Risky Business Case
So one of the more interesting functions of my job is to create business cases on various IT projects to determine each project’s prioritization. So on the logical side of things, this means that I research the current problem/opportunity and a high-level solution to said problem / opportunity. This also means briefly defining the scope of the project as well.
The meat of the Business Case is the “Summary of Financial Impacts” section where I get to use such interesting concepts as Net Present Value, IRR, and Payback Method. Needless to say, in this economy, executives definitely focus on the six, seven, or eight figure financial impact when prioritizing a project. This of course means that projects that are directly tied to revenue streams or straight-forward cost cuts are pretty cut and dry. The issue I am running into is how do I put a financial value on an avoided risk.?
So lets say its been estimated that there is a 1% chance that if my company does not do a project, then the company could lose a million dollars. So one solution I read was to simply multiply the probability by the amount, and therefore place a annual benefit of $10,000. Another solution was to create multiple scenarios where the benefits could range from 0 to $1 Million with$10K being called the median scenario.
I am currently leaning towards running three different scenarios where in the perfect world, a project would only have X benefit. In a normal world, the project has an X+$10K benefit and in a high risk world the project would have a X + $1Million benefit. What do you guys think?
