Risk management - Simple cost model

Simple cost model

	Cost
A	5
B	5
C	5
D	5
E	5
F	5
G	5
H	5
Total	40

The model shows 8 activities, ‘A’ to ‘H’. Each has a cost of 5 units.
If we know with absolute certainty that each cost is 5 then the total cost must be 8 x 5 = 40.

This is the very simplest model.

Creating models for risk assessment is not as tricky as you might think. The mathematics is quite straight forward (for the simpler models) and, for the most part, many businesses carry this out to some degree using spreadsheets etc. For example, most businesses will be looking to forecast costs for the new financial year.
This will based upon many items, for example:

Level of business activity.
Level of salaries.
Level of resource.
Possible recruitment etc.

In the simple model above we have 8 activities ‘A’ to ‘H’ with no uncertainty.
We may assess the same scenario with a degree of uncertainty [see Cost model].

Risk management - Simple cost model

Simple cost model

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