CRIMS - Cost/ Risk Identification and Management System

Incorporate Risk in Budgeting

The Six Steps

• Define risk - risk means uncertainty for which the probability distribution is known
• Incorporate risk - Risk should be assigned a cost and probability range to better evaluate the project worthiness and for focused monitoring.
• Use risk to reprioritize resources and monitor activities
• Identify areas of weakness and plan early a strategy to overcome the risk.
• Evaluate projects based on risk versus reward.
• Use risk as a parameter in evaluating the capability and accuracy of contractor proposals.

Defining Risk

In systems analysis, a decision maker is often concerned with the probability that a project (the chosen alternative) cannot be carried out with the time and money available. This risk of failure may differ from alternative to alternative and each alternative should be estimated as part of the analysis. In decision making risk analysis aims at minimizing the failure to achieve a desired result, particularly when that result is influenced by factors not entirely under the decision maker's control.

Incorporating Risk

The power of budgeting and risk integration is a powerful combination. It offers the opportunity to identify elements of risk early in the process and establish a general cost range associated with uncertainty. In cases where projects have gone significantly over budget, it is attributed to estimates associated with uncertainty. Uncertainty is prevalent in leading edge projects and existing spreadsheet solutions depict only one of several million (billion) possible outcomes. Budgeting and risk integration can simulate some of these outcomes to create a generalized impression (project cost range) of possible outcomes.