7-1 decision analysis exercise your decision is whether or not to conduct a final system level...

7-1 Decision Analysis Exercise Your decision is whether or not to conduct a final system level factory test on a ground based radar or repair/replace the bad units in the field. The production line has been restarted to make 500 additional radars. Historically, the failure rate in the field has been 4% for units delivered without the final system level test. The cost to perform the final system test is $10,000 per radar. Unfortunately, test procedures require some disassembly and each radar tested will have to undergo some amount of rework. The cost to reassemble/reinstall each radar that passes the test has averaged $2,000. The cost to repair a radar which has failed final factory test is $23,000. Once in the field the total cost associated with repairing a defective radar is $350,000 per radar. Should you conduct 100% testing on the radars in the

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7-3 Risk Analysis in the Supplier Selection Process Provides Good Way to Discriminate Between Suppliers When Several Are Technically Acceptable Prevents “Low Ball” Cost Proposal from Being Sure Selection Provides Structural Guide for Product Manager to Keep from Overlooking Potential Problem Areas Provides Risk-Issue Profile of Winning Supplier for Management and Contract Negotiation Purposes F-16 SPO Has Complemented Risk Analysis Aspect of Source Selections Presented to Them Suppliers Feel They Have Been Thoroughly and Fairly Evaluated Provides Substantial Source Selection Justification in the Event of a Protest

TRANSCRIPT

7-1

Decision Analysis Exercise

Your decision is whether or not to conduct a final system level factory test on a ground based radar or repair/replace the bad units in the field. The production line has been restarted to make 500 additional radars. Historically, the failure rate in the field has been 4% for units delivered without the final system level test. The cost to perform the final system test is $10,000 per radar. Unfortunately, test procedures require some disassembly and each radar tested will have to undergo some amount of rework. The cost to reassemble/reinstall each radar that passes the test has averaged $2,000. The cost to repair a radar which has failed final factory test is $23,000. Once in the field the total cost associated with repairing a defective radar is $350,000 per radar.

Should you conduct 100% testing on the radars in the factory or accept the 4% failure in the field? Assume the customer is concerned with low cost.

Page 2: 7-1 Decision Analysis Exercise Your decision is whether or not to conduct a final system level factory test on a ground based radar or repair/replace the

7-2

Evaluate Subcontractor Risks

Program Requirements

AssessRisks

Evaluate RiskHandling Options

EvaluateSubcontractor

Risks

Establish CostSchedule/Perf Impacts

ManageRisks

Identify KeyProcurements

NeededConduct

Workshops

PrepareRequest

ForProposals(RFP’s)

SelectSub-

contractors

NegotiateRisk

AbatementItems IntoContractIdentify

PotentialSubcontractors

Page 3: 7-1 Decision Analysis Exercise Your decision is whether or not to conduct a final system level factory test on a ground based radar or repair/replace the

7-3

Risk Analysis in the SupplierSelection Process

• Provides Good Way to Discriminate Between Suppliers When Several Are Technically Acceptable

• Prevents “Low Ball” Cost Proposal from Being Sure Selection• Provides Structural Guide for Product Manager to Keep from Overlooking

Potential Problem Areas• Provides Risk-Issue Profile of Winning Supplier for Management and Contract

Negotiation Purposes• F-16 SPO Has Complemented Risk Analysis Aspect of Source Selections

Presented to Them• Suppliers Feel They Have Been Thoroughly and Fairly Evaluated• Provides Substantial Source Selection Justification in the Event of a Protest