STEP #4: QUANTIFYING TOTAL RISKS

Once the probability and impact ranges have been established for each risk, the cost of each potential impact can be calculated. The formulas for calculating the cost of a particular risk are:

Cost of RiskPSC =
Base Costs x Probability of Occurrence of the Risk under Traditional delivery x Impact of the Risk under Traditional delivery

Cost of RiskAFP =
Base Costs x Probability of Occurrence of the Risk under AFP x Impact of the Risk under AFP

Since, on any project, the actual impact of any individual risk may fall somewhere along a continuum of impacts that includes the low, most likely and high ranges, and since this will not necessarily be the same for each risk, statistical analysis7 is required to calculate the average total cost impact of risks retained by the public sector under either delivery model.




___________________________________________________________________________

7 Please refer to a later section for details on this statistical analysis