in DoDD 5000.1

and DoDI 5000.2. A PM must balance programunique requirements or circumstances (e.g., size

of the PMO staff) against the demands of proven

risk management principles and practices. This

section addresses these principles and practices

and provides a basis for establishing a PMO’s

risk management organization and related procedures. The following guidelines define an

approach to risk management.

4

RISK MANAGEMENT

AND

PROGRAM MANAGEMENT

4.1 INTRODUCTION

Risk management as a program management

responsibility can be a comprehensive and

responsive management tool if it is properly

organized and monitored at the PM level. A formalized risk management program should be

well-planned and forward-looking by identifying, analyzing, and resolving potential problem

areas before they occur, and by incorporating

monitoring techniques that accurately portray

the status of risks and the efforts to mitigate

them. Introduction of risk management early

in a program emphasizes its importance and encourages contractors and members of the

Government team to consider risk in the daily

management functions.

This Chapter addresses the relationship between

risk management and program management and

suggests methods of introducing risk management in a program, organizing for risk, and

training.

4.2 OVERVIEW

A PMO should organize for risk management,

using existing IPTs. The PM may also want to

use contractors to support management efforts

or have experts not involved with the program

perform independent assessments.
36

4.3.1 Risk Management Is a

Program Management Tool

Risk management should be integral to a

program’s overall management. PMs must take

an active role in the process to ensure that their

approach leads to a balanced use of program

resources, reflects their overall management

philosophy, and includes Government and contractors. Past DoD practices have generally

treated risk management solely as a system

engineering function, cost-estimating technique

or possibly as an independent function distinct

from other program functions. Today, risk management is recognized as a vital integrated program management tool that cuts across the entire acquisition program, addressing and interrelating cost, schedule, and performance

risks. The goal is to make everyone involved in

a program aware that risk should be a consideration in the design, development, and fielding

of a system. It should not be treated as someone else’s responsibility. Specific functional

areas—such as system engineering—could be

charged with implementing risk management,

as long as they take the program management

view towards it.

4.3.2 Risk Management Is a

Formal Process

Formal risk management refers to a structured

process whereby risks are systematically identified, analyzed, handled, and monitored. (A recommended structure is described in Section 2 of

this Guide.) A structured risk management process, which is applied early, continuously, and rigorously, provides a disciplined environment for

decision making and for the efficient use of program resources. Through a disciplined process

PMs can uncover obscure and lower-level risks

that collectively could pose a major risk.

The need for a formal risk management process

arises from the nature of risk and the complexity

of acquisition programs. The numerous risks in

an acquisition program are often interrelated and

obscure and change in the course of the development process. A formal approach is the only

effective method to sort through numerous risk

events, to identify the risks and their interrelationships, to pinpoint the truly critical ones, and

to identify cost-effective ways to reduce those

risks, consistent with overall program objectives.

A structured process can reduce the complexity

of an acquisition program by defining an approach to assess, handle, monitor, and communicate program risk. The systematic identification, analysis, and handling of risks also offers a

reliable way to ensure objectivity, that is, minimize unwarranted optimism, prejudice, ignorance, or self-interest. Further, structure reduces

the impact of personnel turnover and provides a

basis for training and consistency among all the

functional areas of a program. A structured risk

program may also promote teamwork and understanding and improves the quality of the risk

products.

4.3.3 Risk Management Is

Forward-Looking

Effective risk management is based on the

premise that PMs must identify potential problems, referred to as risk events, long before they

can occur and develop strategies that increase

the probability/likelihood of a favorable outcome

to these problems. Application of this philosophy

occurs primarily by using analytical techniques

that give forward-looking assessments.

Typically, the early identification of potential

problems is concerned with two types of events.

The first are relevant to the current or imminent acquisition phase of a program (intermediate-term), such as satisfying a technical exit

criteria in time for the next milestone review.

The second are concerned with the future

phase(s) of a program (long-term) such as
37

potential risk events related to transitioning a system from development to production.

By analyzing critical events, certain risks can

be determined. To do this, one should consider

the range of potential outcomes and the factors

that determine those outcomes. Through risk

handling, a PM then develops approaches that

minimize risk factors. Paragraph 5.6 of this

Guide describes some handling approaches.

Choosing the proper risk-handling options

requires that a balance be struck between the

resources required to implement those options

and their payoffs (both intermediate and longterm) and the resources realistically available.

4.3.4 Risk Management Is Integral to

Integrated Product and Process

Development (IPPD)

One of the tenets of IPPD is multidisciplinary

teamwork through IPTs, which are an integral

part of the defense acquisition oversight and

review process. The Integrating IPT (IIPT) is a

valuable resource to assist in developing a risk

management plan and should be used accordingly. The PM should ensure that the requirements of the Overarching IPT (OIPT) are

reflected in the plan.

Working with the OIPT, the PM can establish

the type and frequency of risk management

information that an OIPT requires, and refine

management organization and procedures.

This should be done during the initial OIPT

meetings. OIPTs will most likely require

information concerning:

• Known risks and their characteristics, e.g.,

probability of occurrence and consequences/

impacts,

• Planned risk-handling actions, funded and

unfunded,

• Achievements in controlling risks at acceptable levels.

IIPTs and OIPTs may also require details on

the PM’s risk management program, access to

the risk management plan, and the results of

specific risk assessments. In addition, PMs may

want to present selected information to IIPTs

and OIPTs to help substantiate a position or

recommendation, e.g., help support a budget

request.

4.4 RISK MANAGEMENT

ORGANIZATION IN THE PMO

The PM, after determining a preferred management approach, must organize the program

office and establish outside relationships in

order to manage risk. No particular organizational structure is superior; however, experience

provides some insights into the development of

effective risk management organizations. PMs

should consider the following discussion in the

context of their unique requirements and

circumstances and apply those that are suitable

to their specific needs.

4.4.1 Risk Management

Organizational Structure

A major choice for each PM is whether to have

a centralized or decentralized risk management

organization. The PM may choose a centralized

organizational structure until team members become familiar with both the program and the risk

management process. In a centralized approach,

the PM establishes a team that is responsible for

all aspects of risk management. The team would

write a plan, conduct assessments, evaluate riskhandling options, and monitor progress. Although this approach may be necessary early in

a program, it tends to minimize the concept that

risk management is a responsibility shared by

all members of the acquisition team, whether

Government or contractor.
38

The PM may also choose to decentralize. The

degree of decentralization depends on the

assignment of responsibilities. Some level of

centralization is almost always essential for prioritizing risk across the program. A program level

IPT (see Figure 4-1) or a Risk Management

Board (RMB) may be appropriate for this integrating function.

The decentralized risk management organization

is the most widely used approach, which is compatible with the DoD’s IPPD policy and generally results in an efficient use of personnel resources. In this approach, risk management is

delegated to Program IPTs (PIPTs).

The following guidelines apply to all risk

management organizations:

• The PM is ultimately responsible for planning, allocating resources, and executing risk

management. This requires the PM to oversee and participate in the risk management

process.

• The PM must make optimal use of available

resources, i.e., personnel, organizations, and

funds. Personnel and organizational resources

include the PMO, functional support offices

of the host command, the prime contractor,

independent risk assessors, and support contractors.

• Risk management is a team function. This

stems from the pervasive nature of risk and

the impact that risk-handling plans may have

on other program plans and actions. In the

aggregate, risk planning, risk assessment, risk

handling, and risk monitoring affect all program activities and organizations. Any attempt

to implement an aggressive forward-looking

risk management program without the involvement of all PMO subordinate

organizations could result in confusion, misdirection, and wasted resources. The only

way to avoid this is through teamwork among

the PMO organizations and the prime contractor. The management organizational structure can promote teamwork by requiring

Figure 4-1. Decentralized Risk Management Organization

○ ○ ○ ○ ○ ○ ○○○○○○○ Support

Contractor

○○○○○ ○○○○○○○○○○○○○○○○○○○○

Support

Contractor

Prime

Contractor

Functional

Support

Offices

○○○○○○○○○○○○○○○○

○○○○○

○○○○○○

○○○

PM

Risk

Management

Coordinator

Program Level

IPT or (Risk

Management Board)

Sub-Tier

Program IPTs

(PIPTs)

PMO

Functional

Offices

Independent

Risk

Assessors

○○○○○○ As Needed

Coordination ○○○○○○ Support Provided by

Non-PMO Organizations
39

strong connectivity between that structure, the

various PMO organizations, and the prime

contractor. The teams may use independent

assessments to assist them, when required.

Figure 4-1 portrays a decentralized risk management organization. This example includes the entire PMO and selected non-PMO organizations,

e.g., the prime contractor, who are members of

the IPTs. The figure shows that risk management is an integral part of program management

and not an additional or separate function to perform. Hence, separate personnel are not designated to manage risk, but rather all individuals

are required to consider risk management as a

routine part of their jobs. In the figure, the risk

coordinator reports to the PM, but works in coordination with the PIPT, functional offices, and

the Program Level IPT. As shown, this organizational structure is suited to Acquisition Category (ACAT) I programs, but PMs can tailor it

to satisfy their specific requirements. The details

are dependant upon the contract, type, statement

of work, and other variables.

The organizational structure shows that the PM

is ultimately responsible for risk management.

There is a coordinator to assist with this responsibility and act as an “operations” officer. This

may be a full-time position or an additional duty

as the PM deems appropriate. The coordinator

should have specific training and experience in

risk management to increase the chance of

successful implementation and to avoid common

problems. A support contractor may assist the

coordinator by performing administrative tasks

associated with that office.

The Program Level IPT, composed of individuals from the PMO and prime contractor, ensures

that the PM’s risk management program is implemented and program results are synthesized into

a form suitable for decision making by the PM

and OIPT.

The inclusion of both Sub-Tier IPTs and PMO

functional offices simply reflects that not all program management functions will be assigned to

Sub-Tier IPTs for execution.

Independent risk assessors are typically hired

when the PM has specific cost, schedule, performance concerns with a hardware or software

product or engineering process and wants an

independent assessment from an expert in a particular field. The duration of their services is

normally short, and tailored to each program.

4.4.2 Risk Management Responsibilities

This section identifies the primary responsibilities that could be associated with a decentralized risk management organization. In assigning the responsibilities to the various organizational elements, the PM should strike a balance

between a concentration of responsibilities at

the higher levels and pushing them too far down

the organizational structure.

The development of these responsibilities, in part,

is based on the premise that risk management

activities must be specific—and assigned to individuals, not groups. The responsibilities listed

below are assigned to the leader of each organizational element, recognizing that the composition of each element will be program unique,

i.e., number of assigned PMO personnel, prime

contractor personnel, etc. The task of further

assigning these responsibilities, along with tailoring them to satisfy the needs and requirements

of each program, remains for PMs and their

staffs to accomplish.

Table 4-1 provides a description of the responsibilities associated with the decentralized risk

management structure, sorted by notional organizational elements that may make up the risk

management structure.
40

Table 4-1. Notional Description of Risk Management Responsibilities

Personnel Job Responsibility

• Plan, organize, direct, and control risk management.

• Comply with DoDD 5000.1, DoDI 5000.2, DoD 5000.2-R, DoDD 5000.4, and DoD

5000.4-M risk management guidance.

• Ensure that funds are available to support approved risk-handling plans.

• Inform and advise MDA, Cost Analysis Improvement Group (CAIG) and OIPT on

program risk and its handling.

• Develop and maintain risk management plans.

• Provide risk management training.

• Define the risk reporting scales to be used by the program.

• Develop and maintain a risk management information system.

• Prepare risk management reports.

• Monitor compliance with DoDD risk management requirements.

• Ensure that risk management functions and tasks performed by the Sub-Tier IPTs

and the PMO functional offices are fully integrated and in compliance with

assigned tasks.

• Advise the PM and Program Level IPT on the use of risk management sources,

i.e., host command functional support offices, etc.

• Evaluate risk assessments, risk-handling plans, and risk monitoring results as

directed and recommend appropriate actions.

• Advise the PM on the use of independent risk assessors.

• Ensure that the risk management program is implemented, risk reduction is

accomplished in conformance with the PM’s strategy, and the risk management

efforts of the Sub-Tier IPTs are integrated.

• Report risk events to the risk management coordinator.

• Evaluate whether Sub-Tier IPTs and PMO functional offices have identified

critical risks and proposed risk-handling plans.

• Ensure that cost, schedule, and performance risks are compatible.

• Ensure that cost, schedule, and performance risks are combined in a manner

consistent with the plan.

• Assess risks, recommending appropriate risk-handling strategies for each

identified moderate and high risk, and implementing and documenting all risk

management analyses and findings within the team’s product area.

• Coordinate all risk management findings and decisions with other Sub-Tier IPTs,

PMO functional offices, the Program Level IPT, and the risk-management

coordination office.

• Identify funding requirements to implement risk-handling plans.

• Identify the need for risk management training.

• Report risk events to the Program Level IPT and risk coordinator.

• Perform independent risk assessment on critical risk areas or contractor

engineering processes that the PM has specified.

• Report the results of those assessments to the PM.

• Work with the risk management coordinator.

Program

Manager

Risk

Management

Coordinator

Program Level

 IPT

(some PMOs

use a Risk

Management

Board (RMB)

for this

responsibility)

PMO Sub-Tier

PIPTs &

Functional

Offices

(Process) and

System

Elements

(Products)

Independent

Risk

Assessors
41

4.5 CONTRACTOR RISK

MANAGEMENT

Experience has shown that managing a program’s

risks requires a close partnership between the

PMO and the prime contractor(s). PMs must determine the type of support they need from their

prime contractor, communicate these needs

through the Request for Proposal (RFP) for each

acquisition phase, and then provide for them in

the contract. Preparation of the RFP and source

selection are discussed in subsequent sections.

4.5.1 Contractor View of Risk

Contractors treat risk differently from the Government because each views risk from a different perspective. The PM, in executing his risk

management program, needs to understand the

contractor viewpoint.

Contractors typically divide risks into two basic

types: business risks and program risks. Business risk, in the broadest sense, involves the

inherent chance of making a profit or incurring

a loss on any given contract. Program risk involves, among other things, technical, requirement, and design uncertainties. A contractor’s

efforts to minimize business risks may conflict

with a Government PM’s efforts to lower

program risk.

While the government and contractors may have

different views on specific cost, schedule, and

performance risk levels/ratings, they generally

have (or should have) similar views of the risk

management process. One exception may be

the requirements placed by corporate management—that could conflict with the Government

view of program risk. The similarity, however,

does not necessarily lead to the contractor having a competent internal risk management program. As a Project Management Institute (PMI)

handbook points out, “On most (contractor) projects, responsibility for Project Risk is so

pervasive that it is rarely given sufficient central

attention.” As a minimum, it is important that the

PMO writes the RFP asking the contractor to

describe its risk management process, including its

approach to managing any specific areas.

4.5.2 Government/Contractor

Relationship

The prime contractor’s support and assistance

is required even though the ultimate responsibility for risk management rests with the Government PM. Often, the contractor is better

equipped to understand the program technical

risks than the Government program office is.

Both the Government and contractor need to

share information, understand the risks, and

develop and execute management efforts. The

Government must involve the contractor early

in program development, so that effective risk

assessment and reduction can occur.

Therefore, risk management must be a key part

of the contractor’s management scheme. Although the Government does not dictate how

the contractor should manage risk, some characteristics of a good Government/contractor

relationship include:

• Clear definition of risks and their assignment.

• Flexibility for assignment of risks and risk

management responsibilities among the

teams.

• Strong emphasis on best management and

technical practices which, if followed, avoid

unnecessary risks.

Regarding RFP development, discussed later in

this section, information is provided on how

these characteristics should be addressed.

The Government/contractor partnership can be

forged in at least two ways. First, the PMO
42

should include the prime contractor(s) in the toplevel risk planning and assessment activities. This

includes understanding and factoring in such issues as user requirements, affordability constraints, and schedule limitations. Second, the

PMO should include in advance specific risk

assessment and handling tasks as key contractual efforts during the concept exploration and

program definition and risk reduction phases.

Forming a joint Government/contractor evaluation team is a good way of fostering an effective partnership. This is especially true in a

program’s early stages when uncertainty is high

and both parties must frequently assess risks.

These assessments, properly handled, involve

multidisciplinary efforts requiring subject-matter experts from both the prime contractor and

Government. This joint team should evaluate

the proposed program in detail and explore the

inherent program risks, the proposed handling

strategies, the detailed development schedule,

and the contractor’s developmental resources

(people, facilities, processes, tools, etc.).

A management approach using multiple teams

is the best approach to use, e.g., Sub-Tier IPTs.

Joint team(s) should be established at the beginning of each development phase to assess

the risks to be overcome in that phase and to

determine the handling technique(s) to be used.

Requirements for contractor participation on the

team(s) should be identified in the RFP and subsequent contract.

4.6 RISK MANAGEMENT AND THE

CONTRACTUAL PROCESS

4.6.1 Risk Management:

Pre-Contract Award

The contractor’s developmental and manufacturing processes and tools, the availability and

skill of personnel, and the previous experience

of the Government and contractor team all influence their ability to handle the proposed system development and production. Therefore, an

effective risk management process includes an

evaluation of the capabilities of the potential

contractors.

4.6.2 Early Industry Involvement:

Industrial Capabilities Review

An Industrial Capabilities Review is a powerful

tool available to PMs for determining general

industrial capabilities. To avoid potential problems in the subsequent competitive process and

to ensure that a “level playing field” is maintained, an announcement in the Federal Business Opportunities (FedBizOpps) should be

made to inform all potential offerors that the Government plans to conduct an Industrial Capabilities Review and to request responses from all

interested parties. Below is a general approach

that PMOs may find readily adaptable to any

type of capability review. The basic steps in the

process are to:

• Obtain the Source Selection Authority’s

approval to conduct the review.

• Establish the criteria for the capability.

• Identify the potential contractors who will

participate in the review.

• Provide an advance copy of the review

material to those contractors.

• Select the review team, ensuring that it has

the necessary mix of talent.

• Train the team on the purpose of the review

and review criteria.

• Conduct the review and evaluate the results.

• Provide feedback to each contractor on the

results of their review and assessment.
43

• Provide the results to the PM.

This review is an appraisal of general industrial

capabilities and supports identifying potential

program risks and best practices rather than

evaluating specific contractors.

Regardless of the approach, the PMO should

determine what specific information is needed.

DoD 4245.7-M is a good guide to help tailor

a set of questions for the contractors. The

questions generally focus on two areas consistent with protection of contractor proprietary

information.

• What is the state-of-the-art of the technology

proposed for use in the system?

• What are the general developmental/manufacturing capabilities of the potential contractors (including experience, tools, processes, etc.) as compared to industry best

practices?

Table 4-2 shows some of the specific areas or

sources for risk identification. It includes a number of areas (threat, requirements, design, etc.) that

have been shown through experience to contain

risk events that tend to be more critical than others, and which ones should receive the most management attention. Risk events are determined by

examining WBS element product and processes

in terms of risk areas. Process areas are specifically addressed in DoD 4245.7M. They are general in that areas of risk could be present in any

program from either source (WBS or process).

They are intended as a list of “top-level” risk

sources that will focus attention on a specific area.

The PMO and contractor(s) will have to examine

lower levels to understand the actual risks that are

present in their program and to develop an effective management plan. The risks shown are not

intended to serve as a simple checklist that one

should apply directly, then consider the program

risk-free if none of the listed risks are present.

An examination of the program in these areas

can help to develop the final program acquisition strategy and the risk-sharing structure between the Government and industry. The PMO

can also use the results to adjust the RFP for

the next phase of the program.

4.6.3 Developing the

Request for Proposal

The RFP should communicate to all offerors

the concept that risk management is an essential

part of the Government’s acquisition strategy.

Before the draft RFP is developed using the results of the Industrial Capabilities Review, the

PMO should conduct a risk assessment to

ensure that the program described in the RFP

is executable within the technical, schedule, and

budget constraints. Based on this assessment, a

program plan, an integrated master schedule,

and life-cycle cost (LCC) estimate may be prepared. The technical, schedule, and cost issues

should be discussed in the pre-proposal conference(s) before the draft RFP is released. In

this way, critical risks inherent in the program

can be identified and addressed in the RFP. In

addition, this helps to establish key risk-management contractual conditions. The RFP should

encourage offerors to extend the contract WBS

(CWBS) to reflect how they will identify all elements at any level that are expected to be high

cost or high risk. The RFP should also encourage offerors to cite any elements of the CWBS

provided in the draft RFP that are not consistent

with their planned approach.

In the solicitation, PMs may ask offerors to include a risk analysis and a description of their

management plans, and also to develop a supporting program plan and an integrated master

schedule in their proposals. These proposals

will support the Government’s source selection

evaluation and the formulation of a most probable cost estimate for each proposal. In addition,
44

Table 4-2. Significant Risks by Critical Risk Areas

Risk Area Significant Risks

• Uncertainty in threat accuracy.

• Sensitivity of design and technology to threat.

• Vulnerability of system to threat and threat countermeasures.

• Vulnerability of program to intelligence penetration.

• Operational requirements not properly established or vaguely stated.

• Requirements are not stable.

• Required operating environment not described.

• Requirements do not address logistics and suitability.

• Requirements are too constrictive—identify specific solutions that force high cost.

• Design implications not sufficiently considered in concept exploration.

• System will not satisfy user requirements.

• Mismatch of user manpower or skill profiles with system design solution or humanmachine interface problems.

• Increased skills or more training requirements identified late in the acquisition

process.

• Design not cost effective.

• Design relies on immature technologies or “exotic” materials to achieve

performance objectives.

• Software design, coding, and testing.

• Test planning not initiated early in program (CR Phase).

• Testing does not address the ultimate operating environment.

• Test procedures do not address all major performance and suitability

specifications.

• Test facilities not available to accomplish specific tests, especially system-level

tests.

• Insufficient time to test thoroughly.

• Same risks as contained in the Significant Risks for Test and Evaluation.

• M&S are not verified, validated, or accredited for the intended purpose.

• Program lacks proper tools and modeling and simulation capability to assess

alternatives.

• Program depends on unproved technology for success—there are no

alternatives.

• Program success depends on achieving advances in state-of-the-art technology.

• Potential advances in technology will result in less than optimal cost-effective

system or make system components obsolete.

• Technology has not been demonstrated in required operating environment.

• Technology relies on complex hardware, software, or integration design.

• Inadequate supportability late in development or after fielding, resulting in need

for engineering changes, increased costs, and/or schedule delays.

• Life-cycle costs not accurate because of poor logistics supportability analyses.

• Logistics analyses results not included in cost-performance tradeoffs.

• Design trade studies do not include supportability considerations.

Threat

Requirements

Design

Test and

Evaluation

Simulation

Technology

Logistics
45

Table 4-2. Significant Risks by Critical Risk Areas

(continued)

Risk Area Significant Risks

• Production implications not considered during concept exploration.

• Production not sufficiently considered during design.

• Inadequate planning for long lead items and vendor support.

• Production processes not proven.

• Prime contractors do not have adequate plans for managing subcontractors.

• Sufficient facilities not readily available for cost-effective production.

• Contract offers no incentive to modernize facilities or reduce cost.

• Immature or unproven technologies will not be adequately developed before

production.

• Production funding will be available too early—before development effort has

sufficiently matured.

• Concurrency established without clear understanding of risks.

• Developer has limited experience in specific type of development.

• Contractor has poor track record relative to costs and schedule.

• Contractor experiences loss of key personnel.

• Prime contractor relies excessively on subcontractors for major development

efforts.

• Contractor will require significant capitalization to meet program requirements.

• Realistic cost objectives not established early.

• Marginal performance capabilities incorporated at excessive costs; satisfactory

cost-performance tradeoffs not done.

• Excessive life-cycle costs due to inadequate treatment of support requirements.

• Significant reliance on software.

• Funding profile does not match acquisition strategy.

• Funding profile not stable from budget cycle to budget cycle.

• Schedule not considered in trade-off studies.

• Schedule does not reflect realistic acquisition planning.

• APB schedule objectives not realistic and attainable.

• Resources not available to meet schedule.

• Acquisition strategy does not give adequate consideration to various essential

elements, e.g., mission need, test and evaluation, technology, etc.

• Subordinate strategies and plans are not developed in a timely manner or based

on the acquisition strategy.

• Proper mix (experience, skills, stability) of people not assigned to PMO or to

contractor team.

• Effective risk assessments not performed or results not understood and acted

upon.

Production/

Facilities

Concurrency

Capability of

Developer

Cost/Funding

Schedule

Management
46

the RFP may identify the requirement for periodic risk assessment reports that would serve as

inputs to the PM’s assessment and monitoring

processes thereby ensuring that risks are continuously assessed.

4.6.4 The Offeror’s Proposal

The offerors should develop the proposed program plans and documentation at a level that is

adequate to identify risks, develop associated

management activities that they will use throughout the program, and integrate resources, technical performance measures, and schedule in

the proposed program plans. Program plans

should extend the CWBS to reflect the offeror’s

approach and include the supporting activities,

critical tasks, and processes in the CWBS dictionary. The associated schedules for each

should be incorporated into an integrated master schedule. Plans should also have an estimate

of the funds required to execute the program

and include a breakout of resource requirements

for high-risk areas.

The information required and the level of detail will depend on the acquisition phase, the

category, and criticality of the program, as well

as on the contract type and value. However, the

detail submitted with the proposal must be at a

sufficiently low level to allow identification of

possible conflicts in the planned acquisition

approach and to support the Government’s proposal evaluation. Generally, the CWBS should

be defined below level 3, by the contractor, only

to the extent necessary to capture those lower

level elements that are high cost, high risk, or

of high management interest.

4.6.5 Basis for Selection

DoD acquisition management must focus on

balancing cost, schedule, performance, and risk

by selecting the contractor team that provides

the best value to the user within acceptable risk

limits. Therefore, the RFP/Source Selection process must evaluate each offeror’s capability for

meeting product and process technical, cost and

schedule requirements while addressing and controlling the risks inherent in a program.

The evaluation team should discriminate among

offerors based upon the following:

• Risks determined by comparison with the

best practices baseline.

• Ability to perform with a focus on the critical

risk elements inherent in the program.

• Adherence to requirements associated with

any mandatory legal items.

• Past performance on efforts similar to the

proposed program being evaluated.

The process of choosing among offerors may

be enhanced if the evaluation team includes risk

management as a “source selection discriminator.” Risk management then becomes an

important factor in the Source Selection Authority determination of who provides the most

executable program.

4.6.6 Source Selection

The purpose of a source selection is to select the

contractor whose cost, schedule and performance can best be expected to meet the

Government’s requirements at an affordable

price. To perform this evaluation, the Government must assess both proposal risk and performance risk for each proposal. These risk

assessments must be done entirely within the

boundaries of the source selection process.

Previous assessments of any of the offerors may

not be applicable or allowable.

4.6.6.1 Proposal Risk. This refers to the risk

associated with the offeror’s proposed approach
47

Chairperson to permit performance risk to be

used, if appropriate. Performance risk may be

separately assessed for each evaluation factor or

as a whole with the assessment provided directly

to the source selection advisory council/authority for final decision or indirectly through the

Source Selection Evaluation Board. The

assessment relies heavily (although not

exclusively) on the contractor performance

evaluations and surveys submitted by the PMO

and Defense Contract Management Agency

(DCMA).

4.7 RISK MANAGEMENT:

POST-CONTRACT AWARD

Post-contract award risk management builds on

the work done during the pre-contract award

phase. With the award of the contract, the relationship between the Government and the contractor changes as teams are formed to address

program risk. These teams should validate precontract award management plans by reviewing assessments, handling plans, and monitoring intentions. The extent of assessments increases as the contractor develops and refines

his design, test and evaluation, and manufacturing plans. The Government PMO should

work with the contractor to refine handling

plans.

The process begins with an Integrated Baseline

Review (IBR) after contract award to ensure that

reliable plans and performance measurement

baselines capture the entire scope of work, are consistent with contract schedule requirements, and

have adequate resources assigned to complete

program tasks. The IBR could be conducted to

incorporate other steps identified below. These

steps suggest an approach that the PMO might

take to initiate the program’s risk management

plans and activities after contract award. They

are intended to be a starting point, and the PMO

should tailor the plan to reflect each program’s

unique needs.

to meet the Government cost, schedule, and performance requirements. The evaluation of proposal risk includes an assessment of proposed

time and resources and recommended adjustments. This assessment should be performed according to the definitions and evaluation standards developed for the source selection. Proposal risk is, in essence, a moderate expansion

of past evaluation processes. Historically, evaluators selected contractors who demonstrated

that they understood the requirements and

offered the best value approach to meeting

the Government’s needs. The expansion on this

concept is the specific consideration of risk.

Technical and schedule assessments are primary

inputs to the most probable cost estimate for

each proposal. It is important to estimate the

additional resources needed to control any risks

that have moderate or high risk ratings. Offerors

may define them in terms of additional time,

personnel loading, hardware, or special actions

such as additional tests. However, whatever the

type of the required resources, it is essential that

cost estimates be integrated and consistent with

the technical and schedule evaluations.

4.6.6.2 Performance Risk. A performance risk

assessment is an evaluation of the contractor’s

past and present performance record to establish

a level of confidence in the contractor’s ability

to perform the proposed effort. Such an evaluation is not limited to programmatic technical issues, but also includes assessment of critical vendor financial viability. Financial cap-ability analyses and industrial capability assessments, conducted in accordance with DoD Handbook

5000.60H, provide insight to a contractor’s ability

to perform the proposed effort.

A range of methods are available to the PM to

evaluate performance risk. The Performance

Risk Assessment Group (PRAG) is a group of

experienced Government personnel that are appointed by the source selection advisory council
48

• Conduct initial meeting with the contractor

to describe the program’s objectives and

approach to managing risks. The PM may also

present the risk management plan.

• Train members of the PMO and the contractor’s organization on risk management

basics, incorporating the program’s management plan and procedures into the training.

• Review the pre-contract award risk plan with

the PMO and contractor, revise it as necessary, and share results with the contractor.

• Conduct in-depth review of the pre-contract

award risk assessments and expand the review

to include any new information obtained since

the award of the contract.

• Review and revise risk-handling plans to

reflect the reassessment of risks.

• Review the program’s documentation requirements with the contractor. Ensure that the

PMO and contractor understand the purpose,

format, and contents of various risk reports.

• Initially, it may be necessary to establish a

formalized PMO-contractor risk management

organization for the program, consistent with

the terms of the contract.

• Working with the contractor, refine the riskmonitoring plans and procedures.

• Establish the program reporting requirements

with the contractor. Describe the risk management information system that the program

has established, including procedures for providing information for data entry, and identify reports for the PMO and contractor.

• In conjunction with the contractor, identify

other risk-management activities that need to

be performed.

• Manage the program risk in accordance with

the risk management plan and contract.

• Working with the contractor, refine the riskmonitoring plans and procedures and develop appropriate measures and metrics to

track moderate- and high-risk items.

4.8 RISK MANAGEMENT

REPORTING AND

INFORMATION SYSTEM

The PMO should have a practical method for

risk-management reporting, and an information

system that supports a risk management program.

The reporting needs of the PM establish the type,

format, and frequency of information sharing.

The IPT concept suggests that the entire acquisition program team needs access to the risk management information, and the prime contractor(s)

should have access to information, consistent

with acquisition regulations. The reporting and

information system chosen may be Governmentor contractor-owned. See Chapter 5 for an example of an MIS.

4.9 RISK MANAGEMENT TRAINING

A successful management program depends, to

a large extent, on the level of risk management

training the PMO members and the functional

area experts receive. The training will prepare

them for critical tasks, such as risk assessments.

DoD schools offer some risk-management training; however, PMs will need to organize and

conduct principal training for the program office. A three-part framework for training covers program-specific risk management issues,

general structure and process, and techniques.

(1) The program-specific training should ensure

that everyone has a common vision. It

should cover the acquisition strategy, the

companion risk management plan, the PM’s
49

risk-management structure and associated

responsibilities, and the MIS.

(2) The following topics provide a starting

point for general training syllabus development. The final syllabus should be tailored to meet the program’s specific needs.

Table 4-3 provides a list of references that

will be useful in developing the syllabus

and lesson plans.

• Concept of Risk,

• Risk Planning,

• Risk Identification,

• Risk Analysis (as applicable),

• Risk Handling, and

• Risk Monitoring.

(3) The third area of training concerns riskmanagement techniques, concentrating on

the techniques the PMO plans to employ.

The training should focus on how to use

the techniques and should include examples of their use. Chapter 5, Risk Management Techniques, of this Guide provides

a starting point. It contains a general discussion of a set of techniques that address

all elements of the risk management process. The discussion of each technique contains a list of references that provide a more

in-depth description of the technique. The

set of techniques is not exhaustive and the

program office should add to the list, if

necessary.
50

Table 4-3. Risk Management Reference Documents

DoD 4245.7-M, Transition from Development Provides a structure for identifying technical risk

to Production, September 1985. areas in the transition from a program’s development

to production phases. The structure is geared toward

development programs but, with modifications, could

be used for any acquisition program. The structure

identifies a series of templates for each of the

development contractor’s critical engineering

processes. The template includes potential areas of

risk and methods for reducing risk in each area.

Risk Management Concepts and Guidance, Devoted to various aspects of risk management.

Defense Systems Management College,

March 1989. (Superseded by this Risk

Management Guide.)

Systems Engineering Management Guide, Devoted to risk analysis and management and

Defense Acquisition University Press, provides a good overview of the risk management

January 2001, Section 15. process.

Continuous Risk Management Guide, Provides a risk management methodology similar to

Software Engineering Institute, Carnegie the one described in the Defense Acquisition Deskbook.

Mellon University, 1996. Its value is that it subdivides each process into a series

of steps; this provides useful insights. Appendix A

describes 40 risk-management techniques, the majority

of which are standard management techniques adapted

to risk management. This makes them a useful

supplement to the Defense Acquisition Deskbook

identified techniques.

A Systems Engineering Capability Maturity Describes one approach to conducting an Industry

Model, Version 1.0 Software Engineering Capabilities Review. Section PA 10 (pp. 4-72–4-76)

Institute (Carnegie Mellon University), discusses software risk management. The material

Handbook SECMM-94-04, December 1994. presented in this handbook also can be tailored to

apply to system and hardware risk.

A Software Engineering Capability Maturity Describes an approach to assess the software

Model, Version 1.01 Software Engineering acquisition processes of the acquiring organization

Institute (Carnegie Mellon University), and identifies areas for improvement.

Technical Report, December 1996.

Capability Maturity Model for Software This is a tool that allows an acquiring organization to

(SM-CMM), Version 1.1,/CMU/SEI-93-TR-24, assess the software capability maturity of an

February 1993. organization.

