An NPV of $6.4 trillion was computed for the FCSN using estimated values of $163.7 billion, 13 years, and 3.0 percent for variables I, T, and r respectively based on key assumptions in Olagbemiro (2008, pp.
When applied to the FCSN, it was determined that requirements uncertainty fostered by technological maturation issues (Government Accountability Office [GAO], 2008a, pp.
In our study, while a suitable proxy for the FCSN program was not readily available (from a size perspective, FSCN represented the largest software investment/development effort to date), data obtained from the Joint Strike Fighter (7) (JSF) program (JSF software component was one-fifth the size of the FCSN program) were extrapolated and fitted accordingly to mirror the size of the FCS.
The analysis indicated that requirements volatility introduced an overall volatility of 0.0866 percent in the FCSN program.
This is accomplished by establishing "belief functions" that reflect the "degrees of belief" between the revised NPV estimate, computed at $6.1 trillion in light of the risks posed by requirements uncertainty and the FCSN cost estimates provided by two independent sources--the Cost Analysis Improvement Group (CAIG) and the Institute of Defense Analyses (IDA) (Congressional Budget Office, 2006).
The independent belief functions based on the CAIG and IDA, which inferred basic probability assignments associated with each of the FCSN risk factors (requirements, integration, estimation risk, etc.), were combined using an orthogonal matrix to determine the most probable beliefs for the set of risk factors.
Note that the FCSN software effort has been decomposed into six components: Combat Identification, Battle Command and Mission Execution, Network Management System, Small Unmanned Ground Vehicle, Training Common Component, and System of Systems Common Operating Environment (GAO, 2008b, pp.
Development/Implementation cost of FCSN is $163.7 billion.
The model was executed, and the lattice of the underlying asset (FCSN) (Figure 9) as well as the options valuation lattice for Strategy A (Figure 10), was created.
This amount, in addition to the initial investment cost of $16:5.7 billion, should increase the chances of receiving the initially projected NPV of $6.4 trillion for the FCSN as opposed to the current $5.7 trillion in light of the risks caused by the uncertainties in five of the six software components.