Costing Risk

It's time to get down to hard facts now - risks cost money and we need to be able to plan for this and set realistic budgets. We introduce a little bit of accounting jargon in this section but it contains some useful ideas that could save your career.

In the education environment it is often the case that time delays are viewed less seriously than obvious cost increases. It is of course possible to put a cost figure on a time delay simply by calculating the cost of staff working on the project for the extra time. The argument that 'We have the staff anyway' retains little credibility these days. If the time delay was unacceptable you may also need to think about the cost of overtime or extra staff to get the project back on track.

Let's look at an example of how this might affect project cost. Say you have a project budget of £10k and the project is due to last 10 weeks. Just to keep things simple we'll say that the only cost of this project to the institution is staff time amounting to £1k per week. Suppose there is a 50/50 chance of a risk occurring that will delay your project by two weeks. What will this project cost? The answer is that it will cost either £10k or £12k and if you aren't ready to spend £12k then you aren't ready to do the project.