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The importance of integrating cost and risk into decision making


English: The 2012 Summer Olympics Olympic Stad...

Olympic Stadium at Stratford, London (Photo credit: Wikipedia)

It’s always great to find and example of where some simple planning and management accounting type work would have done quite a bit for a particular company or decision.

During the summer just past, a great example came to life. The London 2012 Olympics have come and gone, but I’m sure you can imagine such an event needed a lot on planning. Mostly, the games went fine. However, a few weeks before the games kicked off, a story broke about how G4S would not be able to deliver the number of security personnel they were contracted to provide. You can read more on the BBC website here, but in a nutshell G4S racked up losses of £30-50m. Why? Well it seems to boil down to not been able to recruit enough new staff and train them within the timeframe, and thus G4S have to cover the cost of army personnel provided instead.  According to the BBC, the value of the contract was £280m and one would think there should be scope for profit in this. I wonder did anyone ever ask this key question: What if we cannot recruit enough staff? If this question was asked, then the next question might be: how much will it cost us if we cannot provide enough staff. These two relatively simple questions might have forced managers at G4S to think about the risk of this happening and the costs. This does not mean they would have not faced the problems and costs they did, but at least they may have been more prepared to deal with the problem as it happened – or better still planned better from the start.

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About martinjquinn

I am an accounting academic, accountant and author based near Dublin, Ireland.

One response to “The importance of integrating cost and risk into decision making”

  1. The Citadel Project says :

    So true. One would think that the ‘cost of staff’ would be one of the most sensitive aspects of the cost model? Run a simple simulation and voila! they should have been able to see the risk. As ever, the bigger the deal the less likely management is to scrutinised it properly.

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