Typically, in a cost and pricing model, we bypass a complex model because complex models are important in schedule estimation whereas cost estimations require the summation of all costs, regardless of whether a specific task lies on the critical path. Therefore, the typical cost pricing approach uses a work breakout structure (WBS) where the tasks are all assumed to run sequentially, and the risk spreads are used to set up the Monte Carlo risk simulation runs.
Typically, the WBS lists the tasks to be performed and these will constitute the costs of the program. Sometimes, risk elements as well as opportunities are added to the cost analysis. Specifically, risk elements are considered added costs (e.g., risk of rework or risk of the raw material price increase), whereas upside opportunities are considered as a reduction in cost (i.e., a potential revenue stream). Hence, the total cost for the program is typically denoted as WBS Cost + Additional Risk – Upside Opportunities.
