Risk management - Cost model part 2
Cost model part 2
As we mentioned earlier [see Simple estimating of risk] the chances of the MINIMA and MAXIMA happening are a lot lower.
Let us assume that we estimate that the chances of either a MINIMA or MAXIMA happening for each task is 2% (0.02). For all the MINIMA and MAXIMA to occur at the same time the probability of this occurring for the 8 tasks would be:
2% x 2% x 2% x 2% x 2% x 2% x 2% x 2% or:
0.02 x 0.02 x 0.02 x 0.02 x 0.02 x 0.02 x 0.02 x 0.02 or
0.02 to the power 8 = 0.0000000000000256 = 2.56 x 10 (to the power -14)
Now this is a very, very small probability. The chances of each task going wrong to the same extent is almost impossible.
We need to get a more realistic range of costs. At the moment we don’t know the possible combinations of the risks.
For example, one scenario could be:
| A | risk: HIGH |
| B | risk: HIGH |
| C | risk: AVERAGE |
| D | risk: LOW etc |
Clearly, if there was a strong likelihood of all MINIMA or MAXIMA then the project would be impossible to handle.
Next we can examine Monte Carlo simulation [see Monte Carlo simulation].