Risk Mitigation Efficacy: An Analytic Description of the Total Expected Cost of

The efficiency with which risks can be mitigated should be considered a critical factor in decisions regarding whether to mitigate or to create contingency funds instead of mitigating. Although an ensemble of risks is best treated with a numerical approach because of the inherent discreteness of mitigation, which occurs at specific times for specific risks, an analytic examination provides insight and a foundation for multiple-risk calculations. A formalism is created that suggests four zones of mitigation efficiency, from highly efficient to highly inefficient. If the efficiency turns inefficient before total mitigation is accomplished, the total expected cost of a risk reaches a minimum, beyond which it rises despite further mitigation. The total expected cost is created by adding the standard expected cost to the expended mitigation funds. Key words: risk; mitigation; contingency; control; planning; decision analysis; project management † Author to whom correspondence should be addressed. Submitted to the journal Risk Analysis 7 June 2008