Taxonomy-Based Risk Identification, Describes a method for facilitating the systematic and

Software Engineering Institute, Carnegie repeatable identification of risks associated with the

Mellon University, CMU/SEI-93-TR-6 development of a software-intensive project. This

(ESC-TR-93-183, June 1993. method has been tested in active Government-funded

defense and civilian software development projects.

The report includes macro-level lessons learned from

the field tests.

NAVSO P-6071. Navy “best practices” document with recommended

implementations and further discussion on the

material in DoD 4245.7-M.

Document Description
51

Risk Management, AFMC Pamphlet 63-101, An excellent pamphlet on risk management that is

July 1997. intended to provide PMs and the PMO with a basic

understanding of the terms, definitions, and processes

associated with effective risk management. It is very

strong on how to perform pre-contract award risk

management.

Defense Acquisition Deskbook Primary reference tool for defense acquisition work

force; contains over 1,000 mandatory and

discretionary publications and documents which

promulgate acquisition policy and guidance. Part of the

AT&L Knowledge Sharing System (AKSS) (http://

deskbook.dau.mil/jsp/default.jsp).

Acquisition Software Development Describes one approach to conducting an Industry

Capability Evaluation, AFMC Pamphlet Capabilities Review. This two-volume pamphlet was

63-103, 15 June 94. generated from material originated at Aeronautical

Systems Center. The concepts support evaluations

during source selection and when requested by IPTs.

The material presented in this pamphlet also can be

tailored to apply to system and hardware risk

management.

Risk Management Critical Process Provides guidance and extensive examples for

Assessment Tool, Air Force SMC/AXD, developing RFP Sections “L” and “M,” plus source

Version 2, 9 June 1998. selection standards or risk management. Also includes

technical evaluation and review questions, which are

helpful for assessing a risk management process; and

risk trigger questions, which are helpful for risk

identification.

NAVSO P-3686, Top Eleven Ways to Contains Navy approach to risk management with

Manage Technical Risk, October 1998. baseline information, explanations, and best practices

that contribute to a well-founded technical risk

management program.

Risk Focus Area of the Program Provides comprehensive and ready source of current

Management Community of Practice tools, papers, and practices in risk management field.

(http://www.pmcop.dau.mil)

Table 4-3. Risk Management Reference Documents

(continued)

Document Description
52
53

5

RISK MANAGEMENT

TECHNIQUES

Several tools have been developed to support

each of the components of the risk management

process, i.e., planning, assessing, handling, and

monitoring and documenting. Although tool

developers may claim otherwise, none are

integrated to totally satisfy all needs of a PM.

Most likely, a PM will choose an overall risk

strategy, write a plan to reflect his strategy, review the list of proven techniques to support

the components of risk management, assess the

techniques against the program’s needs and

available resources, tailor the techniques to suit

the needs of the program, and train program

office members to implement the plan.

5.3 RISK PLANNING TECHNIQUES

5.3.1 Description

This technique suggests an approach to risk planning; the process of developing and documenting an organized, comprehensive approach. It

also suggests interactive strategy and methods

for identifying and tracking risk drivers, developing risk-handling plans, performing continuous assessments to determine how risks have

changed, and planning adequate resources. The

risk planning technique is applicable to all functional areas in the program, especially critical areas and processes. Using the acquisition strategy as a starting point results in the development

of a program risk management strategy, from

which flows a management plan that provides

the detailed information and direction necessary

5.1 INTRODUCTION

This Chapter provides top-level information on

a number of techniques currently used in DoD,

and a combination of techniques used by the Services, industry, and academia. Collectively, they

focus on the components of the risk management process and address critical risk areas and

processes. The write-ups describe the techniques

and give information on their application and

utility. The descriptions are at a level of detail

that should permit potential users to evaluate the

suitability of the techniques for addressing their

needs; however, the material does not, in most

cases, provide all the information that is required

to use a technique. Readers will find that if a

particular technique looks promising, they can

obtain enough information from the references

and tools that will enable program offices to apply them. The descriptions are in a format that

aids comparison with other approaches.

5.2 OVERVIEW

Techniques are available to support risk management activities. None are required by DoD,

but some have been successfully used in the

past by DoD PMs. Many of the techniques

support processes that are part of sound management and systems engineering and give

Government and contractor PMs the tools for

considering risk when making decisions on

managing the program.
54

to conduct an effective management program.

This risk management plan provides the PM with

an effective method to define a program, one

that fixes responsibility for the implementation

of its various aspects, and supports the

acquisition strategy.

The technique should first be used in the Concept Refinement (CR) Phase in conjunction with

the development of the initial Technology Development Strategy (TDS). Subsequently, it may

be used to update the management plan on the

following occasions: (1) whenever the acquisition strategy changes, or there is a major change

in program emphasis; (2) in preparation for major

decision points; (3) in preparation for and

immediately following technical audits and

reviews; (4) concurrent with the review and

update of other program plans; and (5) in

preparation for a PMO submission.

The PMO risk management coordinator, if

assigned, develops the risk management plan

based on guidance provided by the PM, and

coordinating with the Program Level IPT. To

be effective, the PM must make risk management an important program management function and must be actively involved in the risk

planning effort. Planning requires the active participation of essentially the entire PMO and

contractor team.

5.3.2 Procedures

Figure 5-1 graphically depicts the process to

be followed in applying this technique. The

Figure 5-1. Risk Planning Technique Input and Output

• Evaluate risk planning

requirements

• Evaluate the program’s current

risk situation

• Develop a risk management

strategy

• Determine the tasks and

guidance required to implement

the risk management strategy

• Develop the PMO’s approach to

risk management in general

• Provide application guidance for

risk management component

processes

• Develop inputs for other

acquisition strategies and

program processes

PM Guidance

Input

• Acquisition strategy

• Prior risk

management plan

(if any)

• Known risks

• System description

• Program description

• Key ground rules and

assumptions

Output

• Risk Management

Plan

• Risk Management

Training

• Program-Level IPT (or equivalent

such as Risk Management Board)

• Risk management coordinator
55

procedure consists of a number of iterative activities that result in the development of the risk management strategy and a Risk Management Plan.

The acquisition strategy and related management planning efforts (program management,

and systems engineering), program constraints,

and any existing risk management planning are

integrated and evaluated in the context of the

PM’s guidance, which provides the direction

for the planning process. Typical types of PM

guidance are concerns about certain categories

of risk, guidance on funding of handling

activities, emphasis to be placed on risk management training, and frequency and type of

internal reports.

The integration and evaluation of the primary

inputs establish the requirements and scope of

the planning effort through an assessment of

the program’s current risk situation. The results

of the assessment provide the basis for development of management strategy. The strategy

should reflect the level of risk that the PM is

prepared to accept, and should provide guidance on how and when known risks will be

reduced to acceptable levels. It should also

describe the risk management process the PMO

will employ and the organization and structure

of the management program, addressing things

such as risk ratings, the use of an MIS, policy

and procedures on sharing risk management

information, and training.

The PMO should create an MIS early in the

planning process. It will serve as a planning

source and the data may be used for creating

reports. It will also become the repository for

all current and historical information related to

risk. Eventually, this information may include

risk assessment documents, contract deliverables,

if appropriate, and other risk-related reports.

Based on the management strategy, the plan identifies specific tasks to be accomplished and

assigns responsibility for their execution. The

timing of these tasks should be incorporated into

an integrated critical path master schedule or

equivalent. Guidance for task execution and control should also be developed, covering such

things as the suggested techniques to be used

for each component, any assistance available to

Sub-Tier IPTs, the use of funds, the policy on

the use of independent risk assessors, etc. This

information may be documented in a risk management plan. A sample format is shown in Figure

5-2. Appendix B contains two examples of a

Risk Management Plan.

The contents of the risk management strategy

and plan should be consistent with the acquisition strategy and other program plans derived

from the acquisition strategy. Hence, it should

be tailored to each program rather than attempting to use the same process and its implementation on all programs. This will help to ensure that

risk is considered in all program activities and

that it does not become a “stove pipe” function.

5.4 RISK ASSESSMENT TECHNIQUES

5.4.1 Product (WBS) Risk Assessment

5.4.1.1 Description. This technique identifies

those risks associated with a given system concept and design. The difference between the process (DoD 4245.7-M) technique and this approach is that DoD 4245.7-M addresses the

contractor’s engineering and manufacturing processes and this technique focuses on the resulting product. This technique is used to identify

and analyze risks in the following critical risk

areas: design and engineering, technology, logistics, production, concurrency, plus others as

needed for both hardware and software.

The WBS is the starting point to describe contract work to be done and the resulting product

and is the basis for determining risk events in

each critical risk area. The risk events—events
56

Figure 5-2. Sample Format for Risk Management Plan

INTRODUCTION. This section should address the purpose and objective of the plan, and provide a brief

summary of the program, to include the approach being used to manage the program, and the acquisition

strategy.

PROGRAM SUMMARY. This section contains a brief description of the program, including the acquisition

strategy and the program management approach. The acquisition strategy should address its linkage to the

risk management strategy.

DEFINITIONS. Definitions used by the program office should be consistent with DoD definitions for ease of

understanding and consistency. However, the DoD definitions allow program managers flexibility in constructing

their risk management programs. Therefore, each program’s risk management plan may include definitions

that expand the DoD definitions to fit its particular needs. For example, each plan should include, among other

things, definitions for the ratings used for technical, schedule, and cost risk.

RISK MANAGEMENT STRATEGY AND APPROACH. Provide an overview of the risk management approach,

to include the status of the risk management effort to date, and a description of the program risk management

strategy.

ORGANIZATION. Describe the risk management organization of the program office and list the responsibilities

of each of the risk management participants.

RISK MANAGEMENT PROCESS AND PROCEDURES. Describe the program risk management process to be

employed, i.e., risk planning, assessment, handling, monitoring and documentation, and a basic explanation

of these components. Also provide guidance for each of the risk management steps in the process. If possible,

the guidance should be as general as possible to allow the program’s risk management organization (e.g.,

IPTs) flexibility in managing the program risk, yet specific enough to ensure a common and coordinated

approach to risk management. It should address how the information associated with each element of the risk

management process will be documented and made available to all participants in the process, and how risks

will be tracked, to include the identification of specific metrics if possible.

RISK PLANNING. This section describes the risk planning process and provides guidance on how it will be

accomplished, and the relationship between continuous risk planning and this RMP. Guidance on updates of

the RMP and the approval process to be followed should also be included.

RISK ASSESSMENT. This section of the plan describes the assessment (identification and analysis) process.

It includes procedures for examining the critical risk areas and processes to identify and document the associated

risks. It also summarizes the analyses process for each of the risk areas leading to the determination of a risk

rating. This rating is a reflection of the potential impact of the risk in terms of its variance from known Best

Practices or probability of occurrence, its consequence, and its relationship to other risk areas or processes.

This section may include:

• Overview and scope of the assessment process

• Sources of information

• Information to be reported and formats

• Description of how risk information is retained

• Assessment techniques and tools.

RISK HANDLING. This section describes the risk-handling options, and identifies tools that can assist in

implementing the risk-handling process. It also provides guidance on the use of the various handling options

for specific risks.

RISK MONITORING. This section describes the process and procedures that will be followed to monitor the

status of the various risk events identified. It should provide criteria for the selection of risks to be reported on,

and the frequency of reporting. Guidance on the selection of metrics should also be included.

RISK MANAGEMENT INFORMATION SYSTEM, DOCUMENTATION AND REPORTS. This section describes

the MIS structure, rules, and procedures that will be used to document the results of the risk management

process. It also identifies the risk management documentation and reports that will be prepared; specifies the

format and frequency of the reports; and assigns responsibility for their preparation.
57

that might have a detrimental impact on the

system, subsystems, or components—are evaluated to identify and characterize specific risks

ratings and prioritization.

This technique should be used shortly after the

completion of the prime contractor’s WBS.

Thereafter, it should be used regularly up to the

start of production. The technique can be used

independently or in conjunction with other risk

assessment techniques, such as the Process

(DoD 4245.7-M) Risk Assessment technique. It

may, if appropriate, also be used in conjunction

with the Integrated Baseline Review (IBR),

which is conducted within 6 months of contract

award. A website is also available at http://

www.acq.osd.mil/pm/ibrmats/ibrmats.htm,

which discusses the IBR Process.

To apply this technique, joint Government and

industry evaluation teams should examine the

appropriate WBS levels in each Sub-Tier IPTs

product area. If necessary, complementary

industry-only teams may take an in-depth look

at selected areas at lower WBS levels. At times,

it may be desirable to include outside industry

experts on the teams to aid in the examination of

specific WBS elements or functional areas.

5.4.1.2 Procedures. Figure 5-3 depicts the process used in this technique. The first step is to

review the WBS elements down to the level being considered, and identify risk events. This

review should consider the critical areas (design and engineering, technology, logistics, etc.)

that may help to describe risk events. Table 5-1

shows a partial listing of these elements.

Using information from a variety of sources,

such as program plans, prior risk assessments,

expert interviews, etc., the WBS elements are

examined to identify specific risks in each critical area. The risk event, are then analyzed to

determine probability of occurrence and consequences/impacts, along with any interdependencies and risk event priorities. Several techniques

and tools are available to accomplish this, including, among others, technology assessments,

modeling and simulation, hazard analysis, and

fault tree analysis.

Figure 5-3. Product (WBS) Risk Assessment Technique Input and Output

Input

• Program Plans

• Past Projected Data

• Lesson Learned

• Expert Interview Data

• Test Results

• Integrated Baseline

Review

Output

• Risk Information Forms

• Prioritized List of Risks

• List of Aggregated

Risks

• Watch Lists

• Sub-Tier IPT Evaluation Teams

• “Outside” Industrial Experts

• WBS

• Integrated Master Schedule

(or equivalent)

• Critical Area Evaluation Criteria

• Examine WBS elements and

identify risk events

• Analyze risk events

(Includes rating and

prioritizing risk events)
58

The results of this analysis should be documented

in a program-specific standard format, such as a

Risk Information Form (RIF). The risks, along

with others identified using other techniques, can

be prioritized and aggregated using the technique

described later in this chapter.

5.4.2 Process (DoD 4245.7-M)

Risk Assessment

5.4.2.1 Description. This technique is used

to assess (identify and analyze) program technical risks resulting from the contractor’s processes. It is based on the application of the

technical risk area templates found in DoD

4245.7-M. These templates describe the risk

areas contained in the various technical processes (e.g., design, test, production, etc.) and

specify methods for reducing risks in each

area. Success of any risk reduction efforts associated with this technique will depend on

the contractor’s ability and willingness to make

a concerted effort to replace any deficient engineering practices and procedures with best

industrial practices.

One of the primary benefits of this technique is

that it addresses pervasive and important

sources of risk in most DoD acquisition programs and uses fundamental engineering principles and proven procedures to reduce technical risks. The technique is accepted by many

Table 5-1. Critical Risk Areas and Example Elements

• Design/technology approach

• Operational environments

• External/internal interfaces

• Use of standard parts/program

parts list

• System/subsystem critical design

requirement

• Operations and Maintenance

(O&M) concept

• System diagnostic requirement

• Repairability and Maintainability

(R&M) requirements

• Supply support requirements

• Built-in Test (BIT) requirements

• Integrated test

• Qualification testing

• Subsystem test limits

• Design producibility

• Manufacturing capability

requirements

• Parts/assemblies availability

• Program schedule adequacy

• Integration requirements

• Human-machine interface

• Design growth capacity

• Design maturity

• Safety and health hazards

• Manpower, training and skill profiles

• Support equipment requirements

• Maintenance interfaces

• Level of repair decisions

• Training equipment design

• Test environmental acceleration

• Supportability test results

• Special tooling/test equipment planning

personnel availability

• Process/tooling proofing

• Production equipment availability

• Development phases concurrency

Example Elements

Critical Risk

Areas

Design and

Engineering

Logistics

Testing

Manufacturing

Concurrency
59

aerospace companies in normal business activities, and in fact, was developed by a group of

Government and aerospace experts.

The technique is primarily applicable during the

Technology Development (TD) Phase, and the

System Demonstration part of the System Development and Demonstration (SDD) Phase

of program development. In the TD Phase it

provides a detailed checklist of processes that

the contractor needs to address; in the System

Demonstration part of the SDD Phase, the processes are being implemented in preparation for

Low Rate Initial Production (LRIP). The description of each template in DoD 4245.7-M

shows the phases in which the template should

be applied. The specific timing of the application within the phases should be determined

based on the type of program, the acquisition

strategy and plans, and the judgment of program officials. It should also be used in

preparation for milestone decisions and when

preparing for source selection. This technique

may be used independently or in conjunction

with other risk assessment techniques. When

feasible, a Government-industry evaluation

team should be formed early in the program to

apply this technique.

5.4.2.2 Procedures. Figure 5-4 shows the basic approach used in this technique. The DoD

4245.7-M templates are used in conjunction

with the contract requirements and specifications to identify those technical processes critical to the program and to establish a program

baseline of contractor processes. When possible, the program baseline should be determined

by evaluating actual contractor performance, as

opposed to stated policy. For example, design

policy should be determined from interviewing

designers and not simply from reviewing written corporate policies.

Figure 5-4. Process (DoD 4245.7-M) Risk Assessment Technique Input and Output

• Identify Program’s Critical

Technical Processes

• Develop Technical Baseline

for Critical Technical

Processes

• Develop Program Baseline

• Measure Variances Between

Baselines

• Report Risks

Input

• DoD 4245.7-M Templates

• Combined Government/

Industry Acquisition Flow

Chart

• Known Best Practices

• Past Project Data

• Best Practices Database;

Program Manager’s

Work Station (PMWS)

Output

• Technical Baseline

• Program Baseline

• Risk Information Forms

• Technical Risk

Assessment Summary

• Prioritized List of Risks

• Watch Lists

• Government-Industrial

Evaluation Team

• “Outside” Industrial

Experts

• Corporate Policies, Practices

& Procedures

• Contract Requirements

Specifications &

Modifications
60

This program baseline should then be compared

to a baseline of industry-wide processes and

practices that are critical to the program. The

baseline should be developed by reviewing and

compiling known best practices in use by various companies in both defense and non-defense

sectors. One source of best practices information is the Program Manager’s Work Station

(PMWS), a series of PC expert systems

designed to aid in the implementation of DoD

4245.7-M. The point of contact for the PMWS

is the Best Manufacturing Practices Center of

Excellence (http://www.bmpcoe.org).

The differences between the two baselines are a

reflection of the technical process risk present.

These results should be documented in a standard format, such as a program-specific Risk Information Form (see MIS discussion this section)

to facilitate the development of a risk handling

and risk reporting plan.

5.4.3 Program Documentation

Evaluation Risk Identification

5.4.3.1 Description. This technique provides a

methodology for comparing key program documents and plans to ensure that they are consistent and traceable to one another. Program

documents and plans are hierarchical in nature.

If the contents (activities, events, schedules,

requirements, specifications, etc.) of a document

or plan do not flow from or support the contents

of those above, below, or adjacent to it, there is

a strong chance that risk will be introduced into

the program or that known risks will not be adequately addressed. This technique reduces those

risks and improves the quality of program

documentation.

This technique can be used in any acquisition

phase as documents or plans are being developed or updated. The comparison of program

documentation and plans should be performed

by a small team of experienced, knowledgeable

personnel who are intimately familiar with the

total program.

5.4.3.2 Procedures. Figure 5-5 shows the process used in this technique. The primary inputs

to the process are the PMO documents that detail the steps involved in executing the program.

These include, for example, the Mission Need

Statement (MNS), Operational Requirements

Document (ORD), acquisition plan, any master

management plan, Test and Evaluation Master

Plan (TEMP), manufacturing plan, etc. The

MNS is being replaced by the Initial Capabilities Document (ICD), and the ORD is being replaced by the Capability Development Document (CDD). Another set of key input documents

are those used to communicate with the prime

Figure 5-5. Plan Evaluation Technique Input and Output

Input

• Program Plans

• Requirements

Documents

• Other Program

Documents

Output

• List of

Documentation

Inconsistencies

• Risk Information

Forms

• PMO Team

• WBS

• SOW

• Baselines

• Evaluate each document

• Evaluate the correlation

among documents
61

contractor, e.g., WBS, specifications, Statement

of Work (SOW) or equivalent such as, Statement

of Objectives, etc. Before any comparison, the

PMO should review all documents for accuracy

and completeness. Figure 5-6 shows an example

of the type of correlation that should exist among

the MNS, ORD, and TEMP during the CR and

TD Phases.

If the comparison shows any gaps or

inconsistencies, reviewers should identify them

as possible risks on a RIF, the output of this process.

5.4.4 Threat and Requirements

Risk Assessment

5.4.4.1 Description. This technique describes

an approach to assess risks associated with requirements and threat and to identify requirements and threat elements that are risk drivers.

Because operational needs, environmental demands, and threat determine system performance

requirements, to a large degree, they are a major

factor in driving the design of the system and

can introduce risk in a program. Further, with

the introduction of CAIV, PMs and users are

directed to examine performance requirements

and identify areas that are not critical and are

available for trade to meet cost objectives. Risk

is a factor in CAIV considerations.

The requirements risk assessment process focuses

on: determining if operational requirements are

properly established and clearly stated for each

program phase; ensuring that requirements are

stable and the operating environment is adequately described; addressing logistics and suitability needs; and determining if requirements

are too constrictive, thereby identifying a specific solution. The evaluation of the threat risk

assessment process’ maturity addresses:

uncertainty in threat accuracy and stability,

sensitivity of design and technology to threat,

vulnerability of the system to threat countermeasures, and vulnerability of the program to intelligence penetration. PMs should view requirements in the context of the threat and accurately

reflect operational, environmental, and suitability requirements in design documents.

Figure 5-6. Concept Refinement (CR) and Technology Development (TD) Phases

Correlation of Selected Documents (Example)

MNS

TEMP ORD

Will testing determine if

mission needs are

satisfied?

Does the ORD

satisfy the needs

specified in the MNS

Are high risk performance

specifications being tested

in a manner to support risk

reduction?

NOTE: MNS being replaced by ICD

ORD being replaced by CDD
62

PMs should use threat and requirements assessments during the early phases of program development and, as necessary, as the program advances through development. Early and complete understanding of the requirements and

threat precludes misunderstandings between the

requirements and development communities,

helps to identify risk areas, and allows early

planning to handle risk. Consequently, the user

should be actively involved in this process from

the beginning.

5.4.4.2 Procedures. Figure 5-7 depicts the process used in this technique. The basic approach

is to conduct a thorough review of the documents

containing performance requirements and threat

information, e.g., ORD, TEMP, System Specification, System Threat Assessment (STA), Design Reference Mission Profile, etc., to determine stability, accuracy, operating environment,

logistics and suitability requirements, and consistency between these requirements and the

threat considerations cited above. There should

be an understanding between the users and the

developers on Key Performance Parameters

(KPPs) in order to identify the requirements that

are most important and critical to program success. The Design Reference Mission Profile and

Design Requirements templates in DoD 4245.7-

M and the Program Documentation Evaluation

Risk Identification technique may be useful in

support of this technique.

Requirements should be thoroughly reviewed to

identify those that drive performance. This will

require the “flow down” of performance requirements to components and subassemblies and the

identification of technologies/techniques to be

used in these components/subassemblies that

may significantly affect the system’s ability to

meet users’ needs.

Designers should determine the sensitivity of

system performance to the requirements and

threat and identify risk drivers. Models and simulations are useful tools to determine this sensitivity. For example, the U.S. Army Materiel System Analysis Activity (AMSAA) has such an

analytic model, the AMSAA Risk Assessment

Methodology.

Figure 5-7. Threat and Requirement Risk Assessment Technique Input and Output

• Functional Baseline

Input

• MNS (ICD)

• ORD (CDD)

• STA

• TEMP

• Past Project Data

• Concept

Development Studies

• Test and Simulation

Results

Output

• Risk Information

Forms

• Prioritized List of

Risks

• List of

Aggregated Risks

• Watch List

• Government-Industry

Evaluation Team

• Subject-Matter Experts

• Extract critical requirements

and threat areas to be

assessed

• Assess technical maturity and

complexity of system concepts

• Evaluate requirements and

threat process maturity

• Identify, analyze, and evaluate

requirements and threat risks
63

The PMWS can also be useful. The risk identified in this technique should be documented in a

program-specific format, such as a RIF (see

Annex B).

5.4.5 Cost Risk Assessment

5.4.5.1 Description. This technique provides

a program-level cost estimate at completion

(EAC) that is a function of performance (technical), and schedule risks. It uses the results of

previous assessments of WBS elements and cost

probability distributions developed for each of

the elements. These individual WBS elements

are aggregated using a Monte Carlo simulation

to obtain a probability distribution of the program-level cost EAC probability distribution

function. These results are then analyzed to

determine the actual risk of cost overruns and

to identify the cost drivers.

The use of these cost probability distributions as

the basis for the program-level cost estimate results in a more realistic EAC than the commonly

used single point estimates for WBS elements,

since they address both the probability of occurrence and consequences/impacts of potential risk

events. Their use also eliminates a major cause

of underestimating (use of point estimates) and

permits the evaluation of performance (technical) or schedule causes of cost risk. Thus, this

technique provides a basis for the determination

of an “acceptable” level of cost risk.

This technique can be used in any of the acquisition phases, preferably at least once per phase

beginning in the CR Phase although suitable

data or organization may not exist until the TD

Phase or System Integration (SI) Part of the

SDD Phase in some cases. It should be used in

conjunction with performance (technical) and

schedule risk assessments and may be performed

by small Government-industry teams consisting of risk analysts, cost analysts, schedule analysts and technical experts who understand the

significance of previous performance and

schedule risk assessments. They should report

to the Program IPT. This technique requires

close and continuous cooperation among cost

analysts and knowledgeable technical personnel and the support of the prime contractor’s

senior management to help get valid cost data.

5.4.5.2 Procedures. Figure 5-8 depicts the process used in applying this technique. The first

step is to identify the lowest WBS level for which

cost probability distribution will be constructed.

The level selected will depend on the program

phase; e.g., during the CR Phase, it may not be

possible to go beyond level 2 or 3, simply because the WBS has not yet been developed to

lower levels. As the program advances into subsequent phases and the WBS is expanded, it will

be possible and necessary to go to lower levels

(4, 5, or lower). Specific performance (technical) and schedule risks are then identified for these

WBS elements.

To develop the WBS elements cost probability

distributions, the team, working with the prime

contractor’s WBS element managers, determines

the cost range for each element being investigated. The cost range encompasses cost estimating uncertainty, schedule risk, and technical risk.

The validity of the cost data used to construct

the distribution is critical. In fact, collecting good

data is the largest part of the cost risk job. Consequently, PMOs should place major emphasis

on this effort.

The element cost probability distributions are

aggregated and evaluated using a Monte Carlo

simulation program. All Monte Carlo processes

contain limitations, but they are more informative than point estimates. Any number of these

simulations are readily available to perform this

aggregation, and one that meets the specific

needs of the program should be selected. The

results of this step will be a program-level cost

EAC and a cost distribution that shows the
64

cumulative probability associated with different cost values. These outputs are then analyzed

to determine the level of cost risk and to identify the specific cost drivers. Cost risk is determined by comparing the EAC with the cost

baseline developed as part of the acquisition

program baseline. Since the EAC and program

cost distribution are developed from WBS element risk assessments, it is possible to determine the cost risk drivers. The cost drivers can

also be related back to the appropriate performance and schedule risks. The results of the

analysis (cost risks and drivers) should be documented in RIFs.

5.4.6 Quantified Schedule Risk

Assessment

5.4.6.1 Description. This technique provides a

means to determine program-level schedule risk

as a function of risk associated with various activities that compose the program. It estimates

the program-level schedule by developing probability distributions for each activity duration and

aggregating these distributions using a Monte

Carlo simulation or other analytical tools. The

resulting program-level schedule is then analyzed

to determine the actual schedule risk and to identify the schedule drivers.

This technique expands the commonly used

Critical Path Method (CPM) of developing a

program schedule to obtain a realistic estimate

of schedule risk. The basic CPM approach uses

single point estimates for the duration of program activities to develop the program’s expected

duration and schedule. It invariably leads to underestimating the time required to complete the

program and schedule overruns, primarily because the point estimates do not adequately address the uncertainty inherent in individual activities. The uncertainty can be caused by a number of factors and may be a reflection of the risk

present in the activity.

The quantified schedule technique accounts for

uncertainty by using a range of time that it will

take to complete each activity instead of single

point estimates. These ranges are then combined

to determine the program-level schedule estimate. This approach enables PMs to estimate

early in a program if there is a significant probability/likelihood of overrunning the program

schedule and by how much. It also identifies high

Figure 5-8. Cost Risk Assessment Top-Level Diagram

• Identify key performance and

schedule risks

• Select cost analysis level of

detail

• Construct WBS level probability

distributions

• Analyze Monte Carlo simulation

results

• Cost Risk Baseline

Input

• Performance

*Risks

• Schedule Risks

• Cost Risk

• WBS

• Prior Cost

Analysis Results

Output

• EAC

• Cost Risk

• Risk Information Forms

• List of Aggregated

Risks (by type of cost)

• Watch List

• Program Cost Estimate

Probability Density

Function (PDF)

• Program Cost Estimate

Cumulative Distribution

• Program Cost Estimating Team Function (CDF)

• Industry WBS Element Managers

* Includes Technical Risk
65

risk program activities that may or may not be

on the program “critical path.”

This technique can be used in any acquisition

phase beginning with the completion of the first

statement of work. The schedule probability distribution function for each key activity should

be developed as soon as the activity is included

in the master schedule. The distribution functions should be periodically reviewed and revised, if necessary, at least once per phase. The

technique should be applied by a small Government-industry team consisting of schedule

analysts and technical experts who understand

the significance of prior risk performance

assessments.

5.4.6.2 Procedures. Figure 5-9 shows the process used in this technique. The first step is to

identify the lowest activity level for which duration/schedule probability distribution functions will

be constructed. The WBS should be used as the

starting point for identifying activities and constructing a network of activities. The WBS level

selected will depend on the program phase.

Next, the contractor should construct a CPM

schedule for these activities. To develop the

activity duration probability distribution functions, the team, working with the prime

contractor’s WBS element managers, determines

and analyzes duration range for each activity

being investigated. This analysis should be

done by schedule analysts working closely with

knowledgeable technical people.

The activity duration probability distributions are

aggregated using a Monte Carlo simulation program, such as ©Risk, Risk+ for Microsoft

Project, or Crystal Ball. The result of this step

is a program-level schedule and distribution

function that shows the cumulative probability

associated with different duration values. These

outputs are then analyzed to determine the level

of schedule risk and to identify the specific

schedule drivers. Risk is determined by comparing the program-level schedule with the deterministic schedule baseline developed as part

of the acquisition program baseline. The fact

that the schedule and distribution are developed

from WBS element risk assessments makes it

possible to determine the schedule risk drivers.

These drivers can also be related back to the appropriate performance risks. The results of the

analysis (schedule risks and drivers) should be

documented in RIFs. The analysis requires

Figure 5-9. Schedule Risk Assessment Technique Input and Output

• Identification activities and

develop relationships between

them

• Identify key performance risks

• Construct probability

distributions

• Analyze Monte Carlo simulation

results

• Schedule Risk Baseline

Input

• Performance Risks

• Probability Density

Functions of WBS

Elements

• Prior Schedule

Analysis Results

• Schedule Risks

External to the

Program

Output

• Schedule Duration

• Schedule Risk

• Risk Information Forms

• List of Aggregated

Risks (Critical Path

Versus Non-Critical

Path)

• Watch List

• Program Schedule

Probability Density

Function (PDF)

• Program Schedule

Cumulative Distribution

Function (CDF)

• Program Schedule Estimating Team

• Industry WBS Element Managers
66

continued close cooperation between the schedule analysts and technical personnel familiar with

the details of the program.

5.4.7 Expert Interviews

5.4.7.1 Description. A difficult part of the risk

management process is data gathering. This technique provides a means for collecting risk-related data from subject-matter experts and from

people who are intimately involved with the various aspects of the program. It relies on “expert”

judgment to identify and analyze risk events,

develop alternatives, and provide “analyzed”

data. It is used almost exclusively in a support

role to help develop technical data, such as probability and consequences/impacts information,

required by a primary risk assessment technique.

It can address all the functional areas that make

up the critical risk areas and processes, and can

be used in support of risk handling.

Expert judgment is a sound and practical way

of obtaining necessary information that is not

available elsewhere or practical to develop using engineering or scientific techniques. However, interviewers should be aware that expert

opinions may be biased because of over-reliance

on certain information and neglect of other information; unwarranted confidence; the tendency

to recall most frequent and most recent events; a

tendency to neglect rare events; and motivation.

Results may have to be tempered because of

these biases.

5.4.7.2 Procedures. Figure 5-10 depicts the process used in this technique. The first step in the

process is to identify risk areas and processes that

are to be evaluated using the expert interview technique. Other techniques described in this section

(e.g., WBS Risk Assessment, Process Risk Assessment, etc.) can be used for this purpose.

Once the areas and processes are known, subjectmatter experts and program/contractor personnel knowledgeable of the areas and processes

should be identified to be interviewed. Similarly,

qualified interviewers should be selected for each

area and process.

Interviewers should prepare themselves by preparing a strategy and selecting a methodology

for analysis and quantification of data. The references list sources for practical techniques for

quantifying expert judgment. (See Appendix D

for additional guidance in this area.)

Figure 5-10. Expert Interview Technique Input and Output

• Identify, select and verify

subject/area experts

• Develop interview material

• Prepare for interview

• Conduct interview

• Analyze results

• Primary risk assessment technique

requirements and constraints

INPUT

• Critical Risk Areas

• Critical Risk

Processes

• WBS

• Integrated Master

Schedule (IMS)

• Related Analyses, i.e.,

Cost Analysis,

Technical Risk

Analyses, Etc.

OUTPUT

• Qualitative Judgments

• Quantitative Judgments

• Interview Reports

• Risk Information Forms

• List of Aggregated

Risks

• Watch List

• Government-Industrial Evaluation Team

• Subject/area experts
67

After the interview, evaluators analyze the data

for consistency, resolve any issues, and document the results. Commercial “Groupware” software is available to assist in compiling and documenting the results of interviews.

