![]() ![]() ModelRisk, the risk analysis add-in for Excel, has functions for calculating such premiums. If you are searching for such assistance, I recommend you include him in your list. Steve is a project risk analysis consultant. Your comments – for and against – are welcome! Footnotes: Add the residual risk to the corporate risk registerĪside from the advantage of making the risk more visible at the corporate level, and of perhaps getting a more cost-effective premium, for a company that performs many such projects there is also a ‘portfolio effect’ – meaning that when you have enough such risks the aggregate loss distribution becomes more predictable (proportionally less spread relative to the average expected loss.Put the cost of the premium into the financial performance model for the investment (not the PM's budget) In his article Whats Wrong with Risk Matrices, Tony Cox argues that risk matrices experience several problematic mathematical features making it harder to.If insurance is not possible, treat the risk as being self-insured, and charge an appropriate commercial premium to the project.For the residual risk, take out specific insurance if possible and charge back to the project that premium as a fixed cost, or include it into the corporate insurance coverage if that’s feasible, and charge back a suitable portion of the corporate premium.Devise and implement a risk management strategy can be applied to reduce probability and/or impact (of course) - a bowtie approach can be very helpful.Take out these types of risk from the cost risk analysis For example, suppose high-impact risks are those that could increase the project costs by 5 of the conceptual budget or 2 of the detailed budget.So, it wouldn’t make much sense to run a risk analysis with low probability, high impact financial loss risks together and then consider that one has accounted for such risk in the project's budget targets. If we set a target budget for the project manager at say the P50, and a contingency equal to (P70 – P50) for example, the numbers that come out will be the same using either curve. Figure 2: Cumulative plot of construction cost uncertainty ![]()
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