Lecture 10 Project Risk Management

8/19/2019 Lecture 10 Project Risk Management

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Project Risk Management


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Lecture objectives

• At the end of the lecture studentsshould be able to:

• Dene a risk and a project risk

• Identif risk characteristics!

categories and classications• Identif and e"plain project risk

processes


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#hat is A Risk

• Risk is dened as the e$ect ofuncertaint on objectives of aproject% &he e$ect ma be positive ornegative% 'I() *+,,,-

• .ncertain event or condition that if itoccurs has a positive or negative

e$ect on a project objectives


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#hat is a project risk

A Project risk is an uncertain event orcondition that if it occurs! has apositive or negative e$ect on at leastone project objective! such as time!cost! scope and/or 0ualit 'egdeliverance 1ithin the agreed

schedule or budget% 'PM2)3-


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Risk 4ategories• Technical/quality or performance risks 5 &hese include risks

associated 1ith un proven technolog! comple" technolog! or

changes to technolog anticipated during the course of theproject% &he ma also include un realistic performance goals%

• Project Management risks: &his includes improper scheduleand resource planning! poor project planning and improper orpoor project management disciplines or methodologies

•

Organizational risks: &hese include resource con6icts due tomultiple projects occurring at the same time in the organi7ation8scope! time and cost objectives that are unrealistic given theorgani7ation9s resources or structure and lack of funding for theproject or diverting funds from this project to other projects%

• External risks: &hese include things e"ternal to the project such

as ne1 la1s or regulations! labour issues! 1eather! changes ino1nership!foreign policies% Catastrophic risks known as forcemajeurebeond the scope of risk management planning andinstead re0uire disaster recover techni0ues


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Risk 4lassication

Risks are classied according to:

• &he project objectives

• (ources

•

Project lifeccle• Degree of control '4ontrollable and uncontrollable-

• Pure 'Insurable- and speculative 'threats andopportunities-

•

Availabilit of information '3no1n and unkno1n-• Internal and e"ternal risks

• Level of risks 'probabilities and conse0uences-


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Risk Attributes

• Risk has a future focus

• Risk has alternative possibilities

•

Risk deals 1ith probabilities• Risk re0uires information 'ranging

from total uncertaint to total

certaint-• Risk must a$ect the project

objectives


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Risk Management

• &he art and science of identifing! assessing and respondingto project risk throughout the life of a project and in the bestinterests of its objectives '#ideman-

• Risk management is the process of identifing! assessingand prioriti7ing of risks follo1ed b coordinated andeconomical application of resources to minimi7e! monitorand control the probabilit and or impact of unfortunateevents or to ma"imi7e the reali7ation of opportunities% 'I()*+,,,-

• Project Risk management includes the processes concerned

1ith conducting risk management planning! identication!analsis! responses and monitoring < control on a projectthroughout its life ccle% &he objectives of project riskmanagement are to increase the probabilit and impact ofpositive events! and decrease the probabilit and impact ofevents adverse to the project% 'PM2)3-


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Risk Mgt Process

• Risk Mgt Planning

• Risk Identication

•

=ualitative analsis• =uantitative analsis

• Risk response planning

• Rist monitoring and controlling


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Risk Mgt Planning &his is 1here ou decide on ho1 to approach and plan

the risk management activities in the project eg

stakeholders analsis! problem analsis! and objectivesetting! s1ot analsis% Risk Mgt Planning includes thefollo1ing:

• Methodology: &his is a description of ho1 ou 1illperform risk mgt including elements like methods!tools! and 1here ou might nd risk data that ou canuse in the later processes%

• oles and responsi!ilities: describes the team ofpeople 1ho are responsible for managing the identied

risks and their responses and for each tpe of activitidentied in the RMP% &he teams ma not benecessaril the same team as the project team

• "udgeting: Assign resources and estimate the costs

of risk management and its methods%


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Risk mgt Planning 'cont9d-

• Timing : denes 1hen and ho1 often the risk mgt process 1illbe performed throughout the PL4%

• isk categories: 4ategori7e the identied risks '&echnical!Mgt! )rgani7ational! ;"ternal-