5.4.8 Analogy Comparison/

Lessons-Learned Studies

5.4.8.1 Description. This technique uses lessons learned and historical information about

the risk associated with programs that are similar to the new system to identify the risk associated with a new program. It is normally used

to support other primary risk assessment techniques, e.g., Product (WBS) Risk Assessment,

Process Risk Assessment, etc. The technique is

based upon the concept that “new” programs are

originated or evolved from existing programs or

simply represent a new combination of existing

components or subsystems. This technique is

most appropriate when systems engineering and

systems integration issues, plus software

development, are minimal. A logical extension

of this premise is that key insights can be gained

concerning aspects of a current program’s risks

by examining the successes, failures, problems,

and solutions of similar existing or past programs.

This technique addresses all the functional areas

that make up the critical risk areas and processes.

5.4.8.2 Procedures. Figure 5-11 depicts the

process used in this technique. The first step in

this approach is to select or develop a baseline

comparison system (BCS) that closely approximates the characteristics of the new system/

equipment to as low a level as possible and uses

the processes similar to those that are needed to

develop the new system. For processes, industry-wide best practices should be used as a

baseline. The PMWS is a useful tool for identifying these best practices.

Relevant BCS data are then collected, analyzed,

and compared with the new system requirements. The BCS data may require adjustment to

Figure 5-11. Analogy Comparison/Lessons-Learned Studies Top-Level Diagram

• Identify Baseline Comparison

System (BCS) candidates

• Breakdown new system into

logical components for

comparison

• Select BCS

• Collect detailed data on BCS

and new system

• Analyze BCS and new system

data

• Conduct comparisons and

develop conclusions

Input

• Description and

Program

Characteristics of the

New System and Its

Components

• Information Needs

Output

• Risk Assessment

Data (Risk Areas

for Further

Investigation)

• Government-Industrial Evaluation Team

• Primary risk assessment technique

requirements and constraints
68

make a valid comparison; for example, apply

appropriate inflation indices for cost comparisons, adjust design schedule for software evolution versus software development, etc. The comparisons can be a major source of risk assessment data and provide some indication of areas

that should be investigated further. This technique is especially useful as a front-end analysis

of a new start program.

5.5 RISK PRIORITIZATION

5.5.1 Description

This technique provides a means to prioritize the

risks present in a program. It is a part of risk analysis. The prioritized list provides the basis for developing handling plans, preparing a handling task

sequence list, and allocating handling resources.

When using this technique, PMs establish

definitive criteria to evaluate the risks, such as,

probability (probability/likelihood) of failure,

(PF

), and consequence/impact of failure (CF),

along with any other factors considered appropriate. The risks are evaluated using qualitative expert judgment and multi-voting methods

to prioritize and aggregate risks. (See References-SEI, Continuous Risk Management, 1996,

for a discussion of multi-voting methods.) A

qualitative approach using subject-matter experts

is generally preferred in this technique because

of the tendency to rely on ordinal values to

describe PF

, CF and the inherent inaccuracies

resulting from any attempts to use quantifiable

methods derived from raw (uncalibrated) ordinal

scales.

This technique should be used appropriately

during the CR and TD Phases, and the SI and

SD parts of the SDD Phase; at the conclusion of

a major risk assessment undertaking; when there

has been a significant change in the acquisition

strategy; when risk monitoring indicates significant changes in the status of a number of risks,

and prior to a milestone review.

The PMO risk management coordinator (if

assigned) may function as a facilitator and

support the program IPT in applying this

technique.

5.5.2 Procedures

Figure 5-12 depicts the process used to prioritize

the risks present in a program. The inputs of

this process are risks that have been identified.

The evaluation team, through consensus or as

directed by the Risk Management Plan, selects

Figure 5-12. Risk Prioritization Technique Input and Output

• Review risks for understanding

• Select prioritization criteria

• Select voting criteria

• Vote

• PM Guidance

Input

• Risk Information

Forms

Output

• Prioritized List of

Risks

• Program-Level IPT

• Risk Management Coordination
69

the prioritization criteria. PF

 and CF should always

be part of the criteria, along with any other appropriate factors. Urgency, an indication of the

time available before the procedures for handling

the specific risk must be initiated, is often considered in the evaluation. The PM may also

choose to rank-order the prioritization criteria,

e.g., consequence/impact is more important than

probability.

A multi-voting method is useful to prioritize risks

(see References-Scholtes, 1988; Linstone, 1975).

The Delphi method is a simple and effective

method of arriving at a consensus among a group

of experts. The procedure is for team members to

vote on the priority of each risk and tally the results, which are fed back to the team. Team members vote again and the process is repeated until

no changes occur in the results. It is normal to

reach the final outcome within a few voting sessions. If there are a large number of risks, they

may be broken into smaller groups for ranking.

As a general rule, no more than 10 items should

be prioritized per vote. The results of the series of

votes are documented in the prioritized list of risks.

PM guidance, which operates as a technique

control function, can be used, for example, to

specify prioritization criteria and prescribe the

format of the prioritized list of risks.

5.5.2.1 Risk Aggregation. Figure 5-13 shows

the process for this technique, which relies on

qualitative judgment and multi-voting methods

to summarize risks at the critical risk area and

process level in terms of PF and CF. The risks

identified in the RIFs and the prioritized list of

risks are first grouped according to critical risk

areas and processes, and listed in priority

sequence.

Within each area and process, the individual risks

are evaluated against a set of established criteria

to determine the overall aggregate risk rating for

the area/process. Aggregation criteria needs to be

established separately for PF

 and CF ; PF and CF

should not be combined into a single index, e.g.,

moderate risk. Examples of aggregation criteria

include: (1) most undesirable PF and CF

 of all the

risks within a risk area or process becomes the

aggregated values for the area or process, or (2)

the PF

 and CF for each area or process represents

the mean value for that area or process.

The team then votes on each risk area and process to determine its rating for PF

 and CF, and

Figure 5-13. Risk Aggregation Technique Input and Output

• Sort risks by critical risk areas

and processes

• Review risks for understanding

• Select aggregation criteria

• Select voting criteria

• Vote

• Identify reporting criteria

• PM Guidance

Input

• Risk Information

Forms

• Risk Prioritization

List

Output

• List of

Aggregated

Risks

• Program-Level IPT

• Risk Management Coordination
70

the results are documented. In addition to the

PF and CF

 ratings for each critical risk area and

process, those risks that tend to “drive” the aggregate risk rating for the area/process should

be included in a list of aggregated risks to give

substance to the aggregated ratings, e.g., all

risks in which either PF or CF are rated as high.

Figure 5-14 provides a sample list of aggregated

risks.

Risk Matrix is a software tool that is designed to

aid in managing the identification, rating, and

prioritization of key risks that might affect a

project. It provides a structured method for

prioritizing project risks and for tracking the status and effects of risk-handling efforts. The major feature that Risk Matrix offers the program

office is a means to both rate and rank program

risks. This is helpful in differentiating among

risks that have the same rating. For example, if a

program has eight risks that the program office

has evaluated/rated as high, Risk Matrix provides

the means to rank them in order of severity. The

user can use this ranking as a guide to help focus risk-handling efforts. Risk Matrix was developed by the Air Force Electronic Systems

Center (ESC) and The Mitre Corporation and is

available to program offices at no cost. Another

useful software tool to use in voting on risks is

“Expert Choice”—based on the Analytical Hierarchy Process (AHP). Whatever software tool

is used, the analyst should recognize that a

number of inherent limitation exist with such software tools, (e.g., unintentionally biasing the voting process) that can lead to erroneous results.

5.6 RISK-HANDLING TECHNIQUES

5.6.1 General (e.g., Moderate and

High Risk-Rated Items)

After the program’s risks have been assessed,

the PM must develop approaches to handle

significant ones by analyzing various handling

techniques and selecting those best fitted to the

program’s circumstances. The PM should reflect

these approaches in the program’s acquisition

strategy and include the specifics on what is to

be done to deal with the risk, when it should be

accomplished, who is responsible, and the cost

and schedule impact.

As described in Chapter 2, there are essentially

four risk-handling techniques, or options. Risk

avoidance eliminates the sources of high risk and

replaces them with a lower-risk solution. Risk

transfer is the reallocation of risk from one part

of the system to another, or the reallocation of risks

between the Government and the prime contractor or within Government agencies. Risk control

manages the risk in a manner that reduces the probability/likelihood of its occurrence and/or minimizes and mitigates the risk’s effect on the program. Risk assumption is the acknowledgment

Figure 5-14. List of Aggregated Risks

Program XY Risk Status

Risk Area Status: Design PF: Hi CF: Hi

Significant Design Risks:

1. Risk Title: Aircraft Weight PF: Hi CF: Hi

Risk Event: Exceed aircraft weight budget by 10%. Decrease range-payload by 4%.

Action: Developing risk-handling plan. User reviewing requirements.

Risk Area Status: Logistics PF

: Hi CF: Mod/Hi

Significant Logistics Risks: etc.
71

of the existence of a particular risk situation and

a conscious decision to accept the associated level

of risk without engaging in any special efforts to

control it. There is a tendency on many programs

to select “control” as the risk-handling option

without seriously evaluating assumption, avoidance, and transfer. This is unwise, since control

may not be the best option, or even appropriate

option in some cases. An unbiased assessment

of risk-handling options should be performed to

determine the most appropriate option.

In determining the “best” overall risk-handling

strategy to be adopted, a structured approach

should be taken.

A structured approach for developing a riskhandling strategy has been described by Dr.

Edmund Conrow in his book Effective Risk

Management: Some Keys to Success. (See Reference.) A risk-handling strategy is composed

of the selected risk-handling option and the specific implementation activity. The risk-handling

option is first chosen, then the best implementation activity is picked for the selected option.

This avoids a common mistake —choosing the

implementation activity without first evaluating all four risk-handling (generic) options. In

cases where a relatively high risk exists, or

where the other circumstances dictate, one or

more backup risk-handling strategies may be

needed. In these cases, the selection process is

used again to choose the option and implementation activity. The backup strategy may have a

different option than used in the primary riskhandling strategy, and will certainly have a different implementation activity.

For each evaluated event risk, all potentially

applicable options or techniques should be

identified and evaluated, using the following

criteria:

• Feasibility – Feasibility is the ability to implement the handling technique/option and

includes an evaluation of the potential impact

of the technique/option in the following areas:

– Technical considerations, such as testing,

manufacturing, and maintainability,

caused by design changes resulting from

risk-handling techniques.

– Adequacy of budget and schedule

flexibility to apply the technique.

– Operational issues such as usability (manmachine interfaces), transportability, and

mobility.

– Organizational and resource considerations,

e.g., manpower, training, and structure.

– Environmental issues, such as the use of

hazardous materials to reduce technical

risk.

– External considerations beyond the immediate scope of the program, such as the

impact on other complementary systems

or organizations.

• Cost and schedule implications – The riskhandling techniques have a broad range of

cost implications in terms of dollars, as well

as other limited resources, e.g., critical materials and national test facilities. The magnitude of the cost and schedule implications

will depend on circumstances and can be assessed using such techniques as cost-benefit

analyses and the cost and schedule assessment techniques previously described. The

approval and funding of risk-handling techniques should be part of the trade-off process that establishes and refines the CAIV

cost and performance goals.

• Effect on the system’s technical performance – The risk-handling techniques may

affect the system’s capability to achieve the
72

required technical performance objectives.

This impact must be clearly understood before adopting a specific technique. As the riskhandling techniques are assessed, the PMO

should attempt to identify any additional parameters that may become critical to technical performance as a result of implementing

them. Trade studies and sensitivity analyses

can be useful in determining the expected effectiveness of this approach.

Once the risk-handling technique is selected, a

set of program management indicators should

be developed to provide feedback on program

progress, effectiveness of the risk-handling

options selected, and information necessary to

manage the program. These indicators should

consist of cost and scheduling data, technical performance measures, and program metrics.

Subsequent paragraphs in this section describe

the various risk-handling technique: Risk Control, Avoidance, Assumption, Transfer (CAAT).

5.6.2 Risk Control

5.6.2.1 Description. In this risk-handling

technique, the Government and contractor take

active steps to reduce the probability/likelihood

of a risk event occurring and to reduce the

potential impact on the program. The common

name for the control option is “mitigation.” Most

risk-control steps share two features: they require

a commitment of program resources, and they

may require additional time to accomplish them.

Thus, the selection of risk-control actions will

undoubtedly require some tradeoff between

resources and the expected benefit of the actions.

Some of the many risk-control actions include

the following:

Multiple Development Efforts – The use of

two or more independent design teams (usually

two separate contractors, although it could also

be done internally) to create competing systems

in parallel that meet the same performance

requirements.

Alternative Design – Sometimes, a design option

may include several risky approaches, of which

one or more must come to fruition to meet system

requirements. However, if the PMO studies the

risky approaches, it may be possible to discover a

lower-risk approach (with a lower performance

capability). These lower-risk approaches could be

used as backups for those cases where the primary approach(es) fail to mature in time. This option presumes there is some trading room among

requirements. Close coordination between the

developer and the user is necessary to implement

lower capability options.

Trade Studies – Systems engineering decision

analysis methods include trade studies to solve

a complex design problem. The purpose of the

trade studies is to integrate and balance all

engineering requirements in the design of a

system. A properly done trade study considers

risks associated with alternatives.

Early Prototyping – The nature of a risk can be

evaluated by a prototype of a system (or its critical elements) built and tested early in the system

development. The results of the prototype can be

factored into the design and manufacturing process requirements. In addition to full-up systems,

prototyping is very useful in software development and in determining a system’s man-machine

interface needs. The key to making prototyping

successful as a risk-control tool is to minimize the

addition of new requirements to the system after

the prototype has been tested (i.e., requirement

changes not derived from experience with the

prototype). Also, the temptation to use the prototype design and software without doing the necessary follow-on design and coding/manufacturing analyses should be avoided.

Incremental Development – Incremental

development is completion of the system
73

design and deployment in steps, relying on

pre-planned product improvements (P3I) or

software improvements after the system is deployed to achieve the final system capability.

Usually, these added capabilities are not included originally because of the high risk that

they will not be ready along with the remainder of the system. Hence, development is split,

with the high-risk portion given more time to

mature. The basic system, however, incorporates the provisions necessary to include the

add-on capabilities. Incremental development

of the initial system requirements are achieved

by the basic system.

Technology Maturation Efforts – Technology

maturation is an off-line development effort to

bring an element of technology to the necessary level so that it can be successfully incorporated into the system (usually done as part of

the technology transition process). Normally,

technology maturation is used when the desired

technology will replace an existing technology,

which is available for use in the system. In those

cases, technology maturation efforts are used

in conjunction with P3I efforts. However, it can

also be used when a critical, but immature, technology is needed. In addition to dedicated

efforts conducted by the PMO, Service or DoDwide technology improvement programs and

advanced technology demonstrations by

Government laboratories as well as industry

should be considered.

Robust Design – This approach uses advanced

design and manufacturing techniques that promote achieving quality through design. It normally results in products with little sensitivity to

variations in the manufacturing process.

Reviews, Walk Throughs, and Inspections –

These three risk control actions can be used to

reduce the probability/likelihood and potential

consequences/impacts of risks through timely assessments of actual or planned events in the

development of the product. They vary in the

degree of formality, level of participants, and

timing.

Reviews are formal sessions held to assess the

status of the program, the adequacy and sufficiency of completed events, and the intentions

and consistency of future events. Reviews are

usually held at the completion of a program

phase, when significant products are available.

The team conducting the review should have a

set of objectives and specific issues to be

addressed. The results should be documented

in the form of action items to be implemented

by the PMO or contractor. The type of review

will dictate the composition of the review team,

which may include developers, users, managers,

and outside experts.

A walk through is a technique that can be very

useful in assessing the progress in the development of high- or moderate-risk components,

especially software modules. It is less formal

than a review, but no less rigorous. The person

responsible for the development of the component “walks through,” the product development

(to include perceptions of what is to be done,

how it will be accomplished, and the schedule)

with a team of subject-matter experts. The team

reviews and evaluates the progress and plans

for developing the product and provides immediate and less formal feedback to the responsible

person, thus enabling improvements or corrective actions to be made while the product is still

under development. This technique is applied

during the development phases, as opposed to

reviews, which are normally held at the completion of a phase or product.

Inspections are conducted to evaluate the correctness of the product under development in

terms of its design, implementation, test plans,

and test results. They are more formal and rigorous than either reviews or walk throughs and

are conducted by a team of experts following a
74

very focused set of questions concerning all

aspects of the product.

Design of Experiments – This is an engineering tool that identifies critical design factors that

are difficult to meet.

Open Systems – This approach involves the use

of widely accepted commercial specifications

and standards for selected system interfaces,

products, practices, and tools. It provides the

basis for reduced life-cycle costs, improved performance, and enhanced interoperability,

especially for long-life systems with short-life

technologies. Properly selected and applied

commercial specifications and standards can

result in lower risk through increased design flexibility; reduced design time; more predictable performance; and easier product integration, support, and upgrade. However, a number of challenges and risks are associated with the use of

the open systems approach and must be considered before implementation. These include such

issues as: maturity and acceptability of the standard, and its adequacy for military use; the loss

of control over the development of products used

in the system; the amount of product testing done

to ensure conformance to standards; and the

higher configuration management workload required.

See the Defense Acquisition Deskbook for information on the use of open systems. (Additional information is also available at the Open

Systems Joint Task Force Website at http://

www.acq.osd.mil/osjtf/.)

Use of Standard Items/Software Module

Reuse – The use of standard items and software

module reuse should be emphasized to the extent possible to minimize development risk. Standard items range from components and assemblies to full-up systems. A careful examination

of the proposed system option will often find

more opportunities for the use of standard items

or existing software modules than first considered. Even when the system must achieve previously unprecedented requirements, standard

items can find uses. A strong program policy emphasizing the use of standard items and software

reuse is often the key to taking advantage of this

source of risk control. Standard items and software modules have proven characteristics that

can reduce risk. However, the PMO must be cautious when using standard items in environments and applications for which they were not

designed. A misapplied standard item often leads

to problems and failure. Similarly, if the cycle

for a fielded product extends for many years, it

is possible that key software tools and products

will become obsolete or will no longer be

supported. If this occurs, costly redesign may

result if software re-development is necessary.

Two-Phase Development – This risk control

approach incorporates a formal risk-reduction

effort in the initial part of the SDD phase. It

may involve using two or more contractors

with a down-select occurring at a predefined

time (normally after the preliminary design review). A logical extension of this concept is the

“spiral” development model, which emphasizes

the evaluation of alternatives and risk assessments throughout the system’s development and

initial fielding.

Use of Mockups – The use of mockups, especially man-machine interface mock-ups, can be

used to conduct early exploration of design

options. They can assist in resolving design

uncertainties and providing users with early

views of the final system configuration.

Modeling/Simulation – The use of modeling

and simulation can provide insights into a

system’s performance and effectiveness sensitivities. Decision makers can use performance

predictions to assess a system’s military worth

not only before any physical prototypes are

built, but also throughout the system life cycle.
75

Modeling and simulation can help manage risk

by providing information on design capabilities

and failure modes during the early stages of design. This allows initial design concepts to be

iterated without having to build hardware for

testing. The T&E community can use predictive

simulations to focus the use of valuable test assets on critical test issues. They can also use extrapolated simulations to expand the scope of

evaluation into areas not readily testable, thus

reducing the risk of having the system fail in the

outer edges of the “test envelope.” Additionally,

a model can serve as a framework to bridge the

missing pieces of a complete system until those

pieces become available.

Although modeling and simulation can be a very

effective risk-handling tool, it requires resources,

commitment to refine models as the system under development matures, and a concerted verification and validation effort to ensure that decisions are based on credible information.

Key Parameter Control Boards – When a

particular parameter (such as system weight)

is crucial to achieving the overall program requirements, a control board for that parameter

may be appropriate. This board has representatives from all affected technical functions

and may be chaired by the PM. It provides

management focus on the parameter and signals the importance of achieving the parameter to the technical community. If staffed

properly by all affected disciplines, it can also

help avoid sacrificing other program requirements to achieve that requirement.

Manufacturing Screening – For programs in

late SDD and early production and deployment,

various manufacturing screens (including environmental stress screening (ESS)) can be incorporated into test article production and low-rate

initial production to identify deficient manufacturing processes. ESS is a manufacturing process for stimulating parts and workmanship defects in electronic assemblies and units. These

data can then be used to develop the appropriate

corrective actions.

Test, Analyze, and Fix (TAAF) – TAAF is the

use of a period of dedicated testing to identify

and correct deficiencies in a design. It was originally conceived as an approach to improve

reliability; it can also be used for any system

parameter whose development could benefit

from a dedicated period of testing and analysis.

Although a valuable aid in the development

process, TAAF should not be used in lieu of a

sound design process.

Demonstration Events – Demonstration events

are points in the program (usually tests) that are

used to determine if risks are being successfully

abated. Careful review of the planned

development of each risk area will reveal a number of opportunities to verify the effectiveness

of the development approach. By including a

sequence of demonstration events throughout

the development, PMO and contractor personnel can monitor the process and identify when

additional efforts are needed. Demonstration

events can also be used as information-gathering actions, as discussed before, and as part of

the risk-monitoring process. Table 5-2 contains

examples of demonstration events.

Process Proofing – When particular processes,

especially those of manufacturing and support,

are critical to achieving system requirements, an

early process proof demonstration is useful to

abate risk. If the initial proof is unsuccessful, time

is still available to identify and correct deficiencies or to select an alternative approach.

No single technique or tool is capable of providing a complete answer—a combination must be

used. In general, risk-monitoring techniques are

applied to follow through on the planned actions

of the risk-handling program. They track and

evaluate the effectiveness of handling activities
76

by comparing planned actions with what is actually achieved. These comparisons may be as

straightforward as actual versus planned completion dates, or as complex as detailed analysis of

observed data versus planned profiles. In any case,

the differences between planned and actual data

are examined to determine status and the need for

any changes in the risk-handling approach.

PMO personnel should also ensure that the indicators/metrics selected to monitor program

status adequately portray the true state of the

risk events and handling actions. Otherwise,

indicators of risks that are about to become problems will go undetected. Subsequent sections

identify specific techniques and tools that will

be useful to PMOs in monitoring risks and provide information on selecting metrics that are

essential to the monitoring effort. The techniques

focus primarily at the program level, addressing

cost, schedule, and performance risks.

5.6.2.2 Procedures. Risk control involves

developing a risk-reduction plan, with actions

identified, resourced, and scheduled. Success criteria for each of the risk-reduction events should

also be identified. The effectiveness of these

actions must be monitored using the types of

techniques described in Section 5.7.

5.6.3 Risk Avoidance

5.6.3.1 Description. This technique reduces

risk through the modification or elimination of

those operational requirements, processes or

activities that cause the risks. Eliminating operational requirements requires close coordination

with the users. Since this technique results in the

reduction of risk, it should generally be initiated

in the development of a risk-handling plan. It

can be done in parallel with the initial operational requirements analysis and should be supported by a cost-benefit analysis.

5.6.3.2 Procedures. Analyzing and reviewing

the proposed system in detail with the user is

essential to determine the drivers for each operational requirement. Operational requirements

scrubbing involves eliminating those that have

no strong basis. This also provides the PMO and

the user with an understanding of what the real

needs are and allows them to establish accurate

system requirements for the critical performance.

Operational requirements scrubbing essentially

Table 5-2. Examples of Demonstration Events

Three Case Burst Tests

Propellant Characterization

Thermal Barrier Bond Tests

Ignition and Safe/Arm Tests

Nozzle Assembly Tests

10 Development Motor Firings

— Temperature and Altitude Cycle

— Vibration and Shock

— Aging

Test Breadboard

Develop/Test Unique Microcircuits

Build/Test Prototype

Item Demonstration Event Completion Date

Rocket Motor

Central

Computer

By completion of preliminary design

By completion of final design

By completion of preliminary design

By completion of final design
77

consists of developing answers to the following

questions:

• Why is the requirement needed?

• What will the requirement provide?

• How will the capability be used?

• Are the requirements specified in terms of

functions and capabilities, rather than a

specific design?

Cost/requirement trade studies are used to

support operational requirements scrubbing.

These trades examine each requirement and

determine the cost to achieve various levels of

the requirement (e.g., different airspeeds, range,

payloads). The results are then used to determine,

with the user, whether a particular requirement

level is worth the cost of achieving that level.

Trade studies are an inherent part of the systems

engineering process. (See Deskbook 2.6.1 for

details on systems engineering process.)

5.6.4 Risk Assumption

5.6.4.1 Description. This technique is used in

every program and acknowledges the fact that,

in any program, risks exist that will have to be

accepted without any special effort to control

them. Such risks may be either inherent in the

program or may result from other risk-controlling actions (residual risks). The fact that risks

are assumed does not mean that they are

ignored. In fact, every effort should be made to

identify and understand them so that appropriate management action can be planned. Also,

risks that are assumed should be monitored during development; this monitoring should be wellplanned from the beginning.

5.6.4.2 Procedures. In addition to the identification of risks to be assumed, the following steps

are key to successful risk assumption:

• Identify the resources (time, money, people,

etc.) needed to overcome a risk if it materializes. This includes identifying the specific

management actions that will be used, for

example, redesign, retesting, requirements

review, etc.

• Whenever a risk is assumed, a schedule and

cost risk reserve should be set aside to cover

the specific actions to be taken if the risk

occurs. If this is not possible, the program

may proceed within the funds and schedule

allotted to the effort. If the program cannot

achieve its objectives, a decision must be made

to allocate additional resources, accept a

lower level of capability (lower the

requirements), or cancel the effort.

• Ensure that the necessary administrative actions

are taken to quickly report on the risk event

and implement these management actions, such

as contracts for industry expert consultants, arrangements for test facilities, etc., and report

on occurrences of the risk event.

5.6.5 Risk Transfer

5.6.5.1 Description. This technique involves the

reduction of risk exposure by the reallocation of

risk from one part of the system to another or the

reallocation of risks between the Government

and the prime contractor, or between the prime

contractor and its sub-contractor.

5.6.5.2 Procedures. In reallocating risk, design

requirements that are risk drivers are transferred

to other system elements, which may result in

lower system risk but still meet system requirements. For example, a high risk caused by a system timing requirement may be lowered by transferring that requirement from a software module

to a specially designed hardware module capable

of meeting those needs. The effectiveness of requirements reallocation depends on good system engineering and design techniques. In fact,
78

efficient allocation of those requirements that are

risk drivers is an integral part of the systems engineering process. Modularity and functional partitioning are two design techniques that can be

used to support this type of risk transfer. In some

cases, this approach may be used to concentrate

risk areas in one area of the system design. This

allows management to focus attention and resources on that area.

For the Government/contractor risk-transfer

approach to be effective, the risks transferred to

the contractor must be those that the contractor

has the capacity to control and manage. These

are generally risks associated with technologies

and processes used in the program —those for

which the contractor can implement proactive

solutions. The types of risks that are best managed by the Government include those related

to the stability of and external influences on program requirements, funding, and schedule, for

example. The contractor can support the management of these risks through the development

of flexible program plans, and the incorporation

of performance margins in the system and flexibility in the schedule. A number of options are

available to implement risk transfer from the

Government to the contractor: warranties, cost

incentives, product performance incentives, and

various types of fixed price contracts. A similar

assessment of prime contractor versus sub-contractor allocation of risks can also be developed

and used to guide risk transfer between these

parties.

5.7 RISK MONITORING

5.7.1 General

Risk monitoring is a continuous process to

systematically track and evaluate the performance of risk-handling actions against established metrics throughout the acquisition process.

It should also include results of periodic reassessments of program risk to evaluate both

known and new risks to the program. If necessary, the PMO should reexamine the risk-handling approaches for effectiveness while conducting assessments. As the program progresses,

the monitoring process will identify the need for

additional risk-handling options.

An effective monitoring effort provides information to show if handling actions are not

working and which risks are on their way to becoming actual problems. The information should

be available in sufficient time for the PMO to

take corrective action. The functioning of IPTs

is crucial to effective risk monitoring. They are

the “front line” for obtaining indications that handling efforts are achieving their desired effects.

The establishment of a management indicator

system that provides accurate, timely, and

relevant risk information in a clear, easily

understood manner is key to risk monitoring.

Early in the planning phase of the process, PMOs

should identify specific indicators to be

monitored and information to be collected, compiled, and reported. Usually, documentation and

reporting procedures are developed as part of

risk management planning before contract award

and should use the contractor’s reporting system. Specific procedures and details for risk reporting should be included in the risk management plans prepared by the Government and the

contractor.

To ensure that significant risks are effectively

monitored, handling actions (which include specific events, schedules, and “success” criteria)

developed during previous risk management

phases should be reflected in integrated program

planning and scheduling. Identifying these handling actions and events in the context of WBS

elements establishes a linkage between them and

specific work packages, making it easier to determine the impact of actions on cost, schedule,

and performance. The detailed information on

risk-handling actions and events should be
79

contained in various risk management documentation (both formal and informal). Experience has

shown that the use of an electronic on-line database that stores and permits retrieval of risk-related information is almost essential to effective

risk monitoring. The database selected or developed will depend on the program. A discussion

of risk management information systems and

databases and suggested data elements to be included in the databases is contained later in this

chapter.

5.7.2 Earned Value Management

5.7.2.1 Description. Earned value (EV) is a

management technique that relates resource planning to schedules and to technical performance

requirements. It is useful in monitoring the effectiveness of risk-handling actions in that it provides periodic comparisons of the actual work

accomplished in terms of cost and schedule with

the work planned and budgeted. These comparisons are made using a performance baseline that

is established by the contractor and the PM at

the beginning of the contract period. This is accomplished through the Integrated Baseline Review (IBR) process. The baseline must capture

the entire technical scope of the program in detailed work packages. The baseline also includes

the schedule to meet the requirements as well as

the resources to be applied to each work package. Specific risk-handling actions should be included in these packages. See Defense Acquisition Deskbook Section 2.B.2.1 for a more detailed discussion of Earned Value and the IBR.

5.7.2.2 Procedures. The periodic EV data can

provide indications of risk and the effectiveness

of handling actions. When variances in cost or

schedule begin to appear in work packages

containing risk-handling actions, or in any work

package, the appropriate IPTs can analyze the

data to isolate causes of the variances and gain

insights into the need to modify or create

handling actions.

5.7.3 Technical Performance

Measurement

5.7.3.1 Description. Technical performance

measurement (TPM) is a technique that compares estimated values of key performance

parameters with achieved values, and determines

the impact of any differences on system effectiveness. This technique can be useful in risk

monitoring by comparing planned and achieved

values of parameters in areas of known risk. The

periodic application of this technique can provide early and continuing predictions of the effectiveness of risk-handling actions or the detection of new risks before irrevocable impacts

on the cost or schedule occur.

5.7.3.2 Procedures. The technical performance

parameters selected should be those that are indicators of progress in the risk-handling action

employed. They can be related to system hardware, software, human factors, and logistics—

any product or functional area of the system. Parameter values to be achieved through the

planned handling action are forecast in the form

of planned performance profiles. Achieved values for these parameters are compared with the

expected values from the profile, and any differences are analyzed to get an indication of the

effectiveness of the handling action. For example, suppose a system requires the use of a

specific technology that is not yet mature and

the use of which has been assessed as high risk.

The handling technique selected is risk control,

and an off-line technology maturation effort will

be used to get the technology to the level where

the risk is acceptable. The technology is analyzed to identify those parameters that are key

drivers, and performance profiles that will result

from a sufficiently mature technology are established. As the maturation effort progresses, the

achieved values of these parameters are compared with the planned profile. If the achieved

values meet the planned profile, it is an indicator

that the risk-handling approach is progressing
80

satisfactorily; if the achieved values fall short of

the expected values, it is an indicator that the

approach is failing to meet expectations and corrective action may be warranted.

5.7.4 Integrated Planning and Scheduling

5.7.4.1 Description. Once a contract has been

awarded, techniques such as integrated planning

and scheduling (integrated master plans (IMP)

and integrated master schedules (IMS)) can become invaluable program baseline and riskmonitoring tools. Integrated planning identifies

key events, milestones, reviews, all integrated

technical tasks, and risk-reduction actions for the

program, along with accomplishment criteria to

provide a definitive measure that the required

maturity or progress has been achieved. Integrated scheduling describes the detailed tasks

that support the significant activities identified

in integrated planning and timing of tasks. Also,

the integrated schedule can include the resources

planned to complete the tasks. The events, tasks,

and schedule resulting from integrated planning

are linked with contract specification requirements, WBS, and other techniques such as TPM.

When the events and tasks are related to riskreduction actions, this linkage provides a significant monitoring tool, giving specific insights into

the relationships among cost, schedule, and performance risks.

5.7.4.2 Procedures. In integrated planning, the

Government and contractor (or other performing activity) should identify key activities of the

program, to include risk-handling actions and

success criteria. The contractor should then

prepare the integrated schedule reflecting the

planned completion of tasks associated with these

activities. As the program progresses, the PMO

can monitor effectiveness of handling activities

included in the integrated planning events and

schedule by comparing observed activity results

with their criteria and determining any deviations from the planned schedule. Any failures of

handling actions to meet either the event criteria

or schedule should be analyzed to determine the

deviation’s impact, causes, and need for any

modifications to the risk-handling approach.

5.7.5 Watch List

5.7.5.1 Description. The watch list is a listing

of critical areas which management should pay

special attention to during program execution. It

is a straightforward, easily prepared document

that is derived from a prioritized list of risks. It

may include such things as the priority of the

risk, how long it has been on the watch list, handling actions, planned and actual completion

dates for handling actions, and explanations for

any differences. See Table 5-3 for an example

watch list.

5.7.5.2 Procedures. Watch list development is

based on the results of the risk assessment. It is

common to keep the number of risks on the watch

list relatively small, focusing on those that can

have the greatest impact on the program. Items

can be added as the program unfolds and periodic reassessments are conducted. If a considerable number of new risks are significant enough

to be added to the watch list, it may be an indicator that the original assessment was not accurate and that program risk is greater than initially

thought. It may also indicate that the program is

on the verge of becoming out of control. If a risk

has been on the watch list for a long time because of a lack of risk-handling progress, a reassessment of the risk or the handling approach

may be necessary. Items on the watch list should

be reviewed during the various program reviews/

meetings, both formal and informal.

5.7.6 Reports

5.7.6.1 Description. Reports are used to convey information to decision makers and program

team members on the status of risks and the effectiveness of risk-handling actions. Risk-related
81

reports can be presented in a variety of ways,

ranging from informal verbal reports when time

is of the essence to formal summary-type reports

presented at milestone reviews. The level of detail presented will depend on the audience.

5.7.6.2 Procedures. Successful risk management programs include timely reporting of results

of the monitoring process. Reporting

requirements and procedures, to include format

and frequency, are normally developed as part

of risk management planning and are documented in the risk management plan. Reports

are normally prepared and presented as part of

routine program management activities. They can

be effectively incorporated into program management reviews and technical milestones to indicate any technical, schedule, and cost barriers

to the program objectives and milestones being

met. One example of a status presentation is

shown in Figure 5-15. It shows some top-level

risk information that can be useful to the PMO

as well as others external to the program.

