STEP#3: ESTIMATING PROBABILITY OF RISK OCCURRENCE AND RESULTING COST IMPACT RANGES

The next step will determine the probability under each delivery model that a risk will occur causing additional costs (over and above base costs) to be incurred. For example, if one out of every two projects incurs costs due to a particular risk, the probability of occurrence would be 50%.

Once the probability of each risk occurring has been determined, a range of potential costs is then estimated for each risk that is retained⁶ by the public sector under either delivery method. The range is expressed as a percentage of base costs with a range from (i) unlikely, but low additional cost (10th percentile); through (ii) most likely additional cost; to (iii) unlikely, but high additional cost (90th percentile).

For example, participants would be asked to estimate what the risks are associated with the risk "Design Coordination and Completeness." Since this is a risk that is retained by the public sector only under the traditional delivery model, the range of potential cost impacts to the public sector is estimated only under the Traditional delivery model. The resulting impact estimates may be as follows:

The table illustrates that if the public sector sponsors were to proceed with the project using the Traditional delivery method, there is a 90% chance that costs for the public sector would exceed the base project costs on account of design coordination and completeness issues, and that the range of cost impact is from 1.0% of base costs at the low end to 8.0% at the high end. Under AFP, this risk is not retained by the public sector and so its monetary impact to the public sector under AFP is zero. If this risk was retained by the public sector under AFP, estimates of the impact of this risk to the public sector would be developed as well.

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6 The public sector may retain risks in full or in part (shared with the private party)