Probability Methods for Cost Uncertainty Analysis, 2nd Edition

11 Uncertainty and the Role of Probability in Cost Analysis

reserve was built, a priori, into the point estimate of each WBS cost element.

These reserve dollars would be included in the “roll-up” of the individual

point estimates. This result can make x

PE

Cost

hard to interpret, particularly if

trade-off studies are needed. In practice, it is recommended keeping x

PE

Cost

“clean” from reserve dollars. This provides analysts and decision-makers an

anchor point that is “cost reserve-neutral”—one where the trade-off between

cost reserve and a desired level of condence can be readily understood for

various alternatives (or options)