• isk pro!a!ility and impact: ;stimate the probabilities of

the risks happening and their impacts on the project%'Prob <Impact Matri"-

• isk contingency planning: Al1as have a contingenc plan'budget- 1hich is normall based on the 0ualitative and0uantitative analsis of the risk on the project%

•

eporting #ormat: &his details ho1 risk mgt information 1illbe maintained! updated! anal7ed and reported to projectparticipants and stakeholders%

• $ocumentation: Documents ho1 all facets of risk activities1ill be recorded for the benet of the current project! future

needs and lessons learned%


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Risk Identication &his is 1here one determines 1hich risk might a$ect the

project and documents their characteristics% Methodsof risk identi%cation:

• O!jecti&e !ased : an event that ma endangerachieving an objective partl or completel is identiedas a risk%

• 'cenario !ased: 4reate scenarios and identif risksthat can come out of them%

• Taxonomy: a 0uestionnaire about risks is compiledand the ans1ers to the 0uestions reveal risks% Also

2rainstorming! Delphi techni0ue! Intervie1ing! Root4ause identication! (#)& analsis% 'see 4M./(;I>*

&R?-

• (ommon risk checking: based on historical

information and previous project team e"perience 'seehttp://cve%mitre%org-

http://cve.mitre.org/http://cve.mitre.org/


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=ualitative risk analsis

• &his is the 0ualitative assessment of theprobabilit of the risks and theirconse0uences to the project objectives in

1hich case the level of risks can becategori7ed as high! medium and lo1depending on the impact of the eventoccurring% &he risks are then prioriti7ed% .se

of Probabilit and Impact Assessment!Probabilit and Impact Matri"! Risk Data=ualit Assessment! Risk 4ategori7ation andRisk .rgenc Assessment%


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=uantitative risk analsis

Measuring the probabilit andconse0uences of the prioriti7ed risksand estimating the 0uantitative

implications for the project% Itanal7es the e$ects of the riskevents and assigns a numerical

rating to those risks 5@ use ofprobabilit 5impact matri"


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Risk response planning for negative risks orthreats

Developing procedures and techni0ues to enhance opportunities and reduce thethreats to the project objectives% &he major risk management and response

strategies are:• )&oid the risk : ;liminate the condition that is causing the risk eg risks

associated 1ith a particular service provider can be avoided if another one issecured%

• Mo&e the risk/transfer : &his is 1here ou give the responsibilit of managingthe risk to another entit or third part eg subcontracting! insurance%

•

Mitigating the risk : Put in place a set of steps to ensure that the risk does notoccur and if it does then the negative impact of the risk is minimi7ed eg use of.P(%

• )ccept the risk and learn from it: &he project manager might look at the riskand decide to do nothing about it ! this happens because the potential impact ofthe risk on the project is not substantial enough to re0uire a response%

• Monitor the risk : Monitor the risk to see 1hether it is more or less likel to

occur as time goes on% If it is more likel to occur the project risk team maformulate a di$erence response at a later time%

• *a&e a contingency !udget: It should be based on the 0ualitative and0uantitative risk analsis% Re6ect on the 1ould be cost of the risk and then set arisk contingenc%


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isk response planning for positi&erisks or opportunities

&here are three major responses 1hen dealing 1ithpotentiall positive impacts on project objectives % &he are : e"ploit! share and enhance%

• Exploit: eg a risk that 1ould get a project completed

earlier than schedule or one that 1ould increase the0ualit of the product%

• 'hare: allocating o1nership to a third part 1ho isbest able to capture the opportunit for the benet

of the project%• Enhance: Increasing the probabilit of the risk or

facilitating or strengthening the cause of theopportunit and proactivel targeting and reinforcingits trigger conditions might increase probabilit%


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Risk monitoring andcontrolling

• 4ontinuousl monitor and control the riskthroughout the PL4%

• Remember to document an information in

relation to an risk and communicate it tothe relevant personnel%

• ;$ective risk management re0uires areporting and revie1 structure to ensure

that risks are e$ectivel identied andassessