Individual items in a cost breakdown structure can be planned expenditures or activities, or they may only be provisional or potential. These are expenditures you may have to make or activities you may have to undertake, but not necessarily. We call these risks.
Any item in a cost breakdown structure can be converted into a risk by assigning it a probability of less than 100%. You can display risks in a risk matrix report.
A typical use of risk is to include scope uncertainty in a project or program. Another use is to make allowance for specific occurrences or situations that you might have to deal with (but hope you won't).
Impact and Probability
Risks are defined in terms of impact and probability. Impact is the effect or effects that a risk will have if it occurs, while probability is the extent to which it is likely to occur.
Non-Cost Impacts
Mandrel assumes all risks to have a cost impact, although this can be zero in some cases. However, risks can also have non-cost impacts, such as schedule delay, or safety, or political risk. You can define your own non-cost risk impacts and apply them to risks items.
Risk Exposure
By definition, a risk has a probability of less than 100%, and therefore may not occur. Consequently, if you try to estimate the cost impact of all the risks in a project or program by simply adding up their individual costs, the result is likely to be a gross over-estimate of the required risk provision.
Mandrel uses the concept of weighted cost to estimate risk exposure. Weighted cost is the cost impact of a risk multiplied by its probability. The sum of all the weighted costs in a project or program provides a good estimate of your risk exposure, i.e. the probable amount of extra funding you will need to deal with all those risks.