Although this level of reporting can provide

quick review of overall risk status for identified

problems, more detailed risk planning and status can be provided on individual risk items. For

example, some program IPTs have combined risk

level and scheduled activities to provide a graphical overview of risk status for either internal or

external review. One method for graphically

showing risk status for an individual item is

shown in Figure 5-16.

Table 5-3. Watch List Example

Potential Risk Area Risk Reduction Actions Action Code

• Accurately

predicting shock

environment

shipboard

equipment will

experience.

• Evaluating

acoustic impact

of the ship

systems that are

not similar to

previous designs.

31 Aug 01

31 Aug 02

31 Aug 01

31 Aug 02

Due Date Date Completed Explanation

• Use multiple finite

element codes &

simplified numerical

models for early

assessments.

• Shock test simple

isolated deck, and

proposed isolated

structure to improve

confidence in

predictions.

• Concentrate on

acoustic modeling

and scale testing of

technologies not

demonstrated

successfully in largescale tests or fullscale tests.

• Factor acoustic

signature mitigation

from isolated modular

decks into system

requirements.

Continue model tests

to validate predictions

for isolated decks.

SEA 03P31

SEA 03P31

SEA 03TC

SEA 03TC
82

5.7.7 Management Indicator System

5.7.7.1 Description. A management indicator

system is a set of indicators or metrics that provide the PMO with timely information on the

status of the program and risk-handling actions,

and is essential to risk monitoring and program

success. To be meaningful, these metrics should

have some objective value against which observed data can be measured, reflecting trends

in the program or lack thereof. Metrics should

be developed jointly by the PMO and the contractor. The contractor’s approach to metrics

should be a consideration in the proposal evaluation process. If the contractor does not have an

established set of metrics, this may be an area of

risk that will need to be addressed.

5.7.7.2 Procedures. Metrics can be categorized

as relating to technical performance, cost, and

schedule. Technical performance metrics can be

further broken down into categories such as engineering, production, and support, and within

these groups as either product- or process-related.

Product-related metrics pertain to characteristics

of the system being developed; they can include

such things as planned and demonstrated values

of the critical parameters monitored as part of

the TPM process and system-unique data pertaining to the different steps in the development

and acquisition processes. Table 5-4 provides examples of product-related metrics.

Process metrics pertain to the various processes

used in the development and production of the

system. For each program, certain processes are

critical to the achievement of program objectives.

Failure of these processes to achieve their requirements is symptomatic of significant problems. Metrics data can be used to diagnose and

aid in problem resolution. They should be used

in formal, periodic performance assessments of

Figure 5-15. Example Showing Detailed List of Top-Level Risk Information

Risk Management Status

Risk Issue High Moderate Low Status/Comment

Risk

Plan #

98-12-9

98-12-10

98-12-11

98-12-12

98-12-13

98-12-14

98-12-15

98-12-51

98-12-16

Non-stock Listed Spares

Engineering Updates

Spares & Support

Long Lead Requisitions

T.O. Validation

Lack of LSA Records for

GFE*

Program Parts Obsolescence

Design Maturity

System Y Interface Definition

Closed

Closed

Closed

Closed

Data still in review; need to

assign part numbers.

Data reviewed; updates not

required at this time.

Spares listing approved in

definitization conference. No

current abatement plan.

Closed Issue.

Contractor LSA plan

submitted for approval;

rescheduled for 5/95.

Analysis in work, identifying

last opportunity buys.

Studying Commercial Mix

Interface.

Questions about antenna

location and cable raised risk.

(* Detail of highlighted item described in Figure 5-16.)
83

Figure 5-16. Example of More Complex Combination of Risk Level and Scheduled Tasks

- Action Open

Lack of Support Records for GFE

97 1998

DJ F M A M J J A SO N D

DJ F M A M J J A SO N D

97 1998

LOW

HIGH

MODERATE

CLOSE ISSUE

NOTE: PLAN WILL BE APPROVED EARLY

2. CONTRACTOR SUBMITS PLAN TO PMO FOR APPROVAL.

1. PMO PREVIOUSLY AUTHORIZED CONTRACTOR TO USE “SIMILAR TO”

DATA WHEN GFE SUPPORT DATA IS UNAVAILABLE. DOCUMENTED IN

PLAN UNDER DEVELOPMENT.

4. PLAN APPROVED

3. PMO REVIEWING PLAN

- Action Completed

Table 5-4. Examples of Product-Related Metrics

• Key Design

Parameters

– Weight

– Size

– Endurance

– Range

• Design Maturity

– Open problems

reports

– Number of

engineering change

proposals

– Number of drawings

released

– Failure activities

• Computer Resource

Utilization

Engineering Requirements Support Production

• Requirements

Traceability

• Requirements Stability

• Manufacturing Yields

• Incoming Material

Yields

• Delinquent

Requisitions

• Unit Production Cost

• Process Proofing

• Special Tools and Test

Equipment

• Support Infrastructure

Footprint

• Manpower Estimates
84

the various development processes and to evaluate how well the system development process is

achieving its objectives. DoD 4245.7M, Transition from Development to Production, and

other supporting documents such as NAVSO P6071, Best Practices, identify seven process areas: funding, design, test, production, facilities,

logistics, and management. Within each of these

areas, a number of specific processes are identified as essential to assess, monitor, and establish

program risk at an acceptable level; the documents also provide risk indicators that can be

used as the basis for selecting specific process

metrics. Another document, Methods and

Metrics for Product Success, July 1994, published by the Office of the Assistant Secretary

of the Navy (RD&A), Product Integrity Directorate, provides a set of metrics for use in

assessing and monitoring the design, test, and

production risk areas. Table 5-5 provides examples of process-related metrics.

Cost and schedule metrics can be used to depict

how the program is progressing toward completion. The information provided by the contractor in the earned value management system can

Table 5-5. Examples of Process Metrics

• Development

of requirements

traceability

plan

• Development

of specification tree

• Specifications

reviewed for:

– Definition of

all use

environments

– Definition of

all functional

requirements for

each

mission

performed

Integrated Test

Plan

Design

Process

Failure

Reporting

System

Trade

Studies

Design

Requirements

• Users needs

prioritized

• Alternative

system

configurations selected

• Test methods

selected

• Design

requirements

stability

• Producibility

analysis

conducted

• Design

analyzed for:

– Cost

– Parts

reduction

– Manufacturability

– Testability

• All developmental tests

at system

and subsystem level

identified

• Identification

of who will to

test (Government,

contractor,

supplier)

• Contractor

corporatelevel management involved

in failure

reporting and

corrective

action

process

• Responsibility

for analysis

and corrective

action

assigned to

specific

individual with

close-out date

Manufacturing

Plan

• Plan documents

methods by

which design

to be built

• Plan contains

sequence and

schedule of

events at

contractor

and subcontractor

levels that

defines use

of materials,

fabrication

flow, test

equipment,

tools, facilities, and

personnel

• Reflects

manufacturing inclusion

in design

process.

Includes

identification

and assessment of

design

facilities
85

serve as these metrics, showing how the actual

work accomplished compares with the work

planned in terms of schedule and cost. Other

sources of cost and schedule metrics include the

contractor’s cost accounting information and the

integrated master schedule. Table 5-6 provides

examples of cost and schedule metrics.

5.8 RISK MANAGEMENT

INFORMATION SYSTEMS

AND DOCUMENTATION

5.8.1 Description

To manage risk, PMs should have a database

management system that stores and allows

retrieval of risk-related data. The riskmanagement information system provides data

for creating reports and serves as the repository

for all current and historical information related

to risk. This information may include risk assessment documents, contract deliverables, if

appropriate, and any other risk-related reports.

The PM should consider a number of factors in

establishing the management information system

and developing rules and procedures for the reporting system:

• Assign management responsibility for the reporting system;

• Publish any restrictions for entering data into

the database;

• Identify reports and establish a schedule, if

appropriate;

• Use standard report formats as much as

possible;

• Ensure that the standard report formats

support all users, such as the PM, IPTs, and

IIPTs;

• Establish policy concerning access to the reporting system and protect the database from

unauthorized access.

With a well-structured information system, a

PMO may create reports for senior management

and retrieve data for day-to-day program

management. Most likely, the PM will choose a

set of standard reports that suits specific needs

on a periodic basis. This eases definition of the

contents and structure of the database. In addition to standard reports, the PMO will need to

create ad hoc reports in response to special queries, etc. Commercial database programs now

available allow the PMO to create reports with

relative ease. Figure 5-17 shows a concept for a

management and reporting system.

5.8.2 Risk Management Reports

The following are examples of basic reports that

a PMO may use to manage its risk program. Each

office should tailor and amplify them, if necessary, to meet specific needs.

Risk Information Form (RIF). The PMO

needs a document that serves the dual purpose

of a source of data entry information and a report of basic information for the IPTs. The RIF

Cost variance

Cost performance index

Estimate at completion

Management reserve

Cost Schedule

Schedule variance

Schedule performance index

Design schedule performance

Manufacturing schedule performance

Test schedule performance

Table 5-6. Examples of Cost and Schedule Metrics
86

serves this purpose. It gives members of the

project team, both Government and contractors,

a format for reporting risk-related information.

The RIF should be used when a potential risk

event is identified and updated over time as information becomes available and the status

changes. As a source of data entry, the RIF allows

the database administrator to control entries. To

construct the database and ensure the integrity

of data, the PMO should design a standard format for a RIF.

Risk Assessment Report (RAR). Risk assessments form the basis for many program decisions, and the PM will probably need a detailed

report of any assessment of a risk event. A RAR

is prepared by the team that assessed a risk event

and amplifies the information in the RIF. It documents the identification and analysis process and

results. The RAR provides information for the

summary contained in the RIF, is the basis for

developing risk-handling plans, and serves as a

historical recording of program risk assessment.

Since RARs may be large documents, they may

be stored as files. RARs should include

information that links it to the appropriate RIF.

Risk-Handling Documentation. Risk-handling

documentation may be used to provide the PM

with the information he needs to choose the preferred handling option and is the basis for the

handling plan summary that is contained in the

RIF. This document describes the examination

process for the risk-handling options and gives

the basis for the selection of the recommended

choice. After the PM chooses an option, the

rationale for that choice may be included. There

should be a plan for each risk-handling task.

Risk-handling plans are based on results of the

risk assessment. This document should include

information that links it to the appropriate RIF.

Risk Monitoring Documentation. The PM

needs a summary document that tracks the status

of high and moderate risks. He can produce a

risk-tracking list, for example, that uses information that has been entered from the RIF. Each

PMO should tailor the tracking list to suit its

needs. If elements of needed information are not

included in the RIF, they should be added to that

document to ensure entry into the database.

Database Management System (DBMS). The

DBMS that the PM chooses may be commercial,

Government-owned, or contractor-developed.

It should provide the means to enter and access

data, control access, and create reports. Many

options are available to users.

Figure 5-17. Conceptual Risk Management and Reporting System

Risk Management Concept

Request or

Create Report

Submit Data

For Entry

Request Reports or Information

(Controlled Access)

Standard

Reports

Ad Hoc

Reports

Historical

Data

Data Base

Management

System

Risk

Coordinator

IPTs

Functional

Contractor

Other
87

Key to the MIS are the data elements that reside

in the database. The items listed in Table 5-7 are

examples of risk information that might be included in a database that supports risk management. They are a compilation of several risk reporting forms used in current DoD programs and

other risk document sources. “Element” is the

title of the database field; “Description” is a summary of the field contents. PMs should tailor the

list to suit their needs.

5.9 SOFTWARE RISK MANAGEMENT

METHODOLOGIES

The management of risk in software intensive

programs is essentially the same as for any other

type of program. A number of methodologies

specifically focus on the software aspects of

developmental programs and can be useful in

identifying and analyzing risks associated with

software. Several of these methodologies are

described in the U.S. Air Force publication,

Guide to Software Acquisition and Management.

Three of these methodologies are described below.

5.9.1 Software Risk Evaluation (SRE)

This is a formal approach developed by the Software Engineering Institute (SEI) using a risk

management paradigm that defines a continuous set of activities to identify, communicate,

and resolve software risks. These activities are

to identify, analyze, plan, track, and control.

(The SEI activities are analogous to the activities of the risk management process defined in

this section.)

This methodology is initiated by the PM, who tasks

an independent SRE team to conduct a risk evaluation of the contractor’s software development effort. The team executes the following SRE

functions in performing this evaluation, and prepares findings that will provide the PM with the

results of the evaluation:

• Detection of the software technical risks

present in the program. An SEI TaxonomyBased Questionnaire is used to ensure that

all areas of potential risk are identified. This

questionnaire is based on the SEI Software

Development Risk Taxonomy, which provides a systematic way of organizing and eliciting risks within a logical framework.

• Specification of all aspects of identified technical software risks, including their

conditions, consequences/impacts, and

source.

• Assessment of the risks to determine the probability of risk occurrence and the severity of

its consequences/impacts.

• Consolidation of the risk data into a concise

format suitable for decision making.

A detailed discussion of the SRE methodology

is found in Software Engineering Institute Technical Report CMU/SEI-94-TR-19, Software Risk

Evaluation Model, Version 1.0, December 1994.

5.9.2 Boehm’s Software Risk

Management Method

This risk management methodology, developed

by Barry W. Boehm and described in IEEE Software, Software Risk Management: Principles

and Practices, January 1991, consists of two

primary steps, each with three subordinate steps.

This risk management structure is shown in Table

5-8.

Boehm provides a number of techniques that can

be used to accomplish each of the steps in the

methodology. For example, to assist in risk

identification, he includes the top 10 top-level

software risks, based on surveys of experienced

software project managers. These risks are

shown in Table 5-9, along with recommended

techniques to manage them. Using this list as a
88

Table 5-7. Database Management System Elements

Element Description

Risk Identification

(ID) Number

Risk Event

Priority

Data Submitted

Major System/

Component

Subsystem/

Functional Area

Category

Statement of Risk

Description of

Risk

Key

Parameters

Assessment

Analyses

Probability of

Occurrence

Consequence

Time Sensitivity

Other Affected

Areas

Risk Handling

Plans

Risk Monitoring

Activity

Status

Status Due Date

Assignment

Reported By

Identifies the risk and is a critical element of information, assuming that a

relational database will be used by the PMO. (Construct the ID number to

identify the organization responsible for oversight.)

States the risk event and identifies it with a descriptive name. The statement

and risk identification number will always be associated in any report.

Reflects the importance of this risk priority assigned by the PMO compared to

all other risks, e.g., a one (1) indicates the highest priority.

Gives the date that the RIF was submitted.

Identifies the major system/component based on the WBS.

Identifies the pertinent subsystem or component based on the WBS.

Identifies the risk as technical/performance cost or schedule or combination of

these.

Gives a concise statement (one or two sentences) or the risk.

Briefly describes the risk. Lists the key processes that are involved in the

design, development, and production of the particular system or subsystem. If

technical/performance, includes how it is manifested (e.g., design and

engineering, manufacturing, etc.).

Identifies the key parameter, minimum acceptable value, and goal value, if

appropriate. Identifies associated subsystem values required to meet the

minimum acceptable value and describes the principal events planned to

demonstrate that the minimum value has been met.

States if an assessment has been done. Cites the Risk Assessment Report, if

appropriate.

Briefly describes the analysis done to assess the risk. Includes rationale and

basis for results.

States the likelihood of the event occurring, based on definitions in the

program’s Risk Management Plan.

States the consequence of the event, if it occurs, based on definitions in the

program’s Risk Management Plan.

Estimates the relative urgency for implementing the risk-handling option.

If appropriate, identifies any other subsystem or process that this risk affects.

Briefly describes plans to mitigate the risk. Refers to any detailed plans that

may exist, if appropriate.

Measures using metrics for tracking progress in implementing risk-handling

plans and achieving planned results for risk reduction.

Briefly reports the status of the risk-handling activities and outcomes relevant

to any risk handling milestones.

Lists date of the status report.

Lists individual assigned responsibility for handling activities.

Records name and phone number of individual who reported the risk.
89

Table 5-8. Software Risk Management Steps

Description

• Produces lists of project specific risk

events

• Assesses probability of risk event and

consequences

• Assesses compound risk resulting from

risk event interaction

• Produces rank-ordered list of identified

and analyzed risk events

• Produces plan for addressing each risk

event

• Integrates individual risk event plans

with each other and the overall plan

• Establishes the environment and

actions to resolve or eliminate risks

• Tracks progress in resolving risks

• Provides feedback for refining

prioritization and plans

Secondary Steps

Risk Identification

Risk Analysis

Risk Prioritization

Risk Management Planning

Risk Resolution

Risk Monitoring

Risk Assessment

Risk Control

Primary Steps

Staffing with top talent; job matching team building; key personnel

agreements; cross training

Detailed multisource cost and schedule estimation; design-to-cost;

incremental development; software reuse; requirements scrubbing

Organizational analysis; mission analysis; operations concept

formulation; user surveys; prototyping; early users’ manuals

Task analysis; prototyping; scenarios; user characterization

(functionality, style, workload)

Requirements scrubbing; prototyping; cost/benefit analysis;

design-to-cost

High change threshold; information hiding; incremental

development (defer changes to later increments)

Benchmarking; inspections; reference checking; compatibility

analysis

Reference checking; pre-award audits; award-fee contracts;

competitive design or prototyping; team building

Simulation; benchmarking; modeling; prototyping; instrumentation;

tuning

Technical analysis; cost-benefit analysis; prototyping; reference

checking

Personnel Shortfalls

Unrealistic schedules and

budgets

Developing the wrong software

functions

Developing wrong user interface

Goldplating

Continuing stream of

requirements changes

Shortfalls in externally furnished

components

Shortfalls in internally performed

tasks

Real-time performance shortfalls

Straining computer science

capabilities

Risk Risk Management Techniques

Table 5-9. Top 10 Software Risks
90

starting point, managers and engineers can then

develop lists of lower-level risks to be assessed

and resolved.

5.9.3 Best Practices Initiative

Risk Management Method

The Software Acquisition Best Practices Initiative was instituted in 1994 to improve and restructure the software acquisition management

process through the identification of effective

practices used in successful software developments. One result of this effort was the publication of the Program Manager’s Guide to Software Acquisition Best Practices by the Software

Program Managers Network (SPMN). This

document identified nine principal best practices

that are essential to the success of any large-scale

software development. The first of these nine is

formal risk management. To assist in implementing this top practice, SPMN developed a threepart methodology consisting of the following

steps: address the problem; practice essentials;

and check status. Specific activities associated

with these steps are shown in Table 5-10.

SPMN provides PMOs with specialized training programs covering the core disciplines and

techniques for implementing this formal risk

management practice, as well as the other best

practices. SPMN also has available (or under

development) a number of guidebooks designed

to provide software developers and PMs with

practical guidance for planning, implementing,

Best Practices Initiative Risk Management Method

Address the

Problem

• Recognize that all

software has risk

• Attempt to resolve

risk as early as

possible when cost

impact is less than

it will be later in

development

Check Status

• Risk Officer appointed?

• Risk databases set up?

• Risk assessments have clear

impact on program plans and

decisions?

• Frequency and timeliness of risk

assessment updates consistent

with decision updates?

• Objective criteria used to identify,

assess, and manage risk?

• Information flow patterns and

reward criteria support identification

of risk by all program personnel?

• Risks identified throughout entire

life cycle?

• Risk management reserve exist?

• Risk profile for every risk, and

components updated regularly?

• Risk management plan has explicit

provisions for altering decision

makers when risk becomes

imminent?

Table 5-10. Best Practices Initiative Risk Management Method

Practice Essentials

• Identify risks

• Decriminalize risk

• Plan for risk

• Formally designate a Risk Officer

• Include in budget and schedule a risk

reserve buffer of time, money, and other

resources

• Compile database for all non-negligible

risks

• Prepare profile for each risk showing

probability and consequences

• Include all risks over full life cycle

• Provide frequent risk status reports that

include:

– Top 10 risk items

– Number of risk items resolved

– Number of new risk items

– Number of risk items unresolved

– Unresolved risk items on critical path

• Probably costs for unresolved risks
91

and monitoring their programs. SPMN can be

accessed on the Internet at http://spmn.com/.

In addition to the studies by Barry Boehm, and

information on the SPMN, a survey was conducted by Conrow and Shishido (See Reference)

which evaluated 10 prior studies and categorized

the resulting risk issues across the studies into

six categories and 17 total issues, as shown in

Table 5-11. The very high degree of overlap between risk issues identified in the 10 underlying

studies suggest that some risk issues are common to many software-intensive projects.

Risk Grouping Software Risk Issue

Project-Level

Project Attributes

Management

Engineering

Work

Environment

Other

1. Excessive, immature, unrealistic or unstable requirements

2. Lack of involvement

3. Underestimation of project complexity or dynamic natures

4. Performance shortfalls (includes errors and quality)

5. Unrealistic cost or schedule (estimates and/or allocated amounts)

6. Ineffective project management (possible at multiple levels)

7. Ineffective integration, assembly and test; quality control; specialty

engineering; systems engineering or (possible at multiple levels)

8. Unanticipated difficulties associated with the user interface

9. Immature or untried design, processes or technologies selected

10. Inadequate work plans or configuration control

11. Inappropriate methods or tool selection or inaccurate metrics

12. Poor planning

13. Inadequate or excessive documentation or review process

14. Legal or contractual issues (e.g., litigation, malpractice, ownership)

15. Obsolescence (includes excessive schedule length)

16. Unanticipated difficulties with subcontracted items

17. Unanticipated maintenance and/or support costs

Table 5-11. Software Risk Grouping
92
A-1

APPENDIX A

DOD RISK MANAGEMENT

POLICIES AND PROCEDURES

1. DoDD 5000.1 The Defense Acquisition

System, 12 May 2003

Para E1.6. Cost Sharing

The PM shall structure the acquisition in a way

that neither imposes undue risk on contractors,

nor requires unusual contractor investment.

Para E1.14 .

PMs shall reduce technology risk, demonstrate

technologies in a relevant environment, and identify technology alternatives, prior to program

initiation. They shall reduce integration risk and

demonstrate product design prior to the design

readiness review. They shall reduce manufacturing risk and demonstrate producibility prior

to full-rate production.

2. DoD Instruction 5000.2. Operation of the

Defense Acquisition System, 12 May 2003

Para 3.3.2.1. Spiral Development

In this process, a desired capability is identified,

but the end-state requirements are not known at

program initiation. Those requirements are refined through demonstration and risk management; there is continuous user feedback; and each

increment provides the user the best possible

capability.

DoD policies and procedures that address risk

management for acquisition programs are contained in five key documents:

1. DoD Directive (DoDD) 5000.1, The Defense

Acquisition System;

2. DoD Instruction (DoDI) 5000.2, Operation

of the Defense Acquisition System;

3. Interim Defense Acquisition Guidebook

(IDAG);

4. DoDD 5000.4, OSD Cost Analysis Improvement Group; and

5. DoD Manual 5000.4-M, Cost Analysis

Guidance and Procedures.

The relevant sections of each document are

referenced in the Defense Acquisition Deskbook

under Mandatory Direction and are displayed

under DoD-Wide Practices. They present strong

statements on the need for risk management but

collectively are not sufficient to enable the

establishment of an effective risk management

program. The following are verbatim extracts of

sections of the DoD 5000 series of documents

that address risk management as part of acquisition policy and procedures. The reader should

be aware that changes to the 5000 series could

result in different paragraph numbers.
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Para 3.4.2.

Technologists and industry shall identify and

protect promising technologies in laboratories

and research centers, academia, and foreign and

domestic commercial sources; reduce the risks

of introducing these technologies into the acquisition process; and promote coordination, cooperation, and mutual understanding of technology issues.

Para 3.5.3.

The AoA shall assess the critical technologies

associated with these concepts, including technology maturity, technical, and, if necessary,

technology maturation and demonstration needs.

Para 3.6.1. Purpose

The purpose of this phase (Technology Development) is to reduce technology risk and to determine the appropriate set of technologies to be

integrated into a full system.

Para 3.7.1.1.

The purpose of the SDD phase is to develop a

system or an increment of capability; reduce integration and manufacturing risk (technology

risk reduction occurs during Technology Development); ensure operational supportability

with particular attention to reducing the logistics

footprint; implement human systems integration

(HSI); design for producibility; ensure

affordability and the protection of critical program information (CPI) by implementing appropriate techniques such as anti-tamper; and demonstrate system integration, interoperability,

safety, and utility.

Para 3.7.1.2.

For Shipbuilding Programs, the required program

information shall be updated in support of the

Milestone B decision, and the ICE shall be completed. The lead ship in a class shall normally be

authorized at Milestone B. Technology readiness

assessments shall consider the risk associated

with critical subsystems prior to ship installation.

Para 3.7.2.2.

The management and mitigation of technology

risk, which allows less costly and less time-consuming systems development, is a crucial part

of overall program management and is especially

relevant to meeting cost and schedule goals.

Objective assessment of technology maturity and

risk shall be a routine aspect of DoD acquisition.

Para 3.7.3. System Integration

This effort is intended to integrate subsystems,

complete detailed design, and reduce systemlevel risk.

Para 3.7.4.

The Design Readiness Review during SDD provides an opportunity for mid-phase assessment

of design maturity as evidenced by measures such

as the number of subsystem and system design

reviews successfully completed; the percentage

of drawings completed; planned corrective actions to hardware/software deficiencies; adequate

development testing; an assessment of environment, safety and occupational health risks; a

completed failure modes and effects analysis; the

identification of key system characteristics and

critical manufacturing processes; an estimate of

system reliability based on demonstrated reliability rates; etc.

Para 3.8.2. Entrance Criteria

Entrance into this phase (Production/Deployment) depends on the following criteria: acceptable performance in development, test and evaluation and operational assessment; mature
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software capability; no significant manufacturing risks; manufacturing processes under control (if Milestone C is full-rate production); an

approved ICD (if Milestone C is program initiation); an approved Capability Production Document (CPD); acceptable interoperability; acceptable operational supportability; compliance with

the DoD Strategic Plan; and demonstration that

the system is affordable throughout the life cycle,

optimally funded, and properly phased for rapid

acquisition.

Table E3.T3. Contract Reporting

Requirements

The CCDR requirement on high-risk or hightechnical-interest contracts priced between $7 and

$50 million is left to the discretion of the Cost

Working Integrated Product Team (IPT).

Para E5.1.

The T&E strategy shall provide information about

risk and risk mitigation, provide empirical data

to validate models and simulations, evaluate technical performance and system maturity, and determine whether systems are operationally effective, suitable, and survivable against the threat

detailed in the System Threat Assessment.

Para E5.3.1.

Projects that undergo a Milestone A decision shall

have a T&E strategy that shall primarily address

M&S, including identifying and managing the

associated risk, and that shall evaluate system

concepts against mission requirements.

Para E5.4.6.

The concept of early and integrated T&E shall

emphasize prototype testing during system development and demonstration and early OAs to

identify technology risks and provide operational

user impacts.

Para E5.5. Developmental Test and

Evaluation (DT&E)

During DT&E, the materiel developer shall identify and describe design technical risks.

Para E5.6.1.

The process shall include a review of DT&E

results; an assessment of the system’s progress

against critical technical parameters documented

in the TEMP; an analysis of identified technical

risks to verify that those risks have been retired

during developmental testing; and a review of

the IOT&E entrance criteria specified in the

TEMP.

Para E6.4. CAIG Procedures

The DoD Component responsible for acquisition of a system shall cooperate with the CAIG

and provide the cost, programmatic, and technical information required for estimating costs and

appraising cost risks.

Para E6.5.

In this evaluation, the D,PA&E shall assess the

extent to which the AoA:

Assessed technology risk and maturity.

Para E7.7. Environment, Safety and Occupational Health (ESOH)

As part of risk reduction, the PM shall prevent

ESOH hazards where possible, and shall manage ESOH hazards where they cannot be

avoided. The acquisition strategy shall incorporate a summary of the Programmatic ESOH

Evaluation (PESHE), including ESOH risks, a

strategy for integrating ESOH considerations into

the systems engineering process, identification

of ESOH responsibilities, a method for tracking

progress, and a compliance schedule for NEPA.
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For acceptance of ESOH mishap risks identified by the program, the CAE is the acceptance

authority for high risks, PEO-level for serious

risks, and the PM for medium and low risks as

defined in the industry standard for system safety.

3. Interim Defense Acquisition Guidebook

(IDAG), 30 October 2002

Para C1.3.4.2. Management Incentives

The PM, via the Contracting Officer, shall structure Requests for Proposal (RFPs) and resulting

contracts to provide an incentive to the contractor to meet or beat program objectives. Whenever applicable, risk reduction through use of

mature processes shall be a significant factor in

source selection....

Para C1.4.3.3.2. Cost

Cost figures shall reflect realistic estimates of the

total program, including a thorough assessment

of risk....

Para C2.3.1. Program Structure

...The acquisition strategy shall specifically

address the benefits and risks associated with

reducing lead-time through concurrency and the

risk mitigation and tests planned if concurrent

development is used....

Para C2.5. Risk

The acquisition strategy shall address risk

management. The PM shall identify the risk areas of the program and integrate risk management within overall program management. The

strategy shall explain how the risk management

effort shall reduce system-level risk to acceptable

levels by the interim progress review preceding

system demonstration and by Milestone C.

Para C2.6.2. Information Sharing and

DoD Oversight

...DoD oversight activities (i.e., contract management offices, contracting offices, technical

activities, and program management offices) shall

consider all relevant and credible information that

might mitigate risk and reduce the need for DoD

oversight before defining and applying direct

DoD oversight of contractor operations....

Para C2.8.1. Support Strategy

As part of the acquisition strategy, the PM shall

develop and document a support strategy for lifecycle sustainment and continuous improvement

of product affordability, reliability, and supportability, while sustaining readiness.... The support strategy shall continue to evolve toward

greater detail, so that by Milestone C, it contains

sufficient detail to define how the program will

address the support and fielding requirements

that meet readiness and performance objectives,

lower TOC, reduce risks and avoid harm to the

environment and human health. The support

strategy shall address all applicable support requirements to include, but not be limited to, the

following elements:...

Para C2.8.1.7.3. Support Strategy

Contract service risk assessments over the life of

the system.

Para C2.8.4.2.2. Supply Source of Support

The PM shall use a competitive process to select

the best value supply support provider. Access

to multiple sources of supply is encouraged to

reduce the risks associated with a single

source....
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Para C2.8.6. Environment, Safety, and

Occupational Health (ESOH)

Considerations

As part of risk reduction, the PM shall prevent

ESOH hazards, where possible, and shall manage ESOH hazards where they cannot be

avoided. The support strategy shall contain a

summary of the Programmatic ESOH Evaluation (PESHE) document, including ESOH

risks, a strategy for integrating ESOH considerations into the systems engineering process, identification of ESOH responsibilities, a method for

tracking progress, and a compliance schedule for

the National Environmental Policy Act (NEPA)

and Executive Order (E.O.) 12114.

Para C2.8.9. Post Deployment Evaluation

The PM shall select the parameters for evaluations based on their relevance to future

modifications or evolutionary block upgrades for

performance, sustainability, and affordability

improvements, or when there is a high level of

risk that a KPP will not be sustained over the

life of the system....

Para C2.9.1.3.2.3 Sub-Tier Competition

During early exchanges of information with industry (e.g., the draft request for proposal process), PMs shall identify the critical product and

technology areas that the primes plan to provide

internally or through exclusive teaming. The PM

shall assess the possible competitive effects of

these choices. The PM shall take action to mitigate areas of risk....

Para C2.9.1.4.2.2 Commercial and NonDevelopmental Items

...If acquiring products with closed interfaces,

the PM shall conduct a business case analysis to

justify acceptance of the associated economic

impacts on TOC and risks to technology insertion and maturation over the service life of the

system.

Para C2.9.1.4.4.1 Industrial Capability

The acquisition strategy shall summarize an

analysis of the industrial base capability to design, develop, produce, support, and, if appropriate, restart the program (10 U.S.C. 2440 (reference (an))) as appropriate for the next program

phase. This analysis (see DoD Directive 5000.60

(reference (ao)) and DoD 5000.60-H (reference

(ap))) shall identify DoD investments needed to

create or enhance certain industrial capabilities,

and the risk of industry being unable to provide

program design or manufacturing capabilities at

planned cost and schedule....

Para C2.9.1.4.4.2 Industrial Capability

In many cases, commercial demand now sustains the national and international technology

and industrial base. The PM shall structure the

acquisition strategy to promote sufficient program stability to encourage industry to invest,

plan, and bear risks....

Para C2.9.3.2. Contract Type

For each major contract, the acquisition strategy

shall identify the type of contract planned (e.g.,

firm fixed-price (FFP); fixed price incentive, firm

target; cost plus incentive fee; or cost plus award

fee) and the reasons it is suitable, including considerations of risk assessment and reasonable

risk-sharing by the Government and the

contractor(s)....

Para C2.9.3.5. Integrated Baseline

Reviews

PMs and their technical staffs or IPTs shall evaluate contract performance risks inherent in the

contractor’s planning baseline. This evaluation

shall be initiated within 6 months after contract
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award or intra-Government agreement is reached

for all contracts requiring EVMS or C/SSR

compliance.

Para C2.9.3.8. Component Breakout

The PM shall consider component breakout on

every program and break out components when

there are significant cost savings (inclusive of

Government administrative costs), the technical

or schedule risk of furnishing government items

to the prime contractor is manageable, and there

are no other overriding Government interests

(e.g., industrial capability considerations or dependence on contractor logistics support)....

Para C3.1.1. Test and Evaluation (T&E)

Overview

...The T&E strategy shall provide information

about risk and risk mitigation, provide empirical

data to validate models and simulations, evaluate

technical performance and system maturity, and

determine whether systems are operationally effective, suitable, and survivable against the threat

detailed in the System Threat Assessment. (See

paragraph C6.2.4)....

Para C3.2.1.1. Evaluation Strategy

...The evaluation strategy shall primarily address

M&S, including identifying and managing the associated risk, and early T&E strategy to evaluate

system concepts against mission requirements....

Para C3.2.3.2.1. T&E Guidelines

Early T&E activities shall harmonize MOEs,

MOPs, and risk with the needs depicted in the

MNS, and with the objectives and thresholds

addressed in the analysis of alternatives, and

defined in the ORD, APB, and TEMP, as these

documents become available....

