Systems Engineering FAQ

Answers by Robert Halligan FIE Aust CPEng IntPE(Aus).

What is the Basis of Justifiable Verification Costs?

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90% probability of compliance vs. 10% of not
Non-compliance will cost us $10mil
Cost risk = 10% of $10mil = $1mil

If we verify, we will reduce the loss to $1mil
If non-compliant
cost risk = 10% of $1mil = $100k
So risk reduction = $900k

Any verification costing less than $900k that, with certainty, would detect non-compliance would add value.

If there is uncertainty of the verification activity discovering the non-compliance, say 50% probability, we would be justified in spending up to 50% of $900k; 10%: 10% of $900k, etc.

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Systems engineering thought leader, consultant, trainer and coach, impacting people's lives on six continents.
Published 2 months ago

 

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