Considering Risk Within Net Present Value: Calculations for Government Projects

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.