Justifying Risk Reduction

To reduce risk, additional time or monies are typically needed. The process and logic behind the strategies to reduce the risk should be evaluated to determine if the solution is worth the tradeoffs. For example, a risk may be eliminated by adding $7,500 to a project's budget. However, the likelihood of the risk occurring is relatively low. Should the risk happen, it would cost, at a minimum, $8,000 to correct and the project would be delayed by at least two weeks.

The cost of preventing the risk versus the cost of responding to it must be weighed and justified. If the risk is not eliminated with the $7,500 cost and the project moves forward as planned, it has, theoretically, saved $15,500 because the risk did not happen and the response to the risk did not need to happen.

However, if the risk does happen, the project will lose at least $8,000 and be delayed at least two weeks. The cost inherent in the project delay may be more expensive than the solution to the risk. The judgment of solving the risk to reduce the likelihood of delaying the project may be wiser than ignoring the risk and saving the cost by solving the risk problem.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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