scopeeconomics
Calculate expected exposure and understand what the result cannot tell you.
Start risk work with a coherent base estimate. Known required scope should have a clear place in that base or be explicitly identified as an unresolved allowance. Adding contingency does not repair an unexplained omission. Define the cost boundary and price basis before analysing uncertainty.
A risk event has a possible consequence and a likelihood. Uncertainty can also affect quantities, rates and production assumptions even when there is no separate event. Treat these sources consistently so that the same exposure is not represented twice.
For a simple discrete event, probability multiplied by cost impact gives an expected contribution. Adding expected contributions gives an expected total exposure, provided the amounts have been defined without double counting. Independence is not required merely to add expectations, although dependence matters when modelling the distribution of possible outcomes.
An expected value is not a confidence percentile. A P80 budget requires a model of the combined cost distribution and an interpretation of the selected percentile. The expected allowance alone cannot tell you the chance that a particular budget will be exceeded.
Examine the assumptions, possible overlap and relationships between risks. A delayed supplier delivery might affect both plant hire and labour time; those effects need a consistent scenario. Document how the base and risk model fit together.
Use 40R-08 as a general contingency reference. The public 2022 sample of 41R-08 carries the title “Understanding Estimate Ranging” and explains a change from its earlier approach. Treat it as further reading on method suitability and limitations, not as a recipe for its superseded range-estimating method.
Risk A has a 10% chance of costing £20,000. Risk B has a 25% chance of costing £12,000. Both amounts are additional to the base and do not duplicate another allowance.
| Risk | Probability × impact | Expected contribution |
|---|---|---|
| A | 0.10 × £20,000 | £2,000 |
| B | 0.25 × £12,000 | £3,000 |
| Total | £2,000 + £3,000 | £5,000 |
Original illustrative risk example. The total is an expected value and does not establish a P80 allowance.