Para C3.2.3.2.2.8. T&E Guidelines

The concept of early and integrated T&E shall

emphasize prototype testing during system

development and demonstration and early OAs

to identify technology risks and provide

operational user impacts....

Para C3.4.1.2. Developmental Test and

Evaluation (DT&E)

Identify and describe design technical risks.

Assist in the design of a system at the component, sub-system, and system level by reducing

technical risk prior to transitioning to the next

level;

Para C3.4.1.6. Developmental Test and

Evaluation (DT&E)

Assess progress toward meeting KPPs and

other ORD requirements, COIs, mitigating acquisition technical risk, and achieving

manufacturing process requirements and system maturity;

Para C3.5.1. Certification of Readiness for

Operational Test & Evaluation (OT&E)

The developing agencies (i.e., materiel and combat developers) shall complete the following tasks

before starting OT&E: Define risk management

measures and indicators, with associated thresholds, to address performance and technical adequacy of both hardware and software.

Para C3.6.1.3. Operational Test and

Evaluation (OT&E)

Information assurance testing shall be conducted

on information systems to ensure that planned

and implemented security measures satisfy ORD

and System Security Authorization Agreement

(SSAA) requirements when the system is installed and operated in its intended environment.
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The PM, OT&E test authority, and designated

approving authority shall coordinate and determine the level of risk associated with operating

the system and the extent of security testing required. (See section C6.6.)...

Para C3.6.1.13. Operational Test and

Evaluation (OT&E)

All weapon, Command, Control, Communications, Computers, Intelligence, Surveillance,

and Reconnaissance (C4ISR), and information

programs that are dependent on external information sources, or that provide information to

other DoD systems, shall be assessed for information assurance. The level of information

assurance testing depends on the system risk

and importance. Systems with the highest importance and risk shall be subject to penetration-type testing prior to the beyond LRIP

decision. Systems with minimal risk and importance shall be subject to normal National Security Agency security and developmental

testing, but shall not be subject to field

penetration testing during OT&E.

Para C4.3. Analysis of Alternatives

Analyzing alternatives is part of the CAIV

process. Alternatives analysis shall broadly examine multiple elements of project or program

alternatives including technical risk and

maturity, and costs.

Para C4.5.1.2. Resource Estimates

The DoD Component cost agency shall prepare

an independent LCCE and associated report for

the decision authority for all ACAT IC programs,

except those reviewed by the CAIG, for all major decision points as specified in enclosure 3 of

reference (a), or as directed by the MDA. For

programs with significant cost risk or high visibility, the CAE may request an additional DoD

Component cost analysis estimate.

Para C4.5.2.1. Life-Cycle Cost Estimates

(LCCEs)

The estimating activity shall explicitly base the

LCCE (or EA for ACAT IA programs) on program objectives; operational requirements; contract specifications; careful risk assessments; and,

for ACAT I programs, a DoD program work

breakdown structure (WBS), or, for ACAT IA

programs, a life-cycle cost and benefit element

structure agreed upon by the IPT....

Para C4.5.4.1.1. Manpower

Considerations

For all programs regardless of acquisition category,

the DoD Components shall determine the source

of support for all new, modified, and replacement

systems based on the procedures, manpower mix

criteria, and risk assessment instructions in Deputy

Under Secretary of Defense (Program Integration),

Office of the Under Secretary of Defense (Personnel & Readiness) (OUSD(P&R)), and Deputy

Under Secretary of Defense (Installations), Office

of USD(AT&L) annual memo, “DoD Inventory

of Commercial and Inherently Governmental

Activities Data Call....”

Para C4.5.4.1.2. Manpower

Considerations

The DoD Components shall determine manpower and contract support based on both

peacetime and wartime requirements, and establish manpower authorizations at the minimum necessary to achieve specific vital objectives (DoD Directive 1100.4 (reference (bv))).

As part of this process, the DoD Components

shall assess the risks (DoD Instruction 3020.37

(reference (bw))) involved in contracting support for critical functions in-theater, or in other

areas expecting hostile fire. Risk mitigation

shall take precedence over cost savings in highrisk situations or when there are highly sensitive intelligence or security concerns.
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Para C4.5.4.2.4. Manpower Estimate

The manpower estimate shall address whether

there are any personnel issues that would adversely impact full operational deployment of the

system. It shall clearly state the risks associated

with and the likelihood of achieving manpower

numbers reported in the estimate. It shall briefly

assess the validity of the manpower numbers,

stating whether the DoD Component used validated manpower methodologies and manpower

mix criteria, and assessed all risks....

Para C5.2.1. Systems Engineering

...Systems engineering shall permeate design,

manufacturing, T&E, and support of the product.

Systems engineering principles shall influence

the balance between performance, risk, cost, and

schedule.

Para C5.2.2.3. Systems Engineering

The systems engineering process shall... Characterize and manage technical risks.

Para C5.2.2.4. Systems Engineering

The systems engineering process shall: ... Apply

scientific and engineering principles, using the

system security engineering process, to identify

security vulnerabilities and minimize or contain

information assurance and force protection risks

associated with these vulnerabilities. (See DoD

5200.1-M (reference (bx)).)

Para C5.2.3.2. Functional Analysis/

Allocation

...The design approach shall partition a system

into self-contained, functionally cohesive,

interchangeable, and adaptable elements to

enable ease of change, achieve technology transparency and mitigate risk of obsolescence....

Para C5.2.3.4.2. System Analysis and

Control

The overall risk management effort shall include

technology transition planning and shall establish transition criteria.

Para C5.2.3.4.3. System Analysis and

Control

The establishment of a risk management process

(including planning, assessment (identification

and analysis), handling, and monitoring) to be

integrated and continuously applied throughout

the program, including, but not limited to, the

design process. The risk management effort shall

address risk planning, the identification and

analysis of potential sources of risks including

but not limited to cost, performance, and

schedule risks based on the technology being

used and its related design, manufacturing capabilities, potential industry sources, and test and

support processes; risk handling strategies, and

risk monitoring approaches. The overall risk

management effort shall interface with technology transition planning, including the establishment of transition criteria for such technologies.

Para C5.2.3.4.7. System Analysis and

Control

Performance metrics to measure technical

development and design, actual versus planned;

and to measure meeting system requirements in

terms of performance, cost, schedule, and

progress in implementing risk handling. Performance metrics shall be traceable to performance

parameters identified by the operational user.

Para C5.2.3.5.5.2.10. Open Systems

Design

PMs shall use an open systems approach to

achieve the following objectives:... To mitigate

the risks associated with technology
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obsolescence, being locked into proprietary

technology, and reliance on a single source of

supply over the life of a system;

Para C5.2.3.5.6. Software Management

The PM shall manage and engineer softwareintensive systems using best processes and

practices known to reduce cost, schedule, and

performance risks.

Para C5.2.3.5.6.1.3. Software

Management

The PM shall base software systems design and

development on systems engineering principles,

to include the following: ...Select the programming language in context of the systems and

software engineering factors that influence

overall life-cycle costs, risks, and the potential

for interoperability;

Para C5.2.3.5.6.1.5. Software

Management

...However, if the prospective contractor does

not meet full compliance, risk mitigation planning shall describe, in detail, the schedule and

actions that will be taken to remove deficiencies

uncovered in the evaluation process. Risk mitigation planning shall require PM approval.

Para C5.2.3.5.6.1.7. Software

Management

Assess information operations risks (DoD

Directive S-3600.1 (reference (bz))) using

techniques such as independent expert reviews;

Para C5.2.3.5.6.2.2.3. Software Spiral

Development

The PM shall consider the risks and extent of

change impacts to enable a cost-effective, yet

rigorous T&E process.

Para C5.2.3.5.6.4.7. Software Security

Considerations

When employing COTS software, the contracting process shall give preference during product selection/evaluation to those vendors who

can demonstrate that they took efforts to minimize the security risks associated with foreign

nationals that have developed, modified, or

remediated the COTS software being offered.

Para C5.2.3.5.7.2.5. Commercial, Off-theShelf (COTS) Considerations

The PM shall develop an appropriate T&E strategy for commercial items to include evaluating

potential commercial items in a system test bed,

when practical; focusing test beds on high-risk

items; and testing commercial-item upgrades for

unanticipated side effects in areas such as security, safety, reliability, and performance.

Para C5.2.3.5.7.2.6. Commercial, Off-theShelf (COTS) Considerations

Programs are encouraged to use code-scanning

tools, within the scope and limitations of the licensing agreements, to ensure both COTS and

Government off-the-shelf software do not pose

any information assurance or security risks.

Para C5.2.3.5.10.2. Environment, Safety,

and Occupational Health (ESOH)

The PM shall prepare a Programmatic ESOH

Evaluation (PESHE) document early in the

program life cycle (usually Milestone B). The

PESHE shall identify ESOH risks, contain a

strategy for integrating ESOH considerations

into the systems engineering process, delineate

ESOH responsibilities, and provide a method for

tracking progress, and provide a completion

schedule for NEPA (reference (x)) and E.O.

12114 (reference (y))....
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Para C5.2.3.5.10.4. ESOH Compliance

To minimize the cost and schedule risks over

the system’s life cycle that changing ESOH

requirements and regulations represent, the PM

shall regularly review ESOH regulatory requirements and evaluate their impact on the program’s

life-cycle cost, schedule, and performance.

Para C5.2.3.5.10.6.1. Safety and Health

The PM shall identify and evaluate safety and

health hazards, define risk levels, and establish

a program that manages the probability and severity of all hazards associated with development, use, and disposal of the system. The PM

shall use and require contractors to use the industry and DoD standard practice for system

safety, consistent with mission requirements. This

standard practice manages risks encountered in

the acquisition life cycle of systems, subsystems,

equipment, and facilities. These risks include

conditions that create significant risks of death,

injury, acute or chronic illness, disability, and/or

reduced job performance of personnel who produce, test, operate, maintain, support, or dispose

of the system.

Para C5.2.3.5.10.6.2. Safety and Health

The following policy applies to the acceptance

of risk: ...The PM shall formally document each

management decision accepting the risk

associated with an identified hazard.

Para C5.2.3.5.10.6.2.2. Safety and Health

“High Risk” hazards shall require CAE approval

(Lead Executive Component authority prevails

for joint programs).

Para C5.2.3.5.10.6.2.3. Safety and Health

The acceptance of all risks involving explosives

safety (see subparagraph C5.2.3.5.10.9. below)

shall require the appropriate risk acceptance authority to consult with the DoD Component’s

technical authority managing the explosives

safety program.

Para C5.2.3.5.10.6.2.4. Safety and Health

“Serious Risk” hazards shall require PEO

approval.

Para C5.2.3.5.10.6.2.5. Safety and Health

“Medium Risk” and “Low Risk” hazards shall

require PEO approval.

Para C5.2.3.5.10.8.1. Pollution Prevention

The PM shall identify and evaluate environmental and occupational health hazards and establish a pollution prevention program. The PM

shall identify the impacts of the system on the

environment during its life (including disposal),

the types and amounts of pollution from all

sources (air, water, noise, etc.) that will be released to the environment, actions needed to prevent or control the impacts, ESOH risks

associated with using the new system, and other

information needed to identify source reduction,

alternative technologies, and recycling

opportunities....

Para C5.2.3.5.13 Mission Assuredness

...The PM shall include the considerations in the

risk benefit analysis of system design and cost....

Para C5.2.3.5.15.1. Anti-Tamper

Provisions

...Because of its function, anti-tamper should not

be regarded as an option or a system capability

that may later be traded off without a thorough

operational and acquisition risk analysis. To accomplish this, the PM shall identify critical technologies, identify system vulnerabilities, and, with
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assistance from counter-intelligence organizations,

perform threat analyses to the critical technologies. The PM shall research anti-tamper measures

and determine which best fit the performance, cost,

schedule, and risk of the program.

Para C5.3.1. Work Breakdown Structure

(WBS)

...The PM shall normally specify contract WBS

elements only to level three for prime contractors and key subcontractors. Only low-level

elements that address high risk, high value, or

high technical interest areas of a program shall

require detailed reporting below level three....

Para C5.3.2.2.1.5. Implementing a

Performance-Based Business Environment

(PBBE)

The PM shall structure the PBBE to accomplish

the following: ...Encourage life-cycle risk management versus risk avoidance;

Para C5.3.2.2.1.6. Implementing a

Performance-Based Business Environment

(PBBE)

The PM shall structure the PBBE to accomplish

the following: ...Simplify acquisition and support operating methods by transferring tasks to

industry where cost effective, risk-acceptable,

commercial capabilities exist; and

Para C6.2.2. Intelligence Support

Users shall assess and evaluate information superiority requirements. They shall determine the

vulnerability of IT, including NSS, supporting

infrastructures, and the effectiveness of risk mitigation methods to reduce vulnerability to an acceptable level.

Para C6.6.1. Information Assurance

PMs shall manage and engineer information systems using the best processes and practices

known to reduce security risks, including the

risks to timely accreditation.

Para C6.6.2.1. Information Assurance

Accordingly, for each information system

development, PMs shall: ...Conduct a system

risk assessment based on system criticality,

threat, and vulnerabilities;

Para C6.7.2.4. Technology Protection

Technology protection planning and development of the program protection plan shall begin

early in the acquisition life cycle. The following

considerations apply: ...Security organizations

shall identify system vulnerabilities and recommend cost-effective security measures using risk

management evaluations.

Para C7.2. Decision Points

There are three types of decision points: milestones, decision reviews, and interim progress

reviews. Each decision point results in a decision to initiate, continue, advance, or terminate

a project or program work effort or phase. The

review associated with each decision point shall

typically address program progress and risk,

affordability, program trade-offs, acquisition

strategy updates, and the development of exit

criteria for the next phase or effort....

Para C7.3.1.4. Defense Acquisition Board

(DAB) Review

The PM shall brief the acquisition program to

the DAB and specifically emphasize technology

maturity, risk management, affordability, critical program information, technology protection,

and rapid delivery to the user....
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Para C7.4.2. Exit Criteria

Phase-specific exit criteria normally track

progress in important technical, schedule, or

management risk areas....

Para C7.5.1. Technology Maturity

Technology maturity shall measure the degree

to which proposed critical technologies meet program objectives. Technology maturity is a principal element of program risk. A technology

readiness assessment shall examine program concepts, technology requirements, and demonstrated technology capabilities to determine technological maturity.

Para C7.5.4. Technology Maturity

TRLs enable consistent, uniform, discussions of

technical maturity, across different types of technologies. Decision authorities shall consider the

recommended TRLs (or some equivalent assessment methodology, e.g., Willoughby templates)

when assessing program risk....

Para C7.12.1. Cost Analysis Improvement

Group (CAIG) Procedures

...The DoD Component responsible for acquisition of a system shall cooperate with the CAIG

and provide the cost, programmatic, and technical information required to estimate costs and

appraise cost risks....

Para C7.15.7. Contract Management

Reports

...Except for high-cost or high-risk elements,

the required level of reporting detail shall be

limited to level three of the contract WBS.

Para C7.15.7.1.2. Contractor Cost Data

Reporting (CCDR)

...CCDR reporting is not required for contracts

priced below $6.5 million. The CCDR requirement on high-risk or high-technical-interest contracts priced between $6.5 and $42 million is

left to the discretion of the Cost WIPT.

Para C7.15.7.1.8.1. Level of Cost

Reporting

Routine reporting shall be at the contract WBS

level three for prime contractors and key subcontractors. Only low-level elements that address high-risk, high-value, or high-technicalinterest areas of a program shall require detailed

reporting below level three....

4. DoD Directive (DoDD) 5000.4. OSD Cost

Analysis Improvement Group (CAIG),

November 24, 1992

Para 4.1.8 Risk Assessment

The CAIG Chair report, in support of a milestone review, shall include quantitative assessments of the risk in the estimate of life-cycle

costs. In developing an assessment of cost risk,

the CAIG shall consider the validity of such programmatic assumptions of the CARDs as EMD

schedules, rates of utilization of test assets, production ramp rates, and buy rates, consistent with

historical information. The CAIG shall also consider uncertainties in inputs to any cost estimating relationships used in its estimates, as well as

the uncertainties inherent in the calibration of the

CERs, and shall consider uncertainties in the factors used in making any estimates by analogy.

The CAIG shall consider cost and schedule risk

implications of available assessments of the

program’s technical risks, and may include the

results in its cost-risk assessments. The CAIG

may consider information on risk provided by

any source, although primary reliance will be
A-13

on the technical risk assessments that are the

responsibility of the sponsoring DoD components, and of other OSD offices, in accordance

with their functional responsibilities.

5. DoD 5000.4-M. Cost Analysis Guidance

and Procedures, December 1992

Chapter 1:

(Outline of CARD Basic Structure)

Para 1.2.1.x (..x..) Subsystem Description

This series of paragraphs (repeated for each subsystem) describes the major equipment (hardware/software) WBS components of the system.

The discussion should identify which items are

off-the-shelf. The technical and risk issues associated with development and production of individual subsystems also must be addressed.

Para 2.0 Technical and Physical

 Description

This section identifies the program manager’s

assessment of the program and the measures

being taken or planned to reduce those risks.

Relevant sources of risk include: design concept,

technology development, test requirements,

schedule, acquisition strategy, funding availability, contract stability, or any other aspect that

might cause a significant deviation from the

planned program. Any related external technology programs (planned or on-going) should be

identified, their potential contribution to the

program described, and their funding prospects

and potential for success assessed. This section

should identify these risks for each acquisition

phase (DEM/VAL, EMD, productions and deployment, and O&S). (Phase terminology

changed in DoD 5000.2-R, 2 April 2002.)

Chapter 2:

(Presentation of Cost Analysis to OSD CAIG)

Para C2.2.9. Sensitivity Analysis

The sensitivity of projected costs to critical

program assumptions shall be examined. Aspects

of the program to be subjected to sensitivity analysis shall be identified in the DoD CCA of program

assumptions. The analysis shall include factors

such as learning curve assumptions; technical

risk, i.e., the risk of more development and/or

production effort, changes in performance characteristics, schedule alterations, and variations in

testing requirements; and acquisition strategy

(multiyear procurement, dual sourcing, etc.).

Para C2.3.3 PM Presentation

The Program Manager’s designated representative shall present the CAIG with the POE for

each alternative under construction and explain

how each is derived. This presentation shall

cover the estimates and estimating procedures

at the major subcomponent level (e.g., airframe,

engine, major avionics subsystem, etc.). The

presentation should focus on the items that are

cost drivers and/or elements of high cost risk.
A-14
B-1

APPENDIX B

GENERIC RISK

MANAGEMENT PLAN

SAMPLE RISK MANAGEMENT PLAN

PREFACE

DoDI 5000.2 requires that “PMs and other

acquisition managers shall continually assess

program risks.” Further, the Interim Defense

Acquisition Guidebook (IDAG) states that for

ACAT I Programs, “The PM shall identify the

risk areas of the program and integrate risk management within overall program management.”

Although the need for a risk management program and a risk management process are addressed throughout this regulation, there is no

requirement for a formal Risk Management Plan

(RMP). However, Program Managers (PMs)

have found such a plan necessary to focus properly on the assessment and handling of program

risk, a core acquisition management issue that

Milestone Decision Authorities (MDAs) must

rigorously address at appropriate milestones before making program decisions.

Attached is a sample format for a RMP that is a

compilation of several good risk plans and the

results of the DoD Risk Management Working

Group Study. It represents the types of

information and considerations that a plan,

tailored to a specific program, might contain.

There are also two examples of Risk Management Plans—one for an ACAT I or II Program,

the other for an ACAT III or IV Program. The

Defense Acquisition Deskbook, Section 2.5.2,

has general guidance and advice in all areas of

risk management. Section 2.5.2.4 of the Defense

Acquisition Deskbook contains information

concerning the development of a risk management plan. The information in this Guide is consistent with, and in most cases identical to, the

Defense Acquisition Deskbook.

There is a danger in providing a sample document. First of all, because it is written as a guide

for a general audience, it does not satisfy all of

the needs of any particular program. Second,

there is the possibility that some prospective

user will simply adopt the plan as written,

despite the fact that it does not fit his or her

program. We discourage this.

The reason for providing this sample format is

to give PMs and their staffs a starting point for

their own planning process. It should stimulate

thought about what has to be done and give

some ideas on how to begin writing a plan. The

sample plan contains more information than

most program offices should need. Few PMs

have the resources for a dedicated risk management effort as depicted in the plan. The key

to using the sample plan is to keep things simple

and tailor the plan to suit your needs, focusing

on the management of risk in the key critical

areas of your program.

The following text reflects the outline of a risk

management plan found in the Defense

Acquisition Deskbook section 2.5.2.4.
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SAMPLE FORMAT FOR

RISK MANAGEMENT PLAN

Introduction. This section should address the

purpose and objective of the plan, and provide a

brief summary of the program, to include the approach being used to manage the program, and

the acquisition strategy.

Program Summary. This section contains a

brief description of the program, including the

acquisition strategy and the program management approach. The acquisition strategy should

address its linkage to the risk management

strategy.

Definitions. Definitions used by the program

office should be consistent with DoD definitions for ease of understanding and consistency.

However, the DoD definitions allow program

managers flexibility in constructing their risk

management programs. Therefore, each program’s risk management plan may include definitions that expand the DoD definitions to fit

its particular needs. For example, each plan

should include, among other things, definitions

for the ratings used for technical, schedule and

cost risk. (Discussion of risk rating is contained

in the Defense Acquisition Deskbook Section

2.5.2.1.)

Risk Management Strategy and Approach.

Provide an overview of the risk management

approach, to include the status of the risk

management effort to date, and a description

of the program risk management strategy. See

the Defense Acquisition Deskbook Sections

2.5.2.1 and 2.5.2.3.

Organization. Describe the risk management

organization of the program office and list the

responsibilities of each of the risk management

participants. See the Defense Acquisition

Deskbook Section 2.5.2.3.

Risk Management Process and Procedures.

Describe the program risk management process

to be employed; i.e., risk planning, assessment,

handling, monitoring and documentation, and a

basic explanation of these components. See the

Defense Acquisition Deskbook Section 2.5.2.1.

Also provide application guidance for each of

the risk management functions in the process. If

possible, the guidance should be as general as

possible to allow the program’s risk management

organization (e.g., IPTs) flexibility in managing

the program risk, yet specific enough to ensure

a common and coordinated approach to risk

management. It should address how the in-formation associated with each element of the risk

management process will be documented and

made available to all participants in the pro-cess,

and how risks will be tracked, to include the identification of specific metrics if possible.

Risk Planning. This section describes the risk

planning process and provides guidance on how

it will be accomplished, and the relationship between continuous risk planning and this RMP.

Guidance on updates of the RMP and the approval

process to be followed should also be included.

See Section 2.5.2.1 of the Defense Acquisition

Deskbook for information on risk planning.

Risk Assessment. This section of the plan

describes the assessment process and procedures for examining the critical risk areas and

processes to identify and document the associated risks. It also summarizes the analyses

process for each of the risk areas leading to

the determination of a risk rating. This rating

is a reflection of the potential impact of the

risk in terms of its variance from known Best

Practices or probability of occurrence, its

consequence/impact, and its relationship to other

risk areas or processes. This section may include:
B-3

• Overview and scope of the assessment

process;

• Sources of information;

• Information to be reported and formats;

• Description of how risk information is

documented; and

• Assessment techniques and tools (see

Section 2.5.2.4 of the Defense Acquisition

Deskbook).

Risk Handling. This section describes the

procedures that can be used to determine and

evaluate various risk-handling options, and

identifies tools that can assist in implementing the risk-handling process. It also provides

guidance on the use of the various handling

options for specific risks.

Risk Monitoring. This section describes the

process and procedures that will be followed to

monitor the status of the various risk events identified. It should provide criteria for the selection

of risks to be reported on, and the frequency of

reporting. Guidance on the selection of metrics

should also be included.

Risk Management Information System,

Documentation and Reports. This section

describes the MIS structure, rules, and procedures that will be used to document the results

of the risk management process. It also identifies the risk management documentation and

reports that will be prepared; specifies the format

and frequency of the reports; and assigns responsibility for their preparation.
B-4

SAMPLE RISK MANAGEMENT PLAN

FOR THE XYZ PROGRAM (ACAT I, II)

the System Integration part of the System Development and Demonstration (SDD) Phase.

Subsequent updates to this RMP will shift focus

to the later acquisition phases. There are

changes in every area of the plan; they include

refinement of the risk identification process.

The PMO Risk Management Coordinator has

been identified and training of IPT members has

commenced.

1.2 PROGRAM SUMMARY

The XYZ program was initiated in response to

Mission Need Statement (MNS) XXX, dated

DD-MM-YYYY and Operational Requirements Document (ORD), dated DD-MMYYYY. (NOTE: The MNS is being replaced

by the Initial Capabilities Document. The ORD

is being replaced by the Capability Development

Document (CDD)). It is required to support the

fundamental objective of U.S. defense policy as

stated in Defense Planning Guidance (DPG) and

the National Military Strategy. The XYZ system is based on the need for an integrated combat system to link battlefield decision makers.

The XYZ mission areas are: (Delineate applicable areas).

The XYZ program will develop and procure 120

advanced platforms to replace the aging ABC

platforms currently in the inventory. In order

to meet force structure objectives, the XYZ

system must reach Initial Operational Capability (IOC) (four platforms) by FY-07. The program is commencing an eight-year EMD phase

that will be followed by a five-year procurement

phase. The objectives of the EMD phase are to

(discuss the specific objectives of this phase). The

program has Congressional interest and is restricted to a research and development funding

ceiling of $300 million.

1.0 INTRODUCTION

1.1 PURPOSE

This Risk Management Plan (RMP) presents the

process for implementing proactive risk management as part of the overall management of the

XYZ program. Risk management is a program

management tool to assess and mitigate events

that might adversely impact the program. Therefore, risk management increases the probability/

likelihood of program success. This RMP will:

• Serve as a basis for identifying alternatives

to achieve cost, schedule, and performance

goals,

• Assist in making decisions on budget and

funding priorities,

• Provide risk information for Milestone

decisions, and

• Allow monitoring the health of the program

as it proceeds.

The RMP describes methods for identifying,

analyzing, prioritizing, and tracking risk

drivers; developing risk-handling plans; and

planning for adequate resources to handle risk.

It assigns specific responsibilities for the management of risk and prescribes the documenting, monitoring, and reporting processes to be

followed.

This is the second edition of the Risk Management Plan for the XYZ program. The initial

plan concentrated on the tasks within the Concept Refinement (CR) and Technology Development (TD) Phases leading to Milestone B; this

plan concentrates on the tasks and activities of
B-5

1.2.1 System Description

The XYZ will be an affordable, yet capable,

platform taking advantage of technological

simplification and advancements. The XYZ

integrated Combat System includes all nonpropulsion electronics and weapons. Subsystems provide capabilities in combat control,

electronic warfare support measures (ESM),

defensive warfare, navigation, radar, interior

communications, monitoring, data transfer,

tactical support device, exterior communications, and Identification Friend or Foe (IFF).

Weapons systems are to be provided by the

program offices that are responsible for their

development. The Mechanical and Electrical

(M&E) system comprises.... The Combat System, M&E systems, and subsystems provide the

XYZ system with the capability and connectivity to accomplish the broad range of missions

defined in the MNS and ORD.

1.2.2 Acquisition Strategy

The XYZ program initial strategy is to contract

with one prime contractor in the System

Integration part of the System Development and

Demonstration Phase for development of two

prototype systems for test and design validation. Due to the technical complexity of achieving the performance levels of the power generation systems, the prime will use two subcontractors for the engine development and

down select to one producer prior to low rate

initial production, which is scheduled for FY04. Various organizations, such as the Government Research Laboratory will be funded to provide experts for assessment of specific areas of

risk. The program has exit criteria, included in

the list of Critical Program Attributes in Annex

A, that must be met before progressing to the

next phase.

1.2.3 Program Management Approach

The XYZ program is managed using the IPPD

concept, with program integrated product teams

(PIPTs) established largely along the hierarchy

of the product work breakdown structure

(WBS). There are also cost-performance and

test Working IPTs (WIPTs) established for vertical coordination up the chain of command.

The PM chairs a program level IPT (PLIPT)

that addresses issues that are not resolved at

the WIPT or PIPT level.

1.3 DEFINITIONS

1.3.1 Risk

Risk is a measure of the inability to achieve

overall program objectives within defined cost,

schedule, and technical constraints and has two

components: (1) the probability of failing to

achieve a particular outcome and (2) the

consequences/impacts of failing to achieve that

outcome. For processes, risk is a measure of

the difference between actual performance of

a process and the known best practice for

performing that process.

1.3.2 Risk Event

Risk events are those events within the XYZ

program that, if they go wrong, could result in

problems in the development, production, and

fielding of the system. Risk events should be

defined to a level such that the risk and causes

are understandable and can be accurately assessed in terms of probability/likelihood and

consequence/impact to establish the level of

risk. For processes, risk events are assessed in

terms of process variance from known best

practices and potential consequences/impacts

of the variance.
B-6

1.3.3 Technical Risk

This is the risk associated with the evolution of

the design and the production of the XYZ system

affecting the level of performance necessary to

meet the operational requirements. The

contractor’s and subcontractors’ design, test, and

production processes (process risk) influence the

technical risk and the nature of the product as

depicted in the various levels of the Work Breakdown Structure (product risk).

1.3.4 Cost Risk

This is the risk associated with the ability of

the program to achieve its life-cycle cost

objectives. Two risk areas bearing on cost are

(1) the risk that the cost estimates and objectives are accurate and reasonable and (2) the

risk that program execution will not meet the

cost objectives as a result of a failure to handle

cost, schedule, and performance risks.

1.3.5 Schedule Risk

These risks are those associated with the adequacy of the time estimated and allocated for

the development, production, and fielding of the

system. Two risk areas bearing on schedule risk

are (1) the risk that the schedule estimates and

objectives are realistic and reasonable and (2)

the risk that program execution will fall short

of the schedule objectives as a result of failure

to handle cost, schedule, or performance risks.

1.3.6 Risk Ratings

This is the value that is given to a risk event (or

the program overall) based on the analysis of the

probability/likelihood and consequences/impacts

of the event. For the XYZ program, risk ratings

of Low, Moderate, or High will be assigned based

on the following criteria. See Section 3.3.2 of this

appendix for guidance on determining probability/likelihood and consequences/impacts. When

rating process variance from best practices, there

is no rating of probability/likelihood, rather the

level would be a measure of the variance from

best practices (see Paragraph 3.3.2.3).

• Low Risk: Has little or no potential for

increase in cost, disruption of schedule, or

degradation of performance. Actions within

the scope of the planned program and normal management attention should result in

controlling acceptable risk.

• Moderate Risk: May cause some increase

in cost, disruption of schedule, or degradation of performance. Special action and management attention may be required to handle

risk.

• High Risk: Likely to cause significant

increase in cost, disruption of schedule, or

degradation of performance. Significant

additional action and high priority management attention will be required to handle risk.

1.3.7 Independent Risk Assessor

An independent risk assessor is a person who is

not in the management chain or directly involved

in performing the tasks being assessed. Use of

independent risk assessors is a valid technique

to ensure that all risk areas are identified and that

the consequence/impact and probability/likelihood (or process variance) are properly understood. The technique can be used at different

program levels, e.g., Program Office, Service

Field Activities, Contractors, etc. The Program

Manager will approve the use of independent

assessors, as needed.

1.3.8 Templates and Best Practices

A “template” is a disciplined approach for the application of critical engineering and manufacturing processes that are essential to the success of

most programs. DoD 4245.7-M, Transition from
B-7

Development to Production Solving the Risk

Equation, provides a number of such templates.

For each template process described in DoD

4245.7-M, Best Practice Information is described

in NAVSO P-6071. These documents outline the

ideal or low risk approach and thus serve as a

baseline from which risk for some XYZ processes

can be assessed.

1.3.9 Metrics

There are measures used to indicate progress

or achievement.

1.3.10 Critical Program Attributes

Critical Program Attributes are performance,

cost, and schedule properties or values that are

vital to the success of the program. They are derived from various sources, such as the

Acquisition Program Baseline, exit criteria for

the next program phase, Key Performance

Parameters, test plans, the judgment of program

experts, etc. The XYZ program will track these

attributes to determine the progress in achieving

the final required value. See Annex A for a list

of the XYZ Critical Program Attributes.

2.0 RISK MANAGEMENT APPROACH

2.1 GENERAL APPROACH AND

STATUS

DoDI 5000.2 states: “Risks must be well understood, and risk management approaches developed, before decision authorities can authorize

a program to proceed into the next phase of the

acquisition process.” This policy is implemented

in DoD Regulation 5000.2-R, with more detailed guidance provided in the individual Service regulation. The Defense Acquisition Deskbook (Section 2.5.2) provides additional guidance, advice, and wisdom on the management

of risk. Figure B-1 shows how the XYZ program risk management fits into the phases and

milestones of the acquisition process.

Figure B-1. Risk Management and the Acquisition Process

Current Status

• Baseline

– Cost

– Schedule

– Performance

• Execution Status

Plans

• Program Plans

• Exit Criteria

Assessment

• Cost

• Schedule

• Performance

Plans

• Program Plans

• Exit Criteria

Current Status

• Refined Baseline

– Cost

– Schedule

– Performance

• Execution Status

Overall Acquisition

Milestone

Phase

Milestone

Phase Phase

Risk

Management

Risk

Management

Assessment

• Cost

• Schedule

• Performance
B-8

The XYZ program will use a centrally developed risk management strategy throughout the

acquisition process and decentralized risk planning, assessment, handling, and monitoring.

XYZ risk management is applicable to all

acquisition functional areas.

The results of the Concept Exploration Phase

of the program identified potential risk events

and the Acquisition Strategy reflects the

program’s risk-handling approach. Overall, the

risk of the XYZ program for Milestone B was

assessed as moderate, but acceptable. Moderate risk functional areas were threat, manufacturing, cost, funding, and schedule. The remaining functional areas of technology, design and

engineering (hardware and software), support,

(schedule) concurrency, human systems

integration, and environmental impact were

assessed as low risk.

2.2 RISK MANAGEMENT STRATEGY

The basic risk management strategy is intended

to identify critical areas and risk events, both technical and non-technical, and take necessary action to handle them before they can become

problems, causing serious cost, schedule, or performance impacts. This program will make extensive use of modeling and simulation, technology demonstrations, and prototype testing

in handling risk.

Risk management will be accomplished using

the integrated Government-Contractor IPT organization. These IPTs will use a structured assessment approach to identify and analyze those

processes and products that are critical to meeting the program objectives. They will then develop risk-handling options to mitigate the risks

and monitor the effectiveness of the selected

handling options. Key to the success of the risk

management effort is the identification of the

resources required to implement the developed

risk-handling options.

