Spending to Save

The concept of EMV becomes more useful when you consider the fact that you could spend some money to remove the risk. Suppose the risk is that another institution is supplying you with some data but they can't guarantee to deliver on time. Let's say you could pay that institution £500 and they would guarantee to deliver. You would now need a budget of £10.5k which would save you £500 on the Actuarial cost of the project and £1.5k on the potential cost if you did nothing about the risk. This is about spending to save.

You do of course need to be confident in your assessment that the risk is 50% likely and will cause a 2 week delay in order to justify the spend. If you've gone through a generic risk checklist and just ticked off 'low, medium, high' you won't be able to do this. If you've done a thorough analysis of the real risks to your project you will be well equipped to set a budget that is realistic and justifiable.

To take another example suppose you have identified a risk (75% likely) that your key technical person will leave because you aren't paying market rates. This could cause a three-month delay whilst you recruit to the post and will incur recruitment costs and cost in terms of decreased productivity and delay to the project. Offering the person a bonus to stay till the end of the project or offering staff development incentives e.g. an expensive training course or conference could be cost effective in the long run. In order to justify this you will have to cost the consequential impact of the risk.