Risk Assessment (was: How many alternatives, concepts, or sketches are enough?)

20 Jan 2009 - 3:39pm
673 reads
Doug Anderson

Hi Christine,

Your description of a risk assessment model sounds like an echo from my business school days. Yes, such models are commonly used in business planning.

The basic elements include the relevant external economic/social context and internal (company or foundation) conditions at discrete intervals (e.g. years, quarters, or months) over the period of time for which you are planning. Explore the best- and worst-case scenarios for the world and the foundation within the world. Select a most-likely scenario or several likely scenarios within the best-to-worst range. Attach probabilities to the various scenarios, summing to 100%. Quantify as many of the relevant characteristics of the world and the foundation (specifically costs and revenues related to the project, which might be derived from other characteristics) as you sensibly can for each scenario. Calculate the financial results at the end of each time interval for each scenario and apply the corresponding probability. Sum those products for each time interval. Apply some discount rate (interest rate, if you will) to come up with a present value for the set of sums.

That tells you what the project is hypothetically worth today. If you are comparing alternative projects, do this for each project using the same external factors and probabilities for each. Compare the hypothetical values of the projects.

The mechanics are easily handled in Excel or your spreadsheet of choice. The real challenge is identifying the important relevant factors and coming up with estimates and corresponding probabilities. That part can be very stimulating though, especially as a collaboration.

Doug Anderson

Original message:
Date: Mon, 19 Jan 2009 14:02:40 -0600
From: christine chastain <chastain.christine at gmail.com>
Subject: Re: [IxDA Discuss] How many alternatives, concepts,    or
        sketches are    enough?
To: Chauncey Wilson <chauncey.wilson at gmail.com>
Cc: discuss at ixda.org
        <262ba6ef0901191202s2a7694daj9caed9be48f9302a at mail.gmail.com>
Content-Type: text/plain; charset=ISO-8859-1

Here's the thing, though - this is a great start but I still don't see it
linked to risk assessment and ultimately the bottom line...I know, what
every designer/design researcher/innovator hates to hear...

But, once again, I'm in the position of having to show, to the board of
directors of a large non-profit foundation, how our budget will be used to
support numerous platforms, under which reside numerous projects/concepts.
Essentially, they would love to hear that one or another idea (in this case,
the prioritization has already been made, based on collective criteria) will
be a return on investment and I have no way, beyond presenting a business
case study and linking concepts to future portfolio efforts, to provide that
information. What I really need is a risk assessment/predictive model that
looks at a variety of future scenarios and takes into account current and
future business state/future general population need, etc. Has anyone heard
of anything like that?

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