Risk information will be captured by the IPTs in

a risk management information system (RMIS)

using a standard Risk Information Form (RIF).

The RMIS will provide standard reports, and is

capable of preparing ad hoc tailored reports. See

Annex B for a description of the RMIS and RIF.

Risk information will be included in all program

reviews, and as new information becomes available, the PMO and contractor will conduct additional reviews to ascertain if new risks exist.

The goal is to be continuously looking to the

future for areas that may severely impact the

program.

2.3 ORGANIZATION

The risk organization for the XYZ program is

shown in Figure B-2. This is not a separate

organization, but rather shows how risk is

integrated into the program’s existing organization and shows risk relationships among members of the program team.

2.3.1 Risk Management Coordinator

The Risk Management Coordinator, the XYZ

Technology Assessment and R&D Manager, is

overall coordinator of the Risk Management

Program. The Risk Management Coordinator is

responsible for:

• Maintaining this Risk Management Plan;

• Maintaining the Risk Management Database;

• Briefing the PM on the status of XYZ

program risk;

• Tracking efforts to reduce moderate and high

risk to acceptable levels;

• Providing risk management training;

• Facilitating risk assessments; and
B-9

• Preparing risk briefings, reports, and documents required for Program Reviews and the

acquisition Milestone decision processes.

2.3.2 Program Level Integrated Product

Team (PLIPT)

The PLIPT is responsible for complying with

the DoD risk management policy and for structuring an efficient and useful XYZ risk management approach. The Program Manager is the

Chair of the PLIPT. The PLIPT membership

may be adjusted but is initially established as the

chairs of the Program IPTs, designated sub-tier

IPTs, and the Heads of PMO Functional Offices.

2.3.3 PIPTs

The Program IPTs are responsible for implementing risk management tasks per this plan.

This includes the following responsibilities:

• Review and recommend to the Risk Management Coordinator changes on the overall risk

management approach based on lessons learned.

• Quarterly, or as directed, update the program

risk assessments made during the System

Integration (SI) part of the System Development and Demonstration (SDD) Phase.

• Review and be prepared to justify the risk

assessments made and the risk handling plan

proposed.

• Report risk to the Program Manager/Program

Director, with information to the Risk Management Coordinator via Risk Information

Forms (RIFs).

• Ensure that risk is a consideration at each Program and Design Review.

• Ensure Design/Build Team responsibilities

incorporate appropriate risk management

tasks.

2.3.4 XYZ Independent Risk Assessors

Independent Assessors made a significant

contribution to the XYZ Milestone B risk

Figure B-2. XYZ Risk Management Organization

○○○

○○○

Support

Contractor

○○○○○ ○○○○○○○○○○○○○○○○○○○○

○ ○ ○ ○ ○ ○ ○○○○○○○

○○○○○○

Support

Contractor

Prime

Contractor

Functional

Support

Offices

As Needed

Coordination

○○○○○○○○○○○○○○○○

○○○○○○ Support provided by

non-PMO organizations

○○○

○○○

○○○

Risk

Management

Coordinator

Program

Level IPT

(PLIPT)

Sub-Tier

Program IPTs

(PIPTs)

PMO

Functional

Offices

Independent

Risk

Assessors

PM
B-10

assessments. The use of independent assessments as a means of ensuring that all risk areas

are identified will continue, when necessary.

2.3.5 Other Risk Assessment

Responsibilities

The Risk Assessment responsibilities of other

Systems Command codes, Service Field Activities, Design/Build Teams, and Contractors will

be as described in Memoranda of Agreement

(MOAs), Memoranda of Understanding

(MOUs), Systems Command Tasking, or contracts. This RMP should be used as a guide for

XYZ risk management efforts.

2.3.6 User Participation

The Requirements Organization (specific code)

is the focal point for providing the Program

Executive Officer or the Project Manager with

user identified risk assessments.

2.3.7 Risk Training

The key to the success of the risk efforts is the

degree to which all members of the team, both

Government and contractor are properly trained.

The XYZ Program Office will provide risk training, or assign members to training classes, during the SDD Phase. Key personnel with XYZ

management or assessment responsibilities are

required to attend. All members of the team will

receive, at a minimum, basic risk man-agement

training. XYZ sponsored training is planned to

be presented according to the schedule provided

in Annex X (not provided).

3.0 RISK MANAGEMENT PROCESS

AND PROCEDURES

3.1 OVERVIEW

This section describes XYZ program’s risk

management process and provides an overview

of the XYZ risk management approach. The

Defense Acquisition Deskbook defines risk

management as “the act or practice of controlling risk. It includes risk planning, assessing

risk areas, developing risk-handling options,

monitoring risks to determine how risks have

changed, and documenting the overall risk

management program.” Figure B-3 shows, in

general terms, the overall risk management process that will be followed in the XYZ program.

This process follows DoD and Service policies

and guidelines and incorporates ideas found in

other sources. Each of the risk management

functions shown in Figure B-3 is discussed in

the following paragraphs, along with specific procedures for executing them.

Figure B-3. Risk Management Structure

(also referred to as the Risk Management Process Model)

• Requirements

• Responsibilities

• Definitions

• Resources

• Procedures

• Risk Events

• Analysis

• Update Assessments

• Document Findings

• Handling Tasks

• Metrics

• Report

• Metrics

• Track Status

• Report

Documentation

Execution Phase

Risk

Planning

Risk

Assessment

Risk

Handling

Risk

Monitoring
B-11

3.2 RISK PLANNING

3.2.1 Process

Risk planning consists of the up-front activities

necessary to execute a successful risk management program. It is an integral part of normal

program planning and management. The planning should address each of the other risk management functions, resulting in an organized and

thorough approach to assess, handle, and monitor risks. It should also assign responsibilities for

specific risk management actions and establish

risk reporting and documentation requirements.

This RMP serves as the basis for all detailed risk

planning, which must be continuous.

3.2.2 Procedures

3.2.2.1 Responsibilities. Each IPT is responsible for conducting risk planning, using this

RMP as the basis. The planning will cover all

aspects of risk management to include assessment, handling options, and monitoring of risk

handling activities. The Program Risk Management Coordinator will monitor the planning

activities of the IPTs to ensure that they are consistent with this RMP and that appropriate revisions to this plan are made when required to reflect significant changes resulting from the IPT

planning efforts.

Each person involved in the design, production,

operation, support, and eventual disposal of the

XYZ system or any of its systems or components is a part of the risk management process.

This involvement is continuous and should be

considered a part of the normal management

process.

3.2.2.2 Resources and Training. An effective

risk management program requires resources.

As part of its planning process, each IPT will

identify the resources required to implement the

risk management actions. These resources

include time, material, personnel, and cost. Training is major consideration. All IPT members

should receive instruction on the fundamentals

of risk management and special training in their

area of responsibility, if necessary.

3.2.2.3 Documentation and Reporting. This

RMP establishes the basic documentation and reporting requirements for the program. IPTs should

identify any additional requirements that might

be needed to effectively manage risk at their level.

Any such additional requirements must not conflict with the basic requirements in this RMP.

3.2.2.4 Metrics. Each IPT should establish

metrics that will measure the effectiveness of

their planned risk-handling options. See Annex

C for an example of metrics that may be used.

3.2.2.5 Risk Planning Tools. The following

tools can be useful in risk planning. It may be

useful to provide this information to the contractors to help them understand the XYZ program’s

approach to managing risk. This list is not meant

to be exclusive.

• DoD Manual 4245.7-M, a DoD guide for

assessing process technical risk.

• The Navy’s Best Practices Manual, NAVSO

P-6071, provides additional insight into each

of the Templates in DoD 4245.7-M and a

checklist for each template.

• Program Manager’s Work Station (PMWS)

software, may be useful to some risk assessors.

PMWS has a Risk Assessment module based

on the Template Manual and Best Practices

Manual.

• Commercial and Government developed risk

management software.

The latter includes Government software, such

as Risk Matrix developed by Mitre Corporation
B-12

for the Air Force and the New Attack Submarine Program’s On-Line Risk Data Base

(OLRDB).

3.2.2.6 Plan Update. This RMP will be updated, if necessary, on the following occasions:

(1) whenever the acquisition strategy changes,

or there is a major change in program emphasis; (2) in preparation for major decision points;

(3) in preparation for and immediately following technical audits and reviews; (4) concurrent with the review and update of other

program plans; and (5) in preparation for a POM

submission.

3.3 RISK ASSESSMENT

The risk assessment process includes the

identification of critical risk events/processes,

which could have an adverse impact on the

program, and the analyses of these events/

processes to determine the probability/likelihood of occurrence/process variance and

consequences/impacts. It is the most demanding and time-consuming activity in the risk

management process.

3.3.1 Process

3.3.1.1 Identification. Risk identification is the

first step in the assessment process. The basic process involves searching through the entire XYZ

program to determine those critical events that

would prevent the program from achieving its

objectives. All identified risks will be documented

in the RMIS, with a statement of the risk and a

description of the conditions or situations causing concern and the context of the risk.

Risks will be identified by all Program IPTs and

by any individual in the program. The lowerlevel IPTs can identify significant concerns earlier than otherwise might be the case and identify those events in critical areas that must be

dealt with to avoid adverse consequences/

impacts. Likewise, individuals involved in the

detailed and day-to-day technical, cost, and

scheduling aspects of the program are most

aware of the potential problems (risks) that need

to be managed.

3.3.1.2 Analysis. This process involves:

• Identification of WBS elements

• Evaluation of the WBS elements using the

risk areas to determine risk events

• Assignment of probability/likelihood and consequence/impact to each risk event to establish

a risk rating

• Prioritization of each risk event relative to

other risks.

Risk analysis should be supported by a study,

test results, modeling and simulation, trade

study, the opinion of a qualified expert (to

include justification of his or her judgment), or

any other accepted analysis technique. The Defense Acquisition Deskbook, Section 2524.2 describes a number of analysis techniques that may

be useful. Evaluators should identify all assumptions made in assessing risk. When appropriate, a sensitivity analysis should be done on

assumptions.

Systems engineering analysis, risk assessments,

and manpower risk assessments provide additional information that must be considered. This

includes, among other things, environmental impact, system safety and health analysis, and security considerations. Classified programs

may experience difficulties in access, facilities,

and visitor control that can introduce risk and

must be considered.

The analysis of individual risk will be the

responsibility of the IPT identifying the risk, or

the IPT to which the risk has been assigned. They
B-13

may use external resources for assistance, such

as field activities, Service laboratories, and contractors. The results of the analysis of all identified risks must be documented in the RMIS.

3.3.2 Procedures

3.3.2.1 Assessments – General. Risk assessment is an iterative process, with each assessment building on the results of previous assessments. The current baseline assessment is a

combination of the risk assessment delivered by

the contractors as part of the Concept Refinement (CR) Phase, the program office risk assessment done before Milestone B, and the postaward Integrated Baseline Review (IBR) performed in the SI part of SDD.

For the program office, unless otherwise directed

in individual tasking, program level risk assessments will be presented at each Program Review

meeting with a final update not later than 6

months before the next scheduled Milestone

decision. The primary source of information for

the next assessment will be the current assessment baseline, and existing documentation such

as CR Phase study results, the design mission

profile that was done as part of the CR Phase,

the IBR, which will be conducted immediately

after the System Integration (SI) Part of the System Development and Demonstration (SDD)

Phase contract award, the contract WBS that is

part of the IBR, industry best practices as described in the PMWS Knowledge base, the

ORD, the Acquisition Program Baseline (APB),

and any contractor design documents.

IPTs should continually assess the risks in their

areas, reviewing risk-handling actions and the

critical risk areas whenever necessary to assess

progress. For contractors, risk assessment

updates should be made as necessary.

The risk assessment process is intended to be

flexible enough so that field activities, service

laboratories, and contractors may use their judgment in structuring procedures considered most

successful in identifying and analyzing all risk

areas.

3.3.2.2 Identification. Following is a description of step-by-step procedures that evaluators

may use as a guide to identify program risks.

• Step One – Understand the requirements and

the program performance goals, which are

defined as thresholds and objectives (see

5000.2-R). Describe the operational (functional and environmental) conditions under

which the values must be achieved by

referring or relating to design documents. The

ORD and APB contain Key Performance Parameters (KPPs).

• Step Two – Determine the engineering and

manufacturing processes that are needed to

design, develop, produce, and support the

system. Obtain industry best practices for

these processes.

• Step Three – Identify contract WBS elements

(to include products and processes).

• Step Four – Evaluate each WBS element

against sources/areas of risk described in

Table 4-2 of the DSMC Risk Management

Guide, plus other sources/areas as

appropriate.

• Step Five – Assign a probability and consequence/impact to each risk event

• Step Six – Prioritize the risk events.

Following are indicators that IPTs may find

helpful in identifying and assessing risk:

• Lack of Stability, Clarity, or Understanding of Requirements: Requirements drive the

design of the system. Changing or poorly
B-14

stated requirements guarantees the introduction of performance, cost, and schedule

problems.

• Failure to Use Best Practices virtually assures that the program will experience some

risk. The further a contractor deviates from

best practices, the higher the risk.

• New Processes should always be suspect,

whether they are related to design, analysis,

or production. Until they are validated, and

until the people who implement them have

been trained and have experience in successfully using the process, there is risk.

• Any Process Lacking Rigor should also be

suspect; it is inherently risky. To have rigor,

a process should be mature and documented,

it should have been validated, and it should

be strictly followed.

• Insufficient Resources: People, funds,

schedule, and tools are necessary ingredients for successfully implementing a process. If any are inadequate, to include the

qualifications of the people, there is risk.

• Test Failure may indicate corrective action

is necessary. Some corrective actions may not

fit available resources, or the schedule, and

(for other reasons as well) may contain risk.

• Qualified Supplier Availability: A supplier

not experienced with the processes for designing and producing a specific product is not a

qualified supplier and is a source of risk.

• Negative Trends or Forecasts are cause for

concern (risk) and may require specific

actions to turn around.

There are a number of techniques and tools available for identifying risks. Among them are:

• Best Judgment: The knowledge and experience of the collective, multi-disciplined

Integrated Project Team (IPT) members and the

opinion of subject-matter experts (SMEs) are

the most common source of risk identification.

• Lessons Learned from similar processes can

serve as a baseline for the successful way to

achieve requirements. If there is a departure

from the successful way, there may be risk.

• DoD 4245.7-M, Transition from Development to Production, is often called the “Templates” book because it identifies technical

risk areas and provides, in “bullet” form, suggestions for avoiding those risks. It focuses

on the technical details of product design, test,

and production to help managers proactively

manage risk. It also includes chapters on facilities, logistics, and management, which

make this a useful tool in identifying weak

areas of XYZ planned processes early enough

to implement actions needed to avoid adverse

consequences/impacts. A copy of this manual

is available at: http://www.dtic.mil/whs/

directives.

• The NAVSO P-6071 Best Practices Manual was developed by the Navy to add depth

to the Template Book, DoD 4245.7-M.

• Critical Program Attributes are metrics that

the program office developed to measure

progress toward meeting our objectives. Team

members, IPTs, functional managers, contractors, etc., may develop their own metrics to

support these measurements. The attributes

may be specification requirements, contract

requirements, or measurable parameters from

any agreement or tasking. The idea is to provide a means to measure whether we are on

track in achieving our objectives.

• Methods and Metrics for Product Success

is a manual published by the Office of the
B-15

Assistant Secretary of the Navy (RDA) Product Integrity Directorate. It highlights areas

related to design, test, and production processes where problems are most often found

and metrics for the measurement of effectiveness of the processes. It also describes

the software tool, Program Manager’s Work

Station (PMWS). (See next paragraph.)

• PMWS contains risk management software,

“Technical Risk Identification and Mitigation

System (TRIMS) and Knowledgebase.” They

provide a tailorable management system

based on NAVSO P-6071 and DoD 4245.7-

M. The PMWS provides a compact disk

(CD) that contains the necessary programs for

assessing a program’s risk and software for

program management. PMWS can be obtained by calling the Best Manufacturing Program (BMP) Office at (301) 403-8100.

• New Nuclear Submarine (NSSN) On-Line

Risk Database (ONLRB) is a software tool

may be used to support the XYZ Risk Management Process. The tool helps IPTs in the

identification and assessment of risk and

management of handling efforts.

• Risk Matrix is another candidate for use by

the PMO. It is an automated tool, developed

by Mitre Corporation, that supports a

structured approach for identifying risk and

assessing its potential program impact. It is

especially helpful for prioritizing risks.

• Requirements Documents describe the

output of our efforts. IPT efforts need to be

monitored continuously to ensure requirements are met on time and within budget.

When they aren’t, there is risk.

• Contracting for Risk Management helps

ensure the people involved with the details

of the technical processes of design, test, and

production are involved with managing risk.

The principle here is that those performing

the technical details are normally the first ones

to know when risks exist.

• Quality Standards, such as ISO9000,

ANSI/ASQC Q 9000, MIL-HDBK 9000,

and others describe processes for developing and producing quality products. Comparing our processes with these standards can

highlight areas we may want to change to

avoid risk.

• Use of Independent Risk Assessors is a

method to help ensure all risk is identified.

The knowledgeable, experienced people are

independent from the management and

execution of the processes and procedures

being reviewed. Independent assessment

promotes questions and observations not

otherwise achievable.

3.3.2.3 Analysis. Risk analysis is an evaluation of the identified risk events to determine

possible outcomes, critical process variance

from known best practices, the probability/likelihood of those events occurring, and the consequences/impacts of the outcomes. Once this

information has been determined, the risk event

may be rated against the program’s criteria and

an overall assessment of low, moderate, or high

assigned. Figure B-4 depicts the risk analysis

process and procedures.

Critical Process Variance. For each process risk

related event identified, the variance of the process from known standards or best practices must

be determined. As shown in Figure B-4, there

are five levels (a-e) in the XYZ risk assessment

process, with the corresponding criteria of Minimal, Small, Acceptable, Large, and Significant.

If there is no variance then there is no risk.

Probability/Likelihood. For each risk area identified, the probability/likelihood the risk will

happen must be determined. As shown in Figure
B-16

B-4, there are five levels (a-e) in the XYZ risk

assessment process, with the corresponding subjective criteria of Remote, Unlikely, Likely,

Highly Likely, and Near Certainty. If there is zero

probability/likelihood of an event, there is no risk

per our definition.

Consequence/impact. For each risk area identified, the following question must be answered:

Given the event occurs, what is the magnitude

of the consequence/impact? As shown in the figure, there are five levels of consequence/impact

(a-e). “Consequence/impact” is a multifaceted

issue. For this program, there are four areas that

we will evaluate when determining consequence/impact: technical performance, schedule,

cost, and impact on other teams. At least one of

the four consequence/impact areas needs to apply for there to be risk; if there is no adverse

consequence/impact in any of the areas, there is

no risk.

• Technical Performance: This category includes all requirements that are not included

in the other three metrics of the Consequence/Impact table. The wording of each

level is oriented toward design processes,

production processes, life cycle support, and

to retirement of the system. For example, the

word “margin” could apply to weight margin during design, safety margin during testing, or machine performance margin during

production.

• Schedule: The words used in the Schedule

column, as in all columns of the Consequence/

Impact table, are meant to be universally

applied. Avoid excluding a consequence/

Figure B-4. Risk Assessment Process

Level What is the Likelihood the

Risk Event Will Happen?

a Remote

b Unlikely

c Likely

d Highly likely

e Near certainty

a Minimal or no impact Minimal or no impact Minimal or no impact None

b Acceptable with some Additional resources <5% Some impact

reduction in margin required; able to meet

need dates

c Acceptable with significant Minor slip in key milestones; 5-7% Moderate impact

reduction in margin not able to meet need date

d Acceptable; no remaining Major slip in key milestone 7-10% Major impact

margin or critical path impacted

e Unacceptable Can’t achieve key team or >10% Unacceptable

major program milestone

Level

Technical

Performance

and/

or Schedule

and/

or Cost

and/

or

Impact on

Other Teams

RISK ASSESSMENT

R HIGH—Unacceptable. Major

disruption likely. Different

approach required. Priority

management attention

required.

Y MODERATE—Some

disruption. Different

approach may be required.

Additional management

attention may be needed.

G LOW—Minimum impact.

Minimum oversight needed

to ensure risk remains low.

Process Variance refers to

deviation from best practices.

Likelihood/Probability refers to

risk events.

ASSESSMENT GUIDE

eM M H H H

dL MM H H

cL L MMH

bL L L MM

aL L L L M

abcde

Likelihood

Consequence
B-17

impact level from consideration just because

it doesn’t match your team’s specific definitions. In other words, phrases such as need

dates, key milestones, critical path, and key

team milestones are meant to apply to all IPTs.

• Cost: Since costs vary from component to

component and process to process, the percentage criteria shown in the figure may not

strictly apply at the lower levels of the WBS.

These team leaders can set the percentage

criteria that best reflects their situation. However, when costs are rolled up at higher levels

(e.g., Program), the following definitions will

be used: Level 1—no change, Level 2—

<5%, Level 3—5-7%, Level 4—7-10%, and

Level 5—>10%.

• Impact on Other Teams: Both the consequence/impact of a risk and the handling actions associated with reducing the risk may

impact another team. This may involve

additional coordination or management

attention (resources) and may therefore

increase the level of risk. This is especially

true of common technical processes.

Risk Rating. Probability and consequence/

impact should not always be considered equally;

for example, there may be consequences/impacts

so severe that it is considered high risk even

though the probability to achieve a particular

outcome is low. After deciding a level of process variance/probability/likelihood (a through

e) and a level of consequence/impact (a through

e), enter the Assessment Guide portion of Figure B-4 to obtain a risk rating (green = LOW,

yellow = MOD, and red = HIGH). For example;

consequence/impact/process variance/probability/likelihood level 2b corresponds to LOW risk,

level 3d corresponds to MOD risk, level 5c corresponds to HIGH risk. After obtaining the risk

rating, make a subjective comparison of the risk

event with the applicable rating definition in Figure B-4 (e.g., High= unacceptable, major

disruptions, etc.). There should be a close match.

If there isn’t, consider reevaluating the level of

probability/likelihood or consequence/impact.

Those risk events that are assessed as moderate

or high should be submitted to the XYZ Risk

Management Coordinator on a RIF.

Figure B-4 is useful to convey information to

decision makers and will be used primarily for

that purpose. The PMO will use the Risk Tracking Report and Watch List. (See Annex D.)

3.4 RISK HANDLING

3.4.1 Process

After the program’s risks have been identified

and assessed, the approach to handling each significant risk must be developed. There are

essentially four techniques or options for handling risks: avoidance, control, transfer, and

assumption. For all identified risks, the various

handling techniques should be evaluated in terms

of feasibility, expected effectiveness, cost and

schedule implications, and the effect on the

system’s technical performance, and the most

suitable technique selected. Section 2524.3 of

the Defense Acquisition Deskbook contains information on the risk-handling techniques and

various actions that can be used to implement

them. The results of the evaluation and selection will be included and documented in the

RMIS using the RIF. This documentation will

include: what must be done, the level of effort

and materials required, the estimated cost to

implement the plan, a proposed schedule showing the proposed start date, the time phasing of

significant risk reduction activities, the completion date, and their relationship to significant Program activities/milestones (an example is provided in Annex B), recommended metrics for

tracking the action, a list of all assumptions, and

the person responsible for implementing and

tracking the selected option.
B-18

3.4.2 Procedures

The IPT that assessed the risk is responsible for

evaluating and recommending to the PM the

risk-handling options that are best fitted to the

program’s circumstances. Once approved, these

are included in the program’s acquisition strategy

or management plans, as appropriate.

For each selected handling option, the responsible

IPT will develop specific tasks that, when implemented, will handle the risk. The task descriptions

should explain what has to be done, the level of

effort, and identify necessary resources. It should

also provide a proposed schedule to accomplish

the actions including the start date, the time phasing of significant risk reduction activities, the

completion date, and their relationship to significant Program activities/milestones (an example is

provided in Annex B), and a cost estimate. The

description of the handling options should list all

assumptions used in the development of the handling tasks. Assumptions should be included in

the RIF. Recommended actions that require resources outside the scope of a contract or official

tasking should be clearly identified, and the IPTs,

the risk area, or other handling plans that may be

impacted should be listed.

Reducing requirements as a risk avoidance technique will be used only as a last resort, and then

only with the participation and approval of the

user’s representative.

DoD 4245.7-M Templates and NAVSO P-6071

Best Practices Manual, are useful in developing risk-handling actions for design, test, or

manufacturing process risks.

3.5 RISK MONITORING

3.5.1 Process

Risk monitoring systematically tracks and evaluates the performance of risk-handling actions. It

is part of the PMO function and responsibility

and will not become a separate discipline. Essentially, it compares predicted results of planned

actions with the results actually achieved to determine status and the need for any change in

risk-handling actions. The effectiveness of the

risk-monitoring process depends on the establishment of a management indicator system

(metrics) that provides accurate, timely, and relevant risk information in a clear, easily understood manner. (See Annex D.) The metrics selected to monitor program status must adequately

portray the true state of the risk events and handling actions. Otherwise, indicators of risks that

are about to become problems will go undetected.

To ensure that significant risks are effectively

monitored, risk-handling actions (which include

specific events, schedules, and “success” criteria) will be reflected in integrated program

planning and scheduling. Identifying these risk

handling actions and events in the context of

Work Breakdown Structure (WBS) elements

establishes a linkage between them and specific work packages, making it easier to determine the impact of actions on cost, schedule,

and performance. The detailed information on

risk-handling actions and events will be included in the RIF for each identified risk, and

thus be resident in the RMIS.

3.5.2 Procedures

The functioning of IPTs is crucial to effective

risk monitoring. They are the “front line” for

obtaining indications that risk-handling efforts

are achieving their desired effects. Each IPT is

responsible for monitoring and reporting the effectiveness of the handling actions for the risks

assigned. Overall XYZ program risk assessment

reports will be prepared by the XYZ Risk Management Coordinator working with the cognizant IPT.
B-19

Many techniques and tools are available for

monitoring the effectiveness of risk-handling actions, and IPTs must ensure that they select those

that best suit their needs. No single technique or

tool is capable of providing a complete answer—

a combination must be used. At a minimum, each

IPT will maintain a watch list of identified high

priority risks. See Section 2.5.2.4 of the Defense

Acquisition Deskbook for information on specific techniques.

Risks rated as Moderate or High risk will be

reported to the XYZ Risk Management Coordinator, who will also track them, using information provided by the appropriate IPT, until

the risk is considered Low and recommended

for “Close Out.” The IPT that initially reported

the risk retains ownership and cognizance for

reporting status and keeping the database

current. Ownership means implementing handling plans and providing periodic status of the

risk and of the handling plans. Risk will be

made an agenda item at each management or

design review, providing an opportunity for all

concerned to offer suggestions for the best

approach to managing risk. Communicating

risk increases the program’s credibility and

allows early actions to minimize adverse

consequences/impacts.

The risk management process is continuous.

Information obtained from the monitoring process is fed back for reassessment and evaluations of handling actions. When a risk area is

changed to Low, it is put into a “Historical File”

by the Risk Management Coordinator and it is

no longer tracked by the XYZ PMO. The

“owners” of all Low risk areas will continue

monitoring Low risks to ensure they stay Low.

The status of the risks and the effectiveness of

the risk-handling actions will be reported to the

Risk Management Coordinator:

• Quarterly;

• When the IPT determines that the status of

the risk area has changed significantly (as a

minimum when the risk changes from high

to moderate to low, or vice versa); and

• When requested by the Program Manager.

4.0 RISK MANAGEMENT

INFORMATION SYSTEM (RMIS)

AND DOCUMENTATION

The XYZ program will use the XXX database

management system as its RMIS. The system

will contain all of the information necessary

to satisfy the program documentation and

reporting requirements.

4.1 RISK MANAGEMENT

INFORMATION SYSTEM

The RMIS stores and allows retrieval of riskrelated data. It provides data for creating reports

and serves as the repository for all current and

historical information related to risk. This

information will include risk assessment documents, contract deliverables, if appropriate, and

any other risk-related reports. The PMO will

use data from the RMIS to create reports for

senior management and retrieve data for dayto-day management of the program. The program produces a set of standard reports for

periodic reporting and has the ability to create

ad hoc reports in response to special queries.

See Annex D for a detailed discussion of the

RMIS.

Data are entered into the RMIS using the Risk

Information Form (RIF). The RIF gives members of the project team, both Government and

contractors, a standard format for reporting riskrelated information. The RIF should be used

when a potential risk event is identified and will

be updated as information becomes available as

the assessment, handling, and monitoring functions are executed.
B-20

4.2 RISK DOCUMENTATION

All program risk management information will

be documented, using the RIF as the standard

RMIS data entry form. The following paragraphs

provide guidance on documentation requirements for the various risk management functions.

4.2.1 Risk Assessment Documentation

Risk assessments form the basis for many program decisions. From time to time, the PM will

need a detailed report of any assessment of a

risk event. It is critical that all aspects of the

risk management process are documented.

4.2.2 Risk-Handling Documentation

Risk-handling documentation will be used to provide the PM with the information he needs to

choose the preferred handling option.

4.2.3 Risk Monitoring Documentation

The PM needs a summary document that tracks

the status of high and moderate risks. The Risk

Management Coordinator will produce a risk

tracking list, for example, that uses information

that has been entered from the RMIS. This document will be produced on a monthly basis.

4.3 REPORTS

Reports are used to convey information to

decision makers and team members on the

status of the program and the effectiveness of

the risk management program. Every effort will

be made to generate reports using the data

resident in the RMIS.

4.3.1 Standard Reports

The RMIS will have a set of standard reports. If

IPTs or functional managers need additional

reports, they should work with the Risk

Management Coordinator to create them. Access

to the reporting system will be controlled;

however, any member of the Government or

contractor team may obtain a password to gain

access to the information. See Annex B for a

description of the XYZ program reports.

4.3.2 Ad Hoc Reports

In addition to standard reports, the PMO will

need to create ad hoc reports in response to

special queries. The Risk Management Coordinator will be responsible for these reports.
B-21

ANNEX A

TO XYZ RISK MANAGEMENT PLAN

— CRITICAL PROGRAM ATTRIBUTES —

Table B-1. Critical Program Attributes

Category Description Responsible IPT Remarks

Performance/Physical Speed

Weight

Endurance

Crew Size

Survivability

Maneuverability

Size

Receiver Range

Transmitter Range

Data Link Operations

Recovery Time

Initial Setup

Identification Time

Accuracy Location

Probability of Accurate ID

Reliability

Maintainability

Availability

Etc.

Cost Operating and Support Costs

Etc.

Processes Requirements Stable

Test Plan Approved

Exit Criteria Engine Bench Test

Accuracy Verified by Test Data

and Analysis

Toolproofing Completed

Logistics Support Reviewed by

User
B-22

ANNEX B

TO XYZ RISK MANAGEMENT PLAN

— PROGRAM RISK REDUCTION SCHEDULE —

(EXAMPLE OF RISK HANDLING PLAN SCHEDULE)

Figure B-5. XYZ Program Risk Handling Plan Schedule (Example)

MS C

R

I

S

K

R

A

T

I

N

G

M

E

D

I

U

M

L

O

W

H

I

G

H

CR TD SDD P&D

CY 2000 2001 2002 2003 2004 2005 2006 2007

Accomplished Planned

Determine and flowdown requirements, evaluate potential hardware and software solutions. Gather data

on NDI capabilities, limitations, evaluate alternatives and pick lower risk solutions.

Simulations to evaluate subsystem interactions, timing issues. Simulations to evaluate target sets,

environment effects.

Preliminary design and trade studies to work issues such as temperature and shock environments.

Develop baseline design. Reassess risk.

Get hardware and software in place for pre-SDD simulations. Consolidate team structure and

supplier.

Hardware-in-the-Loop (HWIL) and performance prediction demo. Supporting analyses and design

studies.

Initiate detailed trade studies and identify alternatives. Validate and implement trade study

decisions with customer on IPD teams for lower risk options. Reassess risk.

Extensive simulations & HWIL testing. Developmental test program, supporting

analyses, reviews and decisions.

Systems integration testing (supported by continued simulations) to

verify design. TAAF program with selected subsystems. Reassess risk.

Qualification testing.

Operational testing & simulations.

(LRIP items)

Production.

FRP

MS B

SRR SFR PDR CDR FCA PCA
B-23

Table B-3. Examples of Process Metrics

Table B-2. Examples of Product-Related Metrics

ANNEX C

TO XYZ RISK MANAGEMENT PLAN

— PROGRAM METRIC EXAMPLES —

Key Design Parameters

• Weight

• Size

• Endurance

• Range

Design Maturity

• Open problems

reports

• Number of

engineering change

proposals

• Number of drawings

released

• Failure activities

Computer Resource

Utilization

Etc.

Engineering Requirements Support Production

Requirements Traceability

Requirements Stability

Threat Stability

Design Mission Profile

Manufacturing Yields

Incoming Material Yields

Delinquent Requisitions

Unit Production Cost

Process Proofing

Waste

Personnel Stability

Special Tools and Test

Equipment

Support Infrastructure

Footprint

Manpower Estimates

Development of

requirements

traceability plan

Development of

specification tree

Specifications

reviewed for:

• Definition of

all use

environments

• Definition of

all functional

requirements

for each

mission

performed

Integrated Test

Plan

Design

Process

Failure

Reporting

System

Trade

Studies

Design

Requirements

Users needs

prioritized

Alternative

system configurations selected

Test methods

selected

Design requirements stability

Producibility

analysis conducted

Design analyzed

for:

• Cost

• Parts

reduction

• Manufacturability

• Testability

All developmental tests at

system and

subsystem level

identified

Identification of

who will do test

(Government,

contractor,

supplier)

Contractor

corporate-level

management

involved in

failure reporting

and corrective

action process

Responsibility for

analysis and

corrective action

assigned to

specific individual with closeout date

Manufacturing

Plan

Plan documents

methods by

which design to

be built

Plan contains

sequence and

schedule of

events at contractor and subcontractor levels

that defines use

of materials, fabrication flow, test

equipment, tools,

facilities, and

personnel

Reflects manufacturing inclusion in design

process. Includes identification and

assessment of

design facilities
B-24

Table B-4. Examples of Cost and Schedule Metrics

Cost Schedule

Cost variance Schedule variance

Cost performance index Schedule performance index

Estimate at completion Design schedule performance

Management reserve Manufacturing schedule performance

Test schedule performance
B-25

Figure B-6. Conceptual Risk Management and Reporting System

ANNEX D

TO XYZ RISK MANAGEMENT PLAN

— MANAGEMENT INFORMATION SYSTEM AND DOCUMENTATION —

1.0 DESCRIPTION

In order to manage risk, we need a database

management system that stores and allows retrieval of risk-related data. The Risk Management Information System (RMIS) provides data

for creating reports and serves as the repository

for all current and historical information related

to risk. This information may include risk assessment documents, contract deliverables, if

appropriate, and any other risk-related reports.

