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A Risk Management Lesson – Response Selection (#4 in the series A Risk Management Lesson)
By Andy Murray

When deciding on a response (or a combination of responses) you have to make judgement on its cost compared to the impact and consequences of the risk happening and its likelihood. In general terms it is useful to put values on your evaluation and apply the following formula:

Cost < Likelihood x (Impact + Consequence)

For example

Response = £100 Armoured Laptop Case, £39 Norton Ghost, £29 Memory Card, £500 lost revenue while implementing risk responses (e.g. Norton Ghost and testing the restore function.)

Likelihood = I travel 15 times a year by air, so I have a 1 in 5 chance that a terrorist incident means my laptop has to go in the hold within the next 12 months (30 days divided by 365 days times by 2 incidents per year average)

Impact = £1000 new laptop

Consequence = £3000 for three days lost revenue while rebuilding laptop
Consequence = £2000 for two days lost revenue while I re-write the report I never backed-up!

So an investment of £668 could save £1200 on average per year (1/5 x £6000).

Andy Murray is a director of Outperform UK Ltd, a management consultancy helping clients improve their bid, project and programme management performance through the practical application of structured methods. Outperform is an Accredited Consulting Organisation (ACO) and is ISO 9001 certified. Andy previously sat on the Executive Committee for Best Practice User Group™ (BPUG™) which represents users on behalf of OGC for their best practice trilogy of PRINCE2™, Managing Successful Programmes (MSP) and Management of Risk (M_o_R®). Andy's runs a professional blog, PRINCE2:2009 Project, where he shares his thoughts about PRINCE2.

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