Question 53: Calculation of risk costs?

As part of the work developing the Public Sector Comparator (PSC) a workshop was convened to assess the risks, led by Masons Communications (technical consultants to PITO) who were developing the PSC for the Police Information Technology Organisation (PITO). Experienced engineers from the Home Office and three forces supported by operational police officers attended the workshop. Each of the 17 risk areas identified either previously or during the workshop was placed into one of four risk categories. The categories covered financial, technical including system design, programme related and commercial risks. There was little factual information available that could be used to assist the workshop in quantifying risk in particular that relating to the deployment of TETRA technology due to its newness. The workshop therefore had to rely on its collective experience and judgement to estimate the probability of the risk happening and the associated cost. The costed risk estimates (product of risk probability and cost) were then profiled over the system roll and operational phases of the project. Risk consists of that arising as risk to capital during the build of Airwave and that to on-going operation and support of the Airwave service. The former was only applied to costings during the initial five years' roll-out.

The total Net Present Cost (NPC-a method of assessing a series of future payment by discounting them back to a single value in today's money terms) of the risk profiled over the life of the project was estimated at £170 million, approximately 10% of the total cost of the PSC. A risk value of 10% for a technically advanced and complex project is considered reasonable.