The Risk Management Coordinator is responsible for the overall maintenance of the RMIS,

and he or his designee are the only persons who

may enter data into the database.

The RMIS will have a set of standard reports.

If IPTs or functional managers need additional

reports, they should work with the Risk Management Coordinator to create them. Access to

the reporting system will be controlled; however,

any member of the Government or contractor

team may obtain a password to gain access to

the information.

In addition to standard reports, the PMO will

need to create ad hoc reports in response to special queries etc. The Risk Management Coordinator will be responsible for these reports. Figure B-6 shows a concept for a management and

reporting system.

2.0 RISK MANAGEMENT REPORTS—

XYZ PROGRAM

The following are examples of basic reports that

a PMO may use to manage its risk program.

Each office should coordinate with the Risk

Management Coordinator to tailor and amplify

them, if necessary, to meets its specific needs.

2.1 RISK INFORMATION FORM

The PMO needs a document that serves the dual

purpose of a source of data entry information

and a report of basic information for the IPTs,

etc. The Risk Information Form (RIF) serves this

purpose. It gives members of the project team,

Other

Risk Management Concept

Contractor

Request or

Create Report

RIF

Submit Data

for Entry

Request Reports or Information

(Controlled Access)

IPTs

Functional

Risk

Coordinator

Database

Management

System

Standard

Reports

Ad Hoc

Reports

Historical

Data
B-26

both Government and contractors, a format for

reporting risk-related information. The RIF

should be used when a potential risk event is

identified and updated over time as information

becomes available and the status changes. As a

source of data entry, the RIF allows the database administrator to control entries. The format

for a RIF is included on page B-29.

2.2 RISK ASSESSMENT REPORT

Risk assessments form the basis for many program decisions, and the PM may need a detailed

report of assessments of a risk event that has

been done. A Risk Assessment Report (RAR)

is prepared by the team that assessed a risk event

and amplifies the information in the RIF. It documents the identification, analysis, and handling

processes and results. The RAR amplifies the

summary contained in the RIF, is the basis for

developing risk-handling plans, and serves as a

historical recording of program risk assessment.

Since RARs may be large documents, they may

be stored as files. RARs should include information that links it to the appropriate RIF.

2.3 RISK-HANDLING

DOCUMENTATION

Risk-handling documentation may be used to

provide the PM with information he needs to

choose the preferred handling option and is the

basis for the handling plan summary contained

in the RIF. This document describes the examination process for risk-handling options and

gives the basis for the selection of the

recommended choice. After the PM chooses an

option, the rationale for that choice may be included. There should be a time-phased plan for

each risk-handling task. Risk-handling plans are

based on results of the risk assessment. This document should include information that links it to

the appropriate RIF.

2.4 RISK MONITORING

DOCUMENTATION

The PM needs a summary document that tracks

the status of high and moderate risks. The XYZ

program will use a risk-tracking list that contains information that has been entered from

the RIF. An example of the tracking report/list

is shown on page B-30.

3.0 DATABASE MANAGEMENT

SYSTEM (DBMS)

The XYZ Risk Management Information System (RMIS) provides the means to enter and

access data, control access, and create reports.

Key to the MIS are the data elements that reside

in the database. Listed below are the types of

risk information that will be included in the

database. “Element” is the title of the database

field; “Description” is a summary of the field

contents. The Risk Management Coordinator

will create the standard reports such as, the RIF,

Risk Monitoring, etc. The RMIS also has the

ability to create “ad hoc” reports, which can be

designed by users and the Risk Management

Coordinator.
B-27

Table B-5. DBMS Elements

Element Description

Risk Identification

(ID) Number

Risk Event

Priority

Data Submitted

Major System/

Component

Subsystem/

Functional Area

Category

Statement of Risk

Description of

Risk

Key

Parameters

Assessment

Analyses

Probability of

Occurrence

Consequence

Time Sensitivity

Other Affected

Areas

Risk Handling Plans

Risk Monitoring

Activity

Status

Status Due Date

Assignment

Reported By

Identifies the risk and is a critical element of information, assuming that a

relational database will be used by the PMO. (Construct the ID number to

identify the organization responsible for oversight.)

States the risk event and identifies it with a descriptive name. The statement

and risk identification number will always be associated in any report.

Reflects the importance of this risk priority assigned by the PMO compared to

all other risks, e.g., a one (1) indicates the highest priority.

Gives the date that the RIF was submitted.

Identifies the major system/component based on the WBS.

Identifies the pertinent subsystem or component based on the WBS.

Identifies the risk as technical/performance cost or schedule or combination of

these.

Gives a concise statement (one or two sentences) or the risk.

Briefly describes the risk. Lists the key processes that are involved in the

design, development, and production of the particular system or subsystem. If

technical/performance, includes how it is manifested (e.g., design and

engineering, manufacturing, etc.)

Identifies the key parameter, minimum acceptable value, and goal value, if

appropriate. Identifies associated subsystem values required to meet the

minimum acceptable value and describes the principal events planned to

demonstrate that the minimum value has been met.

States if an assessment has been done. Cites the Risk Assessment Report, if

appropriate.

Briefly describes the analysis done to assess the risk. Includes rationale and

basis for results.

States the likelihood of the event occurring, based on definitions in the

program’s Risk Management Plan.

States the consequence of the event, if it occurs, based on definitions in the

program’s Risk Management Plan.

Estimates the relative urgency for implementing the risk-handling option.

If appropriate, identifies any other subsystem or process that this risk affects.

Briefly describes plans to mitigate the risk. Refers to any detailed plans that

may exist, if appropriate.

Measures using metrics for tracking progress in implementing risk handling

plans and achieving planned results for risk reduction.

Briefly reports the status of the risk-handling activities and outcomes relevant

to any risk handling milestones.

Lists date of the status report.

Lists individual assigned responsibility for handling activities.

Records name and phone number of individual who reported the risk.
B-28

Risk Information Form

Risk Identification Number Date

Risk Event:

Priority

Major System/Component/Functional Area:

Category:

Statement of Risk:

Description of Risk:

Key Parameters:

Assessment:

Analysis:

Process Variance

Probability of Occurrence:

Consequence:

Time Sensitivity:

Other Affected Areas:

Risk Handling Plans:

Risk Monitoring Activity:

Status

Status Date:

Assignment: Reported By:

Figure B-7. Risk Information Form
B-29

Risk Tracking Report

(Example Report)

Figure B-8. Risk Tracking Report Example

I. Risk Area Status: Design PF: Hi CF: Hi

Significant Design Risks:

1. Title: System Weight PF: Hi CF: Hi

Risk Event: Exceed system weight by 10%; decreasing the range and increasing fuel

consumption.

Action: Examining subsystems to determine areas where weight may be reduced.

Reviewing the requirement. Closely watching the effect on reliability and

survivability.

2. Title: Design Analysis PF: Hi CF: Hi

Risk Event: Failure Modes, Effects and Criticality Analysis (FMECA) is planned too late

to identify and correct any critical single-point failure points prior to design

freeze.

Action: Additional resources are being sought to expedite performance of FMECA.

II. Risk Area Status: Supportability PF: Hi CF: Mod/Hi

1. Title: Operational Support PF: Hi CF: Mod/Hi

Risk Event: Power supply subcontractor is in financial trouble and may go out of

business. No other known sources exist.

Action: Doing trade study to see if alternative designs have a broader power supply

vendor base. Prime contractor is negotiating with the subcontractor to buy

drawings for development of second source.
B-30

Table B-6. Watch List Example

Potential Risk

Area

Risk Reduction

Actions

Action

Code

• Accurately

predicting shock

environment

shipboard

equipment will

experience.

• Evaluating

acoustic impact

of the ship

systems that are

not similar to

previous designs.

31 Aug 01

31 Aug 02

31 Aug 01

31 Aug 02

Due Date

Date

Completed Explanation

• Use multiple finite

element codes &

simplified numerical

models for early

assessments.

• Shock test simple

isolated deck, and

proposed isolated

structure to improve

confidence in

predictions.

• Concentrate on

acoustic modeling

and scale testing of

technologies not

demonstrated

successfully in largescale tests or fullscale trials.

• Factor acoustic

signature mitigation

from isolated modular

decks into system

requirements.

Continue model tests

to validate predictions

for isolated decks.

SE03

SE03

SE031

SE032
B-31

SAMPLE RISK MANAGEMENT PLAN

FOR THE ABC PROGRAM (ACAT III, IV)

immediately following, technical audits and reviews; (4) concurrent with the review and update of other program plans; and (5) in

preparation for a POM submission.

2.0 PROGRAM SUMMARY

2.1 DESCRIPTION

The ABC Program is an ACAT III level program

that was initiated in response to the NEW COM

Operational Requirements Document (ORD)

XXX, dated DD-MM-YYYY (NOTE: The

ORD is being replaced by the Capability Development Document (CDD)). The program will

provide an ABC communications system that

will be the common system (transmitter/receiver/

controller) for all DoD components for UHF satellite communications. All DoD systems requiring UHF satellite communications procured subsequent to Initial Operational Capability (IOC)

of the ABC system will incorporate it to meet

their needs. The Bx Unmanned Air Vehicle is

the lead system for integration. The program has

completed the Systems Integration part of the

System Development and Demonstration (SDD)

Phase and is preparing for an Interim Progress

Review.

The system will be acquired using off-the-shelf

UHF satellite communications systems. During

the System Integration (SI) part of the System

Development and Demonstration (SDD) Phase

of the program, two contractors delivered

prototypes of their systems. One is a ruggedized

commercial product and the other is built to

military specifications. The Government tested

both systems against functional and performance requirements and some environmental

extremes. Although, each failed portions of the

tests, both were evaluated as mature enough to

1.0 INTRODUCTION

1.1 PURPOSE

This Risk Management Plan (RMP) presents

the process for implementing the comprehensive and proactive management of risk as part

of the overall management of the ABC Program.

Risk management is a program management

tool to handle events that might adversely

impact the program, thereby increasing the

probability/likelihood of success. This RMP

describes a management tool that will:

• Serve as a basis for identifying alternatives

to achieve cost, schedule, and performance

goals,

• Assist in making decisions on budget and

funding priorities,

• Provide risk information for Milestone

decisions, and

• Allow monitoring the health of the program

as it proceeds.

The RMP describes methods for assessing (identifying and analyzing), prioritizing, and monitoring risk drivers; developing risk-handling approaches, and applying adequate resources to

handle risk. It assigns specific responsibilities for

these functions, and prescribes the documenting, monitoring, and reporting processes to be

followed.

If necessary, this RMP will be updated on the

following occasions: (1) whenever the acquisition strategy changes, or there is a major change

in program emphasis; (2) in preparation for major decision points; (3) in preparation for, and
B-32

represent an acceptable risk for proceeding to

the System Demonstration part of the SDD

Phase of the program.

2.2 ACQUISITION STRATEGY

The Government will invite the contractors that

participated in System Integration (SI) Part of the

System Development and Demonstration (SDD)

Phase of the program to submit pro-posals to refine their approached into a stable, interoperable,

producible, supportable, and cost-effective design;

validate the manufacturing or production process;

and demonstrate system capabilities through testing. The Government will select one of the two

proposals for the System Demonstration part of

the SDD Phase of the program. The contractor,

upon demonstration of exit criteria (See Annex

A), will proceed with a Low Rate Initial

Production (LRIP) of the system.

The IOC (20 systems) for the ABC system is

required by FY-02 to support the fielding of the

Bx UAV. Production capacity for the ABC system at IOC is expected to be 20 units per month

to meet the demand of new systems.

2.3 PROGRAM MANAGEMENT

APPROACH

The ABC Program Manager (PM) reports to the

Program Director, Satellite Communications

who has responsibility for all satellite communications systems. The ABC Program Office (PO)

is composed of the PM and one assistant, with

matrix support from the systems command organizations, and program management support

from an external contractor. An integrated management approach will be used for this program.

The government and selected contractor will have

representation on Integrated Product Teams

(IPTs) that will focus on cost, design, test, manufacturing, and support of the system. The PM

chairs the government IPT that develops strategies for acquisition and contracts.

3.0 RISK-RELATED DEFINITIONS

The Defense Acquisition Deskbook, Section

2.5.2.1 contains the definitions for risk, risk management, risk events, and the terms associated

with risk management that will be used by the

ABC PO. Variation and clarification of definitions that appear in the Defense Acquisition

Deskbook, as they are used in the ABC program

are described below.

3.1 TECHNICAL RISK

This is the risk associated with the evolution of

the design, production, and supportability of the

ABC system affecting the level of performance

necessary to meet the operational requirements.

The contractor and subcontractors’ design, test,

and production processes (process risk) influence

the technical risk and the nature of the product

as depicted in the various levels of the Work

Breakdown Structure (product risk). Process

risks are assessed in terms of process variance

fro known best practices and potential consequences/impacts of the variance. Product risks

are assessed in terms of technical performance

measures and observed variances from established profiles.

3.2 COST RISK

The risk associated with the ability of the program to achieve its life-cycle cost objectives.

Two risk areas bearing on cost are (1) the risk

that the cost estimates and objectives are accurate

and reasonable and (2) the risk that program

execution will not meet the cost objectives as a

result of a failure to mitigate technical risks.

3.3 RISK RATINGS

This is the value that is given to a risk event (or

the program overall) based on the analysis of

the probability/likelihood and consequences/

impacts of the event. For the ABC program, risk
B-33

ratings of low, moderate, or high will be assigned

based on the criteria in Section 6.2.

4.0 RISK MANAGEMENT STATUS

AND STRATEGY

4.1 RISK MANAGEMENT STATUS

As a result of the Program Definition and Risk

Reduction Phase, the overall risk of the ABC

Program for Milestone C is assessed as moderate, but acceptable. Moderate risk functional areas are environmental requirements; form, fit and

function; integration; manufacturing; and cost.

4.2 RISK MANAGEMENT STRATEGY

The ABC Program risk management strategy is

to handle program risks, both technical and nontechnical, before they become problems, causing serious cost, schedule, or performance impacts. This strategy is an integral part of the

Acquisition Strategy and the program management approach, and will be executed primarily

through the Government-Contractor PIPT organization. The PIPTs will continuously and

proactively assess critical areas (especially those

listed in the previous paragraph) to identify and

analyze specific risks and will develop options

to mitigate all risks designated as moderate and

high. The PIPTs will also identify the resources

required to implement the developed risk-handling options. The PM, through the Program

Level Integrated Product Team (PLIPT), will review and approve the PIPT options. Once approved, the options will be incorporated into the

program integrated master plan (IMP) and integrated master schedule (IMS). The PIPTs will

monitor the effectiveness of the selected handling

options, and adjust the risk handling approach

as necessary.

IPTs will keep risk information current by using

the risk management information system described in paragraph 6.5. Risk status will be

reported at all program reviews. As new information becomes available, the PO and contractor will conduct additional reviews to ascertain

if new risks exit. The goal is to be continuously

looking to the future for areas that may severely

impact the program.

5.0 RISK MANAGEMENT

ORGANIZATION

5.1 PROGRAM OFFICE

The ABC Program risk management organization is shown in Figure B-9. This structure is

integrated into the contractor and Government’s

existing organizations. Program Integrated Product Teams (PIPTs) will be formed for the functional areas that are critical to the success of the

program. All functional areas not covered by a

PIPT will be assessed and reviewed by the

PLIPT co-chaired by the ABC PM and contractor

Figure B-9. ABC Risk Management Organization

PM

Independent Risk

Assessor PLIPT

Cost PIPT Design PIPT Test PIPT Manufacturing PIPT
B-34

PM, to ensure adequate vigilance against emerging risk areas. Independent risk assessors amy

conduct reviews, when directed by the PM, to

ensure the interface requirements of user systems

are being met by the ABC system design.

The PM the is overall coordinator of Risk

Management Program and is responsible for:

• Maintaining this Risk Management Plan;

• Maintaining the Risk Management Database;

• Approving risk-handling options;

• Incorporating risk-handling actions into the

program master plan and schedule;

• Briefing the decision makers on the status of

ABC Program risk efforts; and

• Preparing risk briefings, reports, and documents required for Program Reviews and the

acquisition Milestone decision processes.

PLIPT

The PLIPT is responsible for complying with

the DoD risk management policy and for structuring an efficient and useful ABC risk management approach and supporting the Risk

Management Coordinator/PM in carrying out his

responsibilities. The PM and contractor PM CoChair the PLIPT. The PLIPT membership may

be adjusted, but is initially established as the

chairs of the PIPTs, a representative from the

joint requirements and users’ office, and a

representative from the contractor. It’s main effort is integration of risk assessments performed

by various program IPTs.

PIPTs

The program IPTs, or PIPTs, are the backbone

of the program risk management efforts. They

will execute the following responsibilities

relative to their functional areas:

• Conduct risk assessments and develop riskhandling options, to include handling plans

and resources required.

• Monitor effectiveness of risk-handling actions.

• Review and recommend to the PM changes

in the overall risk management approach

based on lessons learned.

• Update the risk assessments quarterly, or as

directed.

• Ensure information in the Risk Management

Database is current.

• Prepare risk status reports in their areas for

all Program and Design Reviews.

• Ensure Design/Build Team responsibilities incorporate appropriate risk management tasks.

• Coordinate PIPT risk management activities

with the PLIPT.

6.0 RISK MANAGEMENT

STRUCTURE AND PROCEDURES

The ABC program will use a structured risk

management approach consisting of four elements: planning, assessment, handling, and

monitoring. These elements and the general procedures to be used for each of them are described

in subsequent paragraphs of this section. A number of guidance documents are useful in addressing these risk management elements, and should

be used as appropriate by each PIPT. Some of

these documents are listed below. (This list is

not meant to be complete.)

• Defense Acquisition Deskbook, Section 2.5.2,

Risk Management,
B-35

• DAU, Risk Management Guide, June 2003,

• AFMC Pamphlet 63-101, Risk Management,

9 July 1997, and

• The Navy’s Best Practices Manual, NAVSO

P-6071, and Top Eleven Ways to Manage

Technical Risk, NAVSO P-3686, provide

insight into best practices within the Naval

Service.

6.1 RISK PLANNING

Risk planning is essential for the execution of

a successful risk management program. It will

be done continuously by all PIPTs as an integral part of normal ABC program management.

This RMP serves as the basis for all detailed

risk planning, which must be continuous. The

following paragraphs provide direction for the

PIPTs on the conduct of risk planning for this

program.

• PIPTs will develop an organized and thorough

approach to assess, handle, and monitor risks.

It will assign responsibilities for specific risk

management actions and establish internal risk

reporting and documentation requirements.

The PLIPT will monitor the planning activities of the PIPTs to ensure that they are consistent with this RMP and that appropriate

revisions to this plan are made when required

to reflect significant changes resulting from

the PIPT planning efforts.

• Each PIPT will establish metrics that will

measure the effectiveness of their planned

risk-handling options. See Annex C for an

example of metrics that may be used.

• Each PIPT will identify the resources required to implement the risk management

actions. These resources include time,

material, personnel, and cost. Training is a

major consideration. All PIPT members

should receive instruction on the fundamentals of risk management and special training in their areas of responsibility, if necessary. General risk management training will

be arranged by the PO; PIPT leaders will

identify any specialized training needs.

• This RMP establishes the basic documentation and reporting requirements for the

program. PIPTs should identify any additional requirements, consistent with this

RMP, that might be needed to effectively

manage risk at their level.

6.2 RISK ASSESSMENT

The risk assessment process includes the identification of critical risk events/processes, the

analyses of these events/processes to determine

the probability/likelihood of occurrence/process

variance and consequences/impacts, and the priority of the risks. The output of this process provides the foundation for all the program riskhandling actions. Therefore, it is essential that

all members of the ABC program team be as thorough as possible when identifying and analyzing

risks. In addition to the normal areas of design ,

test, manufacturing, etc., PIPTs must identify

and analyze the risks associated with such areas

as manpower, environmental impact, system

safety and health analysis, and security considerations. The Defense Acquisition Deskbook,

Section 2.5.2.4, provides information on various risk assessment techniques.

Risk assessments should be done by the PIPTs

and the PLIPT with active participation of both

Government and contractor personnel. When

necessary or appropriate, the PIPTs and the

PLIPT can direct a contractor-only assessment,

or conduct a Government assessment. PIPTs and

the PLIPT should continually assess the risks in

their areas, reviewing critical risk areas, risk ratings and prioritization, and the effectiveness of

risk-handling actions whenever necessary to
B-36

assess progress. The assessment process will be

iterative, with each assessment building on the

results of previous assessments. PIPTs and the

PLIPT will use the current assessment baseline

as the starting point for their initial assessment

during this phase. This baseline is a combination

of the risk assessment delivered by the contractors as part of the Concept Refinement (CR)

Phase, the PMO process risk assessment done

before Milestone B, and the post award Integrated

Baseline Review (IBR). Risk assessments will be

updated and the results presented at all functional

and program reviews, with a final update for this

phase prepared not later than six months prior to

the next scheduled Milestone decision.

6.2.1 Risk Identification

Each PIPT will review all aspects of their functional areas to determine the critical events that

would prevent the program from achieving its

objectives. They should apply the knowledge,

best judgment and experience of the PIPT

members, lessons learned from similar programs,

and the opinion of subject-matter experts (SMEs)

to identify these risk events. PIPTs should follow these general procedures to identify risk

events:

• Understand the requirements and the program performance goals, which are defined

as thresholds and objectives (see the Interim

Defense Acquisition Guidebook (IDAG). Understand the operational (functional and environmental) conditions under which the values must be achieved as described in the Design Reference Mission Profile. The ORD

and Acquisition Program Baseline (APB)

contain Key Performance Parameters (KPPs).

• Determine technical/performance risks

related to engineering and manufacturing

processes. Identify those processes that are

planned or needed to design, develop,

produce, and support the system. Compare

these processes with industry best practices

and identify any variances or new, untried

processes. These variances or untried practices are sources of risk. The contractor

should review the processes to be used by

its subcontractors to ensure they are consistent with best industry practices. Table 4-2

of the DAU Risk Management Guide

shows some of the specific of sources of process risk, and should be used by the PIPTs.

NAVSO P-6071, Best Practices Manual,

which describes risks associated with design,

test, production, facilities, logistics, management, and funding, should also be used by

the PIPTs to identify risks.

• Determine technical/performance risks

associated with the product (the ABC communications system) in the following critical risk areas: design and engineering, technology, logistics, concurrency, and manufacturing. The design and manufacturing PIPTs

will identify the contract WBS elements

down to level 3, and evaluate each of these

elements to identify risk events. They will

use a variety of methods to accomplish this:

review of similar programs, existing program

plans, expert opinion, etc.

• Identify schedule risk. Each PIPT will

determine the schedule risk associated with

its functional area. When identifying this

schedule risk, they will consider the risk that

the schedule estimate is accurate, and the risk

that the established schedule can be met. The

PLIPT will monitor the development of the

schedule risk in each PIPT, and consolidate

these risks to identify overall program

schedule risk.

• Identify cost risk. Each PIPT will determine

the cost risk associated with its functional area.

They will identify risks associated with the

accuracy of the cost estimates developed for

their areas, and the risk that the established
B-37

cost objectives will be met. The Cost PIPT

will monitor the development of the other

PIPT cost risk efforts, and consolidate their

risks into a set of overall program cost risks.

• All identified risks will be documented in the

RMIS, with a statement of the risk and a description of the conditions or situations causing concern and the context of the risk. See

Paragraph 6.4 for guidance on documenting

identified risks.

In identifying risks, PIPTs should be particularly alert for the following indicators. They are

common sources of risk for all programs, and

will be applicable to the ABC program.

• Requirements that are not clearly stated or

stable,

• Failure to use Best Practices,

• Use of new processes materials, or applications of existing technologies,

• Use of processes lacking rigor in terms of

maturity, documentation of established

procedures, and validation,

• Insufficient resources—the people, funds,

schedule, and tools, necessary for successful

development, test, production and support of

the ABC program,

• Lack of a formalized failure, reporting,

analyze, and corrective action (FRACAS) system,

• Use of suppliers or subcontractors who are

inexperienced in the processes for designing

and producing required products,

• Failure of prime contractor to effectively

monitor processes and establish quality requirements for suppliers and subcontractors.

6.2.2 Risk Analysis

Risk Analysis is an evaluation of the identified

risk events to determine the probability/likelihood of the events occurring and their consequences/impacts, to assign a risk rating based

on the program criteria, and to prioritize the

risks. Each PIPT and the PLIPT are responsible

for analyzing those risk events they identify.

They may use subject matter experts for assistance, such as Field Activities, Service Laboratories, contractors, or outside consultants. The

use of external assets will be coordinated

through the PMO. The results of the analysis

of all identified risks must be documented in

the RMIS.

There are a number of techniques available to

support risk analysis, to include studies, test

results, modeling and simulation, and the

opinions of qualified experts (to include

justification of their judgment). The Defense

Acquisition Deskbook, Section 2524.2 describes

a number of analysis techniques that may be

useful. Regardless of the technique used, PIPTs

and the PLIPT will identify all assumptions made

in analyzing risk and, where appropriate, conduct

a sensitivity analysis of assumptions.

For each risk event, the following risk analysis

guidelines will be used:

• Probability/Likelihood

For each risk identified, determine the probability/likelihood that the event will occur. Five

levels of probability/likelihood will be used for

the ABC program. Table B-7 shows these levels

and their definitions. PIPTs and the PLIPT will

assign one of these values to each identified

risk event based on their analysis of the event.

For example, if it is known that there will be a

variance between the soldering process to be

used for component X and the industry standard,

this process variance risk event will be assigned
B-38

a probability/likelihood value of “e”—near certainty. Similarly, if the Manufacturing PIPT

determines that the schedule estimate for the fabrication of component Y is overly optimistic, and

will probably not be attained, it would assign a

probability/likelihood level of “c” or “d” depending on its analysis of the schedule estimate.

• Consequence/Impact

For each risk identified, the following question

must be answered: Given the event occurs, what

is the magnitude of the consequence/impact?

For the ABC program, consequence/impact will

be determined in each of four areas: technical

performance, schedule, cost, and impact on other

teams.

Technical Performance: This category relates

to the risks associated with the processes to be

used in the development, testing, and manufacturing of the ABC system, and the nature of the

ABC communications system. It includes the

form, fit, function, manufacturability, supportability, etc. Essentially, technical risk includes

all requirements that are not part of cost and

schedule. The wording of each consequence/

impact level is oriented toward design and production processes, life cycle support, and retirement of the system. For example, the word

“margin” could apply to weight margin during

design, safety margin during testing, or machine

performance margin during production.

Schedule: The description in the Schedule is

self-explanatory. The need dates, key milestones, critical path, and key team milestones are

meant to apply to all program areas and PIPTs.

Cost: Since costs vary from component to component and process to process, the percentage

criteria shown in the figure may not strictly

apply at the lower levels of the WBS. PIPT and

PLIPT leaders may set the percentage criteria

that best reflect their situation. However, when

costs are rolled up at higher levels (e.g., Program), the definitions shown will be used.

Impact on Other Teams: Both the consequences/impacts of a risk and the handling actions associated with addressing the risk may impact another team. This may involve additional

coordination or management attention (resources), and may therefore increase the level

of risk. This is especially true of handling actions

that involve the use of common manufacturing

processes and/or equipment.

PIPTs and the PLIPT will evaluate each risk

event in terms of these areas, and assign a level

of consequence/impact (1-5). Table B-8 shows

these 5 levels of consequence/impact, and

defines the levels for each area. This table will

be used when assigning the consequence/impact

magnitude.

Table B-7. Likelihood Levels

Level Likelihood of Occurrence

a Remote

b Unlikely

c Likely

d Highly likely

e Near certainty
B-39

6.2.3 Risk Rating

Each identified risk will be assigned a risk rating

based on the joint consideration of event probability/likelihood and consequence/impact.

This rating is a reflection of the severity of the

risk and provides a starting point for the development of options to handle the risk. It is

important to consider both the probability/

likelihood and consequences/impacts in establishing the rating, for there may be risk events

that have a low probability/likelihood, but

whose consequences/impacts are so severe that

the occurrence of the event would be disastrous

to the program.

Figure B-10 describes the risk rating process

that will be used in this program. PIPTs and

the PLIPT will analyze each risk event to determine the probability/likelihood and consequence/

impact values using the definitions in Tables B7 and B-8; they will determine the consequence/

impact for each of the four areas (technical performance, schedule, cost, and team impact). The

values will be used to determine the risk rating

using the Assessment Guide in Figure B-10. The

Assessment Guide defines the risk rating associated with each combination of probability/likelihood and consequence/impact values, and will

be used throughout the program. For example,

consequence/impact/probability/likelihood level

1b corresponds to a risk rating of (L) LOW, level

4b corresponds to MODERATE risk, and level

5c corresponds to HIGH risk.

Those risk events that are assessed as MODERATE or HIGH will be submitted to the ABC

PM on a Risk Identification Form (RIF). See

Appendix B for the RIF format. PIPTs and

the PLIPT must actively manage these

Figure B-10. Risk Assessment Process

Level What is the Likelihood the

Risk Event Will Happen?

a Remote

b Unlikely

c Likely

d Highly likely

e Near certainty

a Minimal or no impact Minimal or no impact Minimal or no impact None

b Acceptable with some Additional resources <5% Some impact

reduction in margin required; able to meet

need dates

c Acceptable with significant Minor slip in key milestones; 5-7% Moderate impact

reduction in margin not able to meet need date

d Acceptable; no remaining Major slip in key milestone 7-10% Major impact

margin or critical path impacted

e Unacceptable Can’t achieve key team or >10% Unacceptable

major program milestone

Level

Technical

Performance

and/

or Schedule

and/

or Cost

and/

or

Impact on

Other Teams

RISK ASSESSMENT

R HIGH—Unacceptable.

Major disruption likely.

Different approach required.

Priority management

attention required.

Y MODERATE—Some

disruption. Different

approach may be required.

Additional management

attention may be needed.

G LOW—Minimum impact.

Minimum oversight needed

to ensure risk remains low.

Process Variance refers to

deviation from best practices.

Likelihood/Probability refers to

risk events.

ASSESSMENT GUIDE

eM M H H H

dL MM H H

cL L MMH

bL L L MM

aL L L L M

abcde

Likelihood

Consequence
B-40

MODERATE and HIGH risks. They must also

continuously assess the other identified risks in

their areas to see if their ratings have become

MODERATE or HIGH.

6.2.4 Risk Prioritization

PIPTs and the PLIPT will prioritize the MODERATE and HIGH risks in their areas. This

prioritization will provide the basis for the

development of risk handling plans and the

allocation of risk management resources.

Prioritization will be accomplished using expert

opinion within the PIPTs, and will be based on

the following criteria:

• Risk Rating – Obviously HIGH-MODERATE.

• Consequence/Impact – Within each rating,

the highest value of consequence/impact, e.g.,

“e.”

• Urgency – How much time is available before

risk-handling actions must be initiated.

Table B-8. Risk Consequence

Technical Impact on

Level Performance Schedule Cost Other Teams

a Minimal or no impact Minimal or no impact Minimal or None

no impact

b Acceptable with some Additional resources <5% Some impact

reduction in margin required. Able to meet

need dates

c Acceptable with Minor slip in key milestone. 5-7% Moderate

significant reduction Not able to meet need dates impact

in margin

d Acceptable—no Major slip in key milestone 7-10% Major impact

remaining margin or critical path impacted

e Unacceptable Can’t achieve key team or >10% Unacceptable

major program milestone

• Probability/Likelihood – Within each rating,

the highest value, e.g., “e.”

The PLIPT will review the prioritized list of

PIPT-developed risks, and integrate them into

a single list of prioritized program risks, using

the same criteria.

6.3 RISK HANDLING

After the program’s risks have been identified,

analyzed, and prioritized, PIPTs and the PLIPT

must develop an approach for handling each

MODERATE and HIGH risk. For all such risks,

the various handling techniques should be

evaluated in terms of feasibility, expected

effectiveness, cost and schedule implications,

and the effect on the system’s technical performance, and the most suitable technique selected.

The Defense Acquisition Deskbook, Section

2524.3 contains information on the risk-handling

techniques and various actions that can be used

to implement them. Reducing requirements as a

risk avoidance technique will be used only as a

last resort, and then only with the participation

and approval of the user’s representative at the

PLIPT level.
B-41

6.4 RISK MONITORING

Risk monitoring is the systematic tracking and

evaluation of the progress and effectiveness of

risk-handling actions by the comparison of predicted results of planned actions with the results

actually achieved to determine status and the

need for any change in risk-handling actions.

The PIPTs and the PLIPT will monitor all identified risks in their areas, with particular attention to those rated as HIGH or MODERATE.

There are a number of techniques and tools

available for monitoring the effectiveness of riskhandling actions. (See the Defense Acquisition

Deskbook, Section 2524.4 for information on

specific techniques.) PIPTs and the PLIPT must

select those that best suit their needs. No single

technique or tool is capable of providing a complete answer—a combination must be used. At

a minimum, each PIPT and the PLIPT will use

the Risk Tracking Report (RTR) and Watch List

for day-to-day management and monitoring of

risks. See Annex B for examples of an RTR and

Watch List. The status of risk-handling actions

for all MODERATE and HIGH risks will be an

agenda item at each program or functional area

review.

For each identified risk, the PIPTs and PLIPT

will establish a management indicator system

(metrics) that provides accurate, timely, and

relevant risk monitoring information in a clear,

easily understood manner. PIPTs and the PLIPT

should select metrics that portray the true state

of the risk events and handling actions. See Annex C for an example of metrics that may be

used.

MODERATE or HIGH risks will also be monitored by the ABC PM through the PLIPT, using

information provided by the appropriate PIPT,

until the risk is considered LOW and recommended for “Close Out.” PIPTs and the PLIPT

will continue to monitor LOW risk events in

their areas to ensure that appropriate riskThe results of the evaluation and selection will

be included and documented in the RMIS using

the RIF. This documentation will include the

following elements:

• What must be done,

• List of all assumptions,

• Level of effort and materials required,

• Resources needed that are outside the scope

of the contract or official tasking,

• Estimated cost to implement the plan,

• Proposed schedule showing the proposed

start date, the time phasing of significant risk

reduction activities, the completion date, and

their relationship to significant Program

activities/milestones,

• Recommended metrics for tracking riskhandling activity,

• Other PIPTs, risk areas, or other handling

plans which may be impacted, and

• Person responsible for implementing and

tracking the selected option.

