Considering Risk Within Net Present Value: Calculations for Government Projects

Authors: Gradl, Paul¹; Youngblood, Alisha²; Componation, Paul³; Gholston, Sampson³

Source: The Engineering Economist, Volume 54, Number 2, April 2009 , pp. 152-174(23)

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Abstract:

The vision for space includes Shuttle retirement by 2010 and development of new launch vehicles; however, budget increases are not projected. To control costs additional insight into cost factors early in the system life cycle is needed. This article reports on a new launch vehicle upper-stage engine trade study where insight into cost factors was gained by using net present value and applying a set of risk factors to incorporate the risks inherent to key system life cycle phases. A matrix is presented that provides a general framework for assessing these risk levels. This approach shows the effects of various cost factors on the system cost and requires modest resource expenditures for the analysis itself.

Document Type: Research article

DOI: http://dx.doi.org/10.1080/00137910902902861

Affiliations: 1: NASA, Marshall Space Flight Center, Engineering Directorate, Propulsion Division, MSFC, Huntsville, Alabama, USA 2: Department of Management, Industrial Engineering Program, Worcester Polytechnic Institute, Worcester, Massachusetts, USA 3: Industrial & Systems Engineering and Engineering Management, University of Alabama in Huntsville, Huntsville, Alabama, USA

Publication date: 2009-04-01