Risk, Opportunity, Uncertainty and Other Random Models

5 Factored Value Technique for Risks and Opportunities

In some organisations they take a ‘swings and roundabouts’ approach to Risk Contingency … that everything will work itself out on average. A technique in popular use is that of the ‘Factored Value’ or ‘Expected Value’, in which we simply multiply the ‘central value’ of the Risk variables’ 3-point range by the corresponding Probability of Occurrence. This includes Baseline Uncertainty with a probability of 100%. However, the popularity of a technique is probably more of an indicator of its simplicity than its appropriateness.

Depending on what the ‘central value’ represents, there are two ways we can do this … the ‘wrong way’, and the ‘slightly better way’. (Did you notice that I didn’t say ...