Date of Award

9-1996

Document Type

Thesis

Degree Name

Master of Science

First Advisor

Richard A. L'Heureux, PhD

Abstract

This thesis investigates the relationship between risk alignment and cost performance in DoD procurement. Both the government and the contractor conduct independent assessments of the perceived risk in a contract. The results of inaccurate risk assessments are undesirable consequences, one of which is the inability to achieve cost targets. If both the contractor's and the government's perceptions of risk are in alignment with the actual risk involved in a contract, then we would expect minimal impact. If, however, either or both parties fail to accurately assess the actual risk, then we would expect consequences, such as cost overrun/underrun. The level of cost overrun/underrun can be determined by examining the level of alignment between the actual risk and each party's perception of the risk. Results indicate a significant potential for cost growth when both the government and the contractor underestimate the actual risk. In this context, the level of cost growth experienced on a contract is a reflection of the adequacy of the parties' risk assessments. Failure to accurately assess risk could result in a lack of sufficient 'safeguards' necessary to help mitigate the damaging effects of risk inherent in a contract.

AFIT Designator

AFIT-GCM-LAS-96S-10

DTIC Accession Number

ADA319547

Comments

Presented to the Faculty of the Graduate School of Logistics and Acquisition Management of the Air Force Institute of Technology

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