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    Risk Analysis Question

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    In performing a symmetric approximation, you calculate a mean of the total system cost as $1,725K. The variance is 22500. The POE is $1,600K. What is the probability of overrunning the POE?


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    Solution Preview

    In order to answer this question, it is necessary to make some assumption about the probability distribution function of the total system cost. We shall assume a normal distribution, since it's the most common distribution used in this type of problem.

    Let's call X the total system cost. The problem asks us to find Prob(X > 1600) (i.e., the probability that the cost will be higher than 1600), knowing that ...