Risk handling actions will be integrated into program planning and scheduling, and incorporated

into the IMP and IMS. PIPTs and the PLIPT

will develop these risk-handling actions and

events in the context of Work Breakdown Structure (WBS) elements, establishing a linkage between them and specific work packages that

makes it easier to determine the impact of actions on cost, schedule, and performance. The

detailed information on risk-handling actions and

events will be included in the RIF for each identified risk, and thus be resident in the RMIS.
B-42

handling action can be initiated if there are

indications that the rating may change.

The status of the risks and the effectiveness of

the risk-handling actions will be agenda items

for all functional area and program reviews, and

will be reported to the PM on the following occasions:

• Quarterly,

• When the IPT determines that the status of

the risk area has changed significantly (as a

minimum when the risk changes from high

to moderate to low, or vice versa),

• When requested by the Program Manager.

6.5 RISK MANAGEMENT

INFORMATION SYSTEM (RMIS),

DOCUMENTATION, AND

REPORTS

The ABC Program uses a modified version of

Risk Matrix as its RMIS. The Risk Matrix

database will contain all of the information

necessary to satisfy the program documentation and reporting requirements. This information will include risk assessment documents,

risk-handling plans, contract deliverables, if appropriate, and any other risk-related reports.

The program office will use data from the RMIS

to create reports for senior management and for

day-to-day management of the program. The

program produces a set of standard reports for

periodic reporting and has the ability to create

ad hoc reports in response to special queries.

Each PIPT and the PLIPT are responsible for

entering and maintaining accurate risk management data in the RMIS. A standard format Risk

Information Form (RIF) Data will be used for

data entry. A RIF will be completed and submitted when a potential risk event is identified,

and will be updated as information becomes

available as the assessment, handling, and

monitoring functions are executed. See Annex

B for a sample of the RIF. Annex B also contains examples of reports to be used in the ABC

Program.
B-43

ANNEX A

TO ABC RISK MANAGEMENT PLAN

— CRITICAL PROGRAM ATTRIBUTES —

Category Description Responsible IPT Remarks

Performance/Physical Transmitter Power

Weight

MTBF

Receiver Gain

EMP Survivability

Heat Dissipation

Size

Receiver Range

Transmitter Range

Data Link Operations

Interface Commonality

Initial Setup

Identification Time

Accuracy Location

Bandwidth

Reliability

Maintainability

Availability

Etc.

Cost Operating and Support Costs

Etc.

Processes Requirements Stable

Test Plan Approved

Exit Criteria Bench Test

Accuracy Verified by Test Data

and Analysis

Toolproofing Completed

Logistics Support Reviewed by

User

Table B-9. Critical Program Attributes
B-44

ANNEX B

TO ABC RISK MANAGEMENT PLAN

— MANAGEMENT INFORMATION SYSTEM AND DOCUMENTATION —

1.0 DESCRIPTION

In order to manage risk, we need a database

management system that stores and allows

retrieval of risk-related data. The Risk Management Information System provides data for

creating reports and serves as the repository for

all current and historical information related to

risk. The PM is responsible for the overall

maintenance of the RMIS, and he/she or his/

her designee are the only persons who may enter

data into the database.

The RMIS has a set of standard reports. If PIPTs

or functional managers need additional reports,

they should work with the PM to create them.

Access to the reporting system will be controlled, however any member of the Government

or contractor team may obtain a password to gain

access to the information.

In addition to standard reports, the PO will need

to create ad hoc reports in response to special

queries, etc. The PM will be responsible for these

reports.

2.0 RISK MANAGEMENT FORMS

AND REPORTS

The following are examples of basic reports and

forms that are used in the ABC Program.

2.1 RISK INFORMATION FORM

The PO needs a document that serves the dual

purpose of a source of data entry information

and a report of basic information for the PIPTs,

etc. The Risk Information Form (RIF) serves

this purpose. It gives members of the project

team, both Government and contractors, a format

for reporting risk-related information. The RIF

will be used when a potential risk event is identified and updated over time as information becomes available and the status changes. As a

source of data entry, the RIF allows the database administrator to control entries. The format

and information required in a RIF is detailed in

Table B-10, Data Base Management System

(DBMS) Elements.

2.2 RISK MONITORING

DOCUMENTATION

The PM needs a summary document that tracks

the status of HIGH and MODERATE risks. The

ABC program will use a Risk-Tracking Report

(RTR) that contains information that has been

entered from the RIF. An example of the RTR

is shown in Figure B-11. The PM and PIPTs

must also be aware of upcoming deadlines and

events to ensure they are not caught unprepared

for a result. A Watch List will be used to track

upcoming events and activities. A sample Watch

List is contained in Table B-11.

2.3 PIPT RISK SUMMARY REPORT

In addition to the RTRs for individual HIGH

and MODERATE risks, PIPTs will prepare a

periodic summary of the ratings for all the risks

in their areas. Figure B-12 provides an example

of this report. The format for this summary is

based on the Risk Assessment Guide shown in

Figure B-10. The entries in each cell of the

matrix represent the number of identified risks

with the corresponding probability/likelihood

and consequence/impact values.
B-45

Risk Identification Identifies the risk and is a critical element of information, assuming that a

(ID) Number relational database will be used by the PO. (Construct the ID number to

identify the organization responsible for oversight.)

Risk Event States the risk event and identifies it with a descriptive name. The statement and

risk identification number will always be associated in any report.

Priority Reflects the importance of this risk priority assigned by the PO compared to all

other risks, e.g., a one (1) indicates the highest priority.

Data Submitted Gives the date that the RIF was submitted.

Major System/Com- Identifies the major system/component based on the WBS, or the process in

ponent or Process which the risk event occurs.

Subsystem/ Identifies the pertinent subsystem or component based on the WBS.

Functional Area

Category Identifies the risk as technical/performance cost or schedule or combination of

these.

Statement of Risk Gives a concise statement (one or two sentences) or the risk.

Description of Briefly describes the risk; lists the key processes that are involved in the design,

Risk development, and production of the particular system or subsystem. If technical/

performance, include how it is manifested (e.g., design and engineering,

manufacturing, etc.).

Key parameters Identifies the key parameter, minimum acceptable value, and goal value, if

appropriate. Identifies associated subsystem values required to meet the

minimum acceptable value and describes the principal events planned to

demonstrate that the minimum value has been met.

Assessment States if an assessment has been done. Cites the Risk Assessment Report (see

next paragraph), if appropriate.

Analysis Briefly describes the analysis done to assess the risk; includes rationale and

basis for results.

Process Variance States the variance of critical technical processes from known standards or best

practices, based on definitions in the program’s risk management plan.

Probability of States the likelihood of the event occurring, based on definitions in the

Occurrence program’s Risk Management Plan.

Consequence States the consequence of the event, if it occurs, based on definitions in the

program’s Risk Management Plan.

Risk Rating Identifies the rating assigned to the risk based on the criteria established by the

program.

Time Sensitivity Estimates the relative urgency for implement the risk-handling option. If

appropriate, identifies any other subsystem or process that this risk affects.

Other Affected If appropriate, identifies any other subsystem or process that this risk affects.

Areas

Risk Handling Briefly describes plans to mitigate the risk. Refers to any detailed plans that may

Plans exist, if appropriate.

Risk Monitoring Measurement and metrics for tracking progress in implementing risk-handling

Activity plans and achieving planned results for risk reduction.

Status Briefly reports the status of the risk-handling activities and outcomes relevant

to any risk handling milestones.

Status Due Date Lists date of the status report.

Assignment Lists individual assigned responsibility for handling activities.

Reported By Records name and phone number of individual who reported the risk.

Element Description

Table B-10. DBMS Elements
B-46

Figure B-11. Example Risk Tracking Report

Risk Tracking Report

(Example Report)

I. Risk Area Status: Design PF: Hi CF: Hi

Significant Design Risks:

1. Title: System Weight PF: Hi CF: Hi

Risk Event: Exceed system weight by 10%; decreasing the range and increasing fuel

consumption.

Action: Examining subsystems to determine areas where weight may be reduced.

Reviewing the requirement. Closely watching the effect on reliability and

survivability.

2. Title: Design Analysis PF: Hi CF: Hi

Risk Event: Failure Modes, Effects and Criticality Analysis (FMECA) is planned too late

to identify and correct any critical single-point failure points prior to design

freeze.

Action: Additional resources are being sought to expedite performance of FMECA.

II. Risk Area Status: Supportability PF: Hi CF: Mod/Hi

1. Title: Operational Support PF: Hi CF: Mod/Hi

Risk Event: Power supply subcontractor is in financial trouble and may go out of

business. No other known sources exist.

Action: Doing trade study to see if alternative designs have a broader power supply

vendor base. Prime contractor is negotiating with the subcontractor to buy

drawings for development of second source.
B-47

Figure B-12. Example PIPT Risk Summary Report

Table B-11. Sample Watch List

Potential Risk

Area

Risk Handling

Actions

Action

Code

• Accurately

predicting shock

environment

shipboard

equipment will

experience.

• Evaluating

acoustic impact

of the ship

systems that are

not similar to

previous designs.

31 Aug 01

31 Aug 02

31 Apr 01

31 Aug 02

Due Date

Date

Completed Explanation

• Use multiple finite

element codes &

simplified numerical

models for early

assessments.

• Shock test simple

isolated deck, and

proposed isolated

structure to improve

confidence in

predictions.

• Concentrate on

acoustic modeling

and scale testing of

technologies not

demonstrated

successfully in largescale tests or fullscale trials.

• Factor acoustic

signature mitigation

from isolated modular

decks into system

requirements.

Continue model tests

to validate predictions

for isolated decks.

SE03

SE03

SE031

SE032

Likelihood

Consequence

e0 1 0 1 0

d0 0 1 1 2

c3 2 1 0 0

b4 3 5 2 1

a5 3 1 1 2

abcde
B-48

Table B-13. Examples of Process Metrics

Development of

requirements

traceability plan

Development of

specification tree

Specifications

reviewed for:

• Definition of

all use

environments

• Definition of

all functional

requirements

for each

mission

performed

Integrated Test

Plan

Design

Process

Failure

Reporting

System

Trade

Studies

Design

Requirements

Users needs

prioritized

Alternative

system configurations selected

Test methods

selected

Design requirements stability

Producibility

analysis conducted

Design analyzed

for:

• Cost

• Parts

reduction

• Manufacturability

• Testability

All developmental

tests at system

and subsystem

level identified

Identification of

who will to test

(Government,

contractor,

supplier) of

requirements

traceability plan

Development of

specification tree

Specifications

reviewed for:

• Definition of

all use

environments

• Definition of

all functional

requirements

for each

mission

performed

Contractor

corporate-level

management

involved in

failure reporting

and corrective

action process

Responsibility

for analysis and

corrective action

assigned to

specific individual with closeout date

Manufacturing

Plan

Plan documents

methods by

which design to

be built

Plan contains

sequence and

schedule of

events at

contractor and

sub-contractor

levels that

defines use of

materials,

fabrication flow,

test equipment,

tools, facilities,

and personnel

Reflects manufacturing

inclusion in

design process.

Includes

identification and

assessment of

design facilities

Table B-14. Example of Cost and Schedule Metrics

Cost Schedule

Cost variance Schedule variance

Cost performance index Schedule performance index

Estimate at completion Design schedule performance

Management reserve Manufacturing schedule performance

Test schedule performance
C-1

APPENDIX C

GLOSSARY

ACAT – Acquisition Category

AHP – Analytical Hierarchy Process

AMSAA – Army Materiel System Analysis Activity

APB – Acquisition Program Baseline

API/PM – Acquisition Program Integration/Program Management

ASP – Acquisition System Protection

BCS – Baseline Comparison System

BIT – Built-in Test

BMP – Best Manufacturing Program

CAIG – Cost Analysis Improvement Group

CAIV – Cost As an Independent Variable

CARD – Cost Analysis Requirements Description

CCA – Component Cost Analysis

CCDR – Contractor Cost Data Reporting

CDD – Capability Development Document

CDF – Cumulative Distribution Function

CDR – Critical Design Review

CER – Cost Estimating Relationship

CPM – Critical Path Method

CR – Concept Refinement

CTD – Concept and Technology Development

CWBS – Contract Work Breakdown Structure

DAD – Defense Acquisition Deskbook

DAU – Defense Acquisition University

DBMS – Database Management System

DCMA – Defense Contract Management Agency

DFARS – Defense Federal Acquisition Regulation Supplement

DoD – Department of Defense
C-2

DoDD – DoD Directive

DoDI – DoD Instruction

DPG – Defense Planning Guidance

DR – Decision Review

DSMC – Defense Systems Management College

DT&E – Development, Test and Evaluation

DTSE&E – Director, Test, Systems Engineering, and Evaluation

EAC – Estimate At Completion

EMP – Electromagnetic Pulse

ESC – Electronic Systems Center

ESM – Electronic Warfare Support Measures

ESS – Environmental Stress Screening

EV – Earned Value

FMECA – Failure Mode, Effects and Criticality Analysis

FRACAS – Failure, Reporting, Analyze, and Corrective Action

GAO – Government Accounting Office

GFE – Government Furnished Equipment

HWIL – Hardware-in-the-Loop

IBR – Integrated Baseline Review

ICD – Initial Capabilities Document

IFF – Identification Friend or Foe

IIPT – Integrating Integrated Product Teams

IMP – Integrated Master Plan

IMS – Integrated Master Schedule

IOC – Initial Operational Capability

IPD – Integrated Product Development

IPPD – Integrated Product and Process Development

IPR – Interim Progress Review

IPT – Integrated Product Teams

KPP – Key Performance Parameters
C-3

LCC – Life-Cycle Cost

LFT&E – Live-Fire Test and Evaluation

LRIP – Low Rate Initial Production

M&E – Mechanical and Electrical

M&S – Modeling and Simulation

MAIS – Major Automated Information System

MDA – Milestone Decision Authority

MDAPs – Major Defense Acquisition Programs

MIS – Management Information System

MNS – Mission Need Statement

MOA – Memoranda of Agreement

MOU – Memoranda of Understanding

MS – Milestone

MTBF – Mean Time Between Failure

NDI – Non-Developmental Item

NSSN – New Nuclear Submarine

O&M – Operations and Maintenance

OIPT – Overarching Integrated Product Team

OLRDB – On-Line Risk Data Base

ORD – Operational Requirement Document

OSD – Office of the Secretary of Defense

OT&E – Operational Test and Evaluation

P&D – Production and Deployment

PDF – Probability Density Function

PIPT – Program Integrated Product Team

PLIPT – Program Level Integrated Product Team

PM – Program Manager

PMI – Project Management Institute

PMO – Program Management Office

PMWS – Program Manager’s Work Station

POE – Program Office Estimate
C-4

POM – Program Objective Memorandum

PRAG – Performance Risk Assessment Group

PRR – Production Readiness Review

PSR – Program Status Report

R&D – Research and Development

R&M – Repairability and Maintainability

RD&A – Research, Development and Acquisition

RAR – Risk Assessment Report

RFP – Request for Proposal

RIF – Risk Information Form

RMIS – Risk Management Information System

RMP – Risk Management Plan

RTR – Risk Tracking Report

SDD – System Development and Demonstration

SEI – Software Engineering Institute

SI – System Integration

SME – Subject-Matter Expert

SOW – Statement of Work

SPMN – Software Program Managers Network

SRE – Software Risk Evaluation

SRR – System Requirements Review

STA – Special Threat Assessment

STAR – Special Threat Assessment Report

T&E – Test and Evaluation

TAAF – Test, Analyze, and Fix

TD – Technology Development

TEMP – Test and Evaluation Master Plan

TPM – Technical Performance Measurement

TRIMS – Technical Risk Identification and Mitigation Software

UAV – Unmanned Aerial Vehicle

UHF – Ultra-High Frequency

USC – United States Code

USD(AT&L) – Under Secretary of Defense, Acquisition, Technology, and Logistics
C-5

WBS – Work Breakdown Structure
C-6
D-1

APPENDIX D

QUANTIFYING

EXPERT JUDGMENT

I. GENERAL

Most quantitative risk analysis techniques share

a common need, and that is the estimation of a

probability of occurrence associated with a risk

event. Often the estimation of probability data

requires expert judgement, and inherent in

judgement is a degree of uncertainty.

The challenge for the analyst is to obtain estimates in the areas of cost, schedule, and/or technical/performance. These estimates often begin

as qualitative information which must then be

converted to quantitative probability data so that

the results can be represented as a probability

density function (PDF), which is a key input to

a number of different types of models (e.g.,

Monte Carlo simulations).

There are a number of methods which can be

used to convert qualitative estimates into quantitative probability distributions. The remainder of this appendix will focus on a few of the

most popular, practical, and accurate techniques

for doing so. The techniques discussed were

selected because they are relatively simple and

easy to master. This factor is of paramount importance, because in most cases the analyst and

those being interviewed will have neither the

time nor the knowledge of more advanced techniques to accurately implement them. Finally,

the use of these techniques does not preclude

generating uncertain and/or erroneous PDFs —

the quality of the resulting probability distributions will be no better than the interviewing

technique used by the analyst, the level of

knowledge of the experts interviewed, and the

ability of the analyst to convert the information

gleaned from participants into probability distributions.

The following techniques will be discussed in

this appendix:

1. Diagrammatic

2. Direct

3. Betting

4. Modified Churchman/Ackoff technique

5. Delphi Approach

II. DESCRIPTION OF TECHNIQUES

1. Diagrammatic

Many analysts prefer the diagrammatic method

as a way of capturing and representing an

expert’s judgement. This method is a simple

way of describing an expert’s uncertainty by

presenting him with a range of PDF diagrams

and having the expert select the shape of the

PDF which is considered to reflect most accurately the schedule, cost, or technical parameter in question. Using this method, the analyst

can ascertain whether the PDF is symmetric or

skewed, the degree of variability, etc. For example, if the expert feels that there is a great

amount of risk associated with completing an

activity within a certain period of time, a PDF

skewed to the right may be selected. Likewise,
D-2

activities with little risk may be skewed to the

left. If the expert feels that each value over a

given range is equally likely to occur, a uniform

distribution may be most appropriate. The analyst and the expert, working together, can select

the PDF which most accurately reflect the

schedule, cost, or technical item under question.

The diagrammatic method of obtaining PDFs

is applicable when the expert has a sound

understanding of probability concepts and can

merge that understanding with his understanding of the parameters under question. In this

way the expert can accurately identify the

appropriate PDFs.

2. Direct

The direct method is a relatively simple technique which can be used to obtain subjective

probability distributions by asking the expert

to assign probabilities to a given range of values.

The direct method of obtaining PDFs is applicable, 1) when questions can be phrased to the

respondents in such a way that there is no confusion likely to exist in the respondents mind,

and 2) when the results will not violate the

axioms of probability. This method is applicable

when time/resource constraints do not allow for

more complex, resource intensive methods.

The application of the direct method is quite

simple. The analyst would define a relevant

range and discrete intervals for the parameter

for which the PDF is to be constructed. For

example, the analyst might define the relevant

time duration for a program activity (test of a

piece of equipment) to be between 0 and 27

days. The analyst would then break this relevant

range down into intervals, say intervals of three

days, the resulting formulation would look as

follows:

0 – 3 days 16 – 19 days

4 – 7 days 20 – 23 days

8 – 11 days 24 – 27 days

12 – 15 days

Given these intervals over the relevant range,

the analyst would then query the expert to assign

relative probabilities to each range. From this,

the form of the PDF could be identified. It is

imperative that the axioms of probability not

be violated.

Besides the application already described, the

analyst could request the expert to provide a

lowest possible value, a most likely value, and

a highest possible value. The analyst then makes

an assumption about the form of the density

function. That is, is the PDF uniform, normal,

beta, triangular, etc.?

3. Betting

One method of phrasing questions to experts in

order to obtain probabilities for ranges of values

(cost/schedule) states the problem in terms of

betting. A form of this method, which was

described by Winkler (1967), helps the expert

(assessor) assess probabilities of events which

are in accordance with his judgement. The

assumption with this method is that the judgement of the expert may be fully represented by

a probability distribution, f(x) of a random

variable x. This method offers the expert a series

of bets.

Under ideal circumstances, the bets are actual,

not hypothetical. That is, in each case the winner of the bet is determined and the amount of

money involved actually changes hands. However, under our circumstances, this is not feasible (or legal!). In each case, the expert must

choose between two bets (the expert is not

allowed to refrain from betting). The expert
D-3

must choose between a bet with a fixed probability q of winning and 1–q of losing, and a

bet dependent on whether or not some event E

(a particular program activity duration range,

or cost range) occurs. The bet can be depicted

as follows:

Bet 1a – win $A if the event E occurs

– lose $B if event E does not occur

Bet 1b – win $A with probability of q

– lose $B with probability of 1–q.

The expected values of bets 1a and 1b to the

expert are respectively Ap + Bp – B and Aq +

Bq – B, where P is the probability of event E

occurring. The following inferences may be

drawn from the experts decision: if bet 1a is

chosen, Ap + Bp – B > Aq + Bq – B, so p > q;

likewise if 1b is selected p < q.

By repeating the procedure, varying the value

of q, the probability of event e can be ascertained. It is the point at which the expert is indifferent between bets 1a and 1b, where p = q.

The degree of precision is dependent on the

number of bets and the incremental changes of

the value of q.

A way of avoiding the problem of a large number of bets to obtain p would be to assess the

probabilities through the use of direct interrogation, and then to use the betting situation as

a check on the assumed probabilities.

To complete a PDF, the analyst repeats this

procedure over a relevant range of interval

values. The analyst then plots the points at the

center of the range for each event and smoothes

in a curve, so that the area under it equals one,

as in Figure D-1. The analyst must ensure that

all of the relevant axioms of probability are

maintained.

Many people, when questioned one way, are

likely to make probability statements that are

inconsistent with what they will say when questioned in another equivalent way, especially

when they are asked for direct assignment of

probabilities. As the number of events increases,

so does the difficulty of assigning direct probabilities. Therefore, when this is a problem, the

betting method is most appropriate.

To apply the betting technique, we will select

one interval for the relevant range to demonstrate how this method can be used to obtain

probability estimates and, hence, PDFs. The bet

is established as follows:

Bet 1a – win $10,000 if cost is between

$15,000 and $20,000

– lost $5,000 if cost in not between

$25,000 and $20,000

Bet 1b – win $10,000 with probability of q

– lose $5,000 with probability of 1–q

The value of q is established initially, and the

expert is asked which of the two bets he would

take.

Figure D-1.

Fitting a Curve to Expert Judgment

PROBABILITY

COST

.0825

.165

.25

.33

10 15 20 25 30
D-4

The value of q is then varied systematically, either increased or decreased. The point at which

the expert is indifferent between the two bets

(with the associated q value) provides the probability of the cost being between $15,000 and

$20,000. This process is repeated for each interval, and the results used create the PDF associated with the cost of that particular program

event.

4. Modified Churchman/Ackoff Technique

Another method, which can be used to ascertain PDFs for cost, schedule, or performance

parameters, is the “Modified Churchman/

Ackoff method.” This technique builds upon

procedures which were presented by Churchman and Ackoff in 1954. This technique was

developed as a means to order events in terms

of likelihood. The modification to the technique

was performed so that once the order of event

likelihoods had been accomplished, relative

probabilities could be assigned to the events and

finally probability density functions developed.

So as to be relevant for our purposes, events

are defined as range values for cost, schedule,

or performance (activity durations) relating to the

outcome of a specific activity in a program.

The modified Churchman/Ackoff technique is

most appropriate when there is one expert, and

that expert has a thorough understanding of the

relative ranking of cost/schedule ranges and a

limited understanding or probability concepts.

The remainder of this section was extracted and

modified from the Compendium on Risk Analysis Techniques (1972, see references). Note that

while the mathematical calculations appear to

make this a very precise technique, it is still an

approximation of an expert’s judgement and

should not be interpreted to be more exact than

other similar techniques.

The first step in applying the modified Churchman/Ackoff technique is to define the relevant

range of values. That is, the end points, along a

range of values with zero probability of occurrence must be specified. These values need only

be any low and high values which the expert

specifies as having zero probability of occurrence. Next, ranges of individual values within

the relevant range must be determined. These

ranges of values which will form the set of comparative values for this technique are specified

by the following approach:

(1) Start with the low value in the relevant

range.

(2) Progress upward on the scale of values until

the expert is able to state a simple preference regarding the relative probabilities of

occurrence of the two characteristic values.

If he is able to say that he believes one value

has either a greater chance or a lesser change

of occurring than the other of the two values,

then it is inferred that the expert is able to

discriminate between the two values.

(3) Using the higher of the two previously specified scale values as a new basis, repeat step

(2) to determine the next value on the scale.

(4) Repeat steps (2) and (3) until the high end

point value of the range of parameters

values is approached.

Employing this procedure for the duration required to successfully test a piece of equipment,

may yield the results show in Table D-1.

01 = 0 – 3 days

02 = 4 – 7 days

03 = 8 – 11 days

04 = 12 – 15 days

05 = 16 – 19 days

06 = 20 – 23 days

07 = 24 – 27 days

Table D-1. Characteristic Values for

Equipment Test Durations
D-5

The descending order of probability or occurrence can be determined by applying the

following paired comparison method.

Ask the expert to compare, one at a time, the

first interval value (01) of the set to each of the

other values (02, 03, etc.), stating a preference

for that value in each group of two values that

he believes has the greater change of occurring

(denoting a greater probability of occurrence

by >, and equal chance by =, and a lesser change

by <). The following hypothetical preference

relationships could result for a set of seven

values (01 < 02, 01 < 03, 01 < 04, 01 < 05, 01 <

06, 01 < 07).

Next, ask the expert to compare, one at a time,

the second interval values (02) of the set to each

of the other interval values succeeding it in the

set (i.e., 03, 04, etc.). The following preference

relationships might result (02 < 03, 02 < 04, 02

< 05, 02 < 06, 02 < 07). Continue this process

until all values (0i) have been compared.

Now total the number of times (0i

) value was

preferred over other values. The results for this

procedure are listed in Table D-2.

probability (e.g., X1). Then, as in the first step,

question the expert regarding the relative chance

of occurrence of each of the other values on

the ordinal scale in Table D-3 with respect to

the value at the top of the scale. Assigning X1 a

rating of 100 points, the expert is first interrogated as to his feeling of the relative chance of

occurrence of the second highest scale value

(e.g., X2), with respect to X1. Does it have 25

percent chance? 60 percent? 70 percent? 80

percent? As much chance of realization as X1?

The relative probability rating, based on 100

points (i.e., 100 percent as much chance), will

then be posted for X2.

Next, question the expert about the relative

chance of occurrence of the next highest scale

(e.g., X3) first with respect to the most preferred

value (X1), and then with respect to the second

most preferred scale value (X2). The resulting

numerical ratings should concur. For example,

if the expert decides that X2 has 8/10 as much

chance of occurring as does X1, and that X3

has 1/2 as much chance as X1, and 5/8 as much

chance as X2, the ratings become X1 = 100

points, X2 = 80 points, and X3 = 50 points.

This process continues for each successively

lower interval value on the ordinal scale as

shown in Table D-3. Determine the relative

number of points to be accorded each value with

List the values in descending order of simple

ordinal probability preference and change the

symbols for each value from 0i to Xj as shown

in Table D-3.

Arbitrarily assign a rating of 100 points to the

characteristic value with the highest subjective

Characteristic

Value Preference New

(Days) Rank Symbol

0 – 3 04 1 X1

4 – 7 03 2 X2

8 – 11 05 3 X3

12 – 15 02 4 X4

16 – 19 06 5 X5

20 – 23 01 6 X6

24 – 27 07 7 X7

Table D-3.

Transformation

04 = 6 times

03 = 5 times

05 = 4 times

02 = 3 times

06 = 2 times

01 = 0 times

07 = 0 times

Table D-2.

Summary of Preference Relationships
D-6

respect to the top scale and with respect to all

other values on down the scale which are above

the characteristic value in question.

In the event of minor disparities between relative probability ratings for a given value, the

average of all such ratings for that characteristic value might be computed. For example, X4

might be determined to be 3/10 as probable as

X1, 1/4 as probable as X2, and 1/2 as probable

as X3. The three absolute ratings for X4 are thus

inferred to be 30, 20, and 25 points, respectively.

The average of these ratings is 25. However,

before averaging such figures, it might be beneficial to have the expert revaluate his relative

ratings for X4 with respect to X1, X2, and X5.

As a result of the above process, the relative

probability values shown in Table D-4 might

be attained.

Similarly P(Xi) is defined as:

R(Xi)

R(X1)

for i = 2, 3, ...7.

Assuming that the independent characteristic

values evaluated represent all possible values

attainable by the component characteristic, the

respective probabilities must sum to 1.0 (i.e.,

P(X1) + P(X2) + P(X3) + P(X4) + P(X5) + P(X6)

+ P(X7) = 1.0). Substituting the expressions for

P(Xi), i = 2, ...7, it follows that:

R(Xi) R(X3) R(X4)

R(X1) R(X1) R(X1)

R(X5) R(X6) R(X7)

R(X1) R(X1) R(X1)

Solving this equation for P(X1), the remaining

P(Xi), i = 2, ...7 can be determined using the

relationship:

R(Xi

)

R(X1)

As an illustration, consider the relative probability ratings in Table D-4. Using the values,

the preceding equation is given by:

80 50

100 100

25 10

100 100

Solving this equation, P(X1) = 0.377.

This value can be used to determine the remaining

probabilities as follows:

Finally, the scale of relative probability values

can be converted directly into a scale of actual

probability density values by letting P(X1) equal

the actual subjective probability or occurrence

of the highest value. Then, P(X2) is then defined

as:

R(X2)

R(X1) [P(X1)]

[P(X1)]

[P(X1 P(X )]. 1) =

[P(X1)]+ [P(X1)]+ [P(X1)]+ [P(X1)]

+ [P(X1)]+ [P(X1)]+ [P(X1)] = 1.

P(X1) + P(X1) + P(X1) +

 P(X1) + P(X1) = 1.

RX1 = 100 Probability points

RX2 = 80 Probability points

RX3 = 50 Probability points

RX4 = 25 Probability points

RX5 = 10 Probability points

RX6 = 0 Probability points

RX7 = 0 Probability points

Table D-4.

Relative Probability Ratings
D-7

RX2

RX1

RX3

RX1

RX4

RX1

RX5

RX1

RX6

RX1

RX7

RX1

The resulting probability density appears in

Table D-5.

P(X2) + P(X1) = 0.80 (0.377) = 0.301

P(X3) + P(X1) = 0.50 (0.377) = 0.189

P(X4) + P(X1) = 0.25 (0.377) = 0.095

P(X5) + P(X1) = 0.10 (0.377) = 0.038

P(X6) + P(X1) = 0.0 (0.377) = 0.000

P(X7) + P(X1) = 0.0 (0.377) = 0.000

known as the Delphi to avoid the pressures.

The Delphi technique has become well known

in management circles, but is subject to misconception. Too often the term is used to identify a committee or multiple interview process,

and these do not share the advantages of the

Delphi technique.

The Delphi technique has been extended in

recent years to cover a wide variety of types of

group interaction. The technique can be used

for group estimation, that is, the use of a group

of knowledgeable individuals to arrive at an

estimate of an uncertain quantity. The quantity

can be a cost, a time period associated with an

event, or a performance level.

The Delphi technique is most appropriate when:

• The problem does not lend itself to precise

analytical techniques but can benefit from

subjective judgements on a collective basis.

• The individuals needed to contribute to the

examination of a broad or complex problem

have no history of adequate communication

and may represent diverse backgrounds with

respect to experience or expertise.

• More individuals are needed than can effectively interact in a face-to-face exchange.

• Time and cost make frequent group meetings

unfeasible.

• The efficiency of face-to-face meetings can

be increased by a supplemental group

communication process.

• Disagreements among individuals are so

severe or politically unpalatable that the communication process must be refereed and/or

anonymity assured.

5. Delphi Approach

In many cases, expert judgement does not reside

solely with one individual, but is spread among

multiple experts. Committee approaches to

obtaining a group assessment have been found

to contain problems relating to interpersonal

pressures to a degree that caused researchers at

the RAND Corporation to devise a method

Component

Characteristic Probability

Value

X1 0.377

X2 0.301

X3 0.189

X4 0.095

X5 0.038

X6 0.000

X7 0.000

Total 1.000

Table D-5. Probability Density
D-8

• The heterogeneity of the participants must be

preserved to assure validity of the results, i.e.,

avoidance of domination by quantity or by

strength of personality (“bandwagon effect”).

The Delphi technique differs from other

methods of obtaining a group opinion, because

it physically separates the group’s members

from one another in order to reduce irrelevant

interpersonal influences. Properly carried out,

the technique is facilitated by an analyst

obtaining each panel member’s reason for the

opinion. The analyst then reduces the opinions

and reasons to standard statements in order to

preserve anonymity. The analyst then shows the

panel member the aggregated opinions of the

other panel members in statistical terms. The

analyst provides each panel member with the

reasons justifying the opinions that differ with

the member, and requests revaluation and further substantiation. This iterative feeding back

continues until no further substantial change

results. At this point, the moderator takes the

final individual opinions and computes a set of

median values to represent the group opinion.

The median value, rather than the average, is

used as a central estimate to prevent the estimate from being overly influenced by extreme

individual values.

One technique which holds much promise for

the future as a means of capturing expert judgement is “expert support systems”. Ideally, the

expert support system would lead the expert(s)

through a series of parameter specific questions

(cost and schedule, possible performance) and

generate PDFs based on the responses.

III. RELIABILITY

The reliability of the PDFs obtained through

these techniques is affected by a number of factors. Foremost is the degree to which the so

called “expert” is in fact an expert. The better

understanding the expert has of the parameter

being modeled, the more reliable the resulting

PDFs will be. The burden also falls on the analyst to select the technique most appropriate for

obtaining PDFs. For example, if expertise

resides with more than one expert, a Delphi

technique would result in much more reliable

PDFs than would a direct method of asking only

one expert. Likewise, if the expert has very little

understanding of probability concepts, it would

be inappropriate to ask him to select a PDF from

a visual list of options. Under these circumstances, the modified Churchman-Ackoff

method or a betting technique would most likely

result in more reliable PDFs.

In summary, much of the reliability of the PDFs

is predicated on the techniques selected by the

analyst for constructing them. Therefore, it is

important that the analyst know when each

technique is most appropriate, given the unique

circumstances of that specific program office.
E-1

APPENDIX E

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E-2

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E-3

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E-4

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E-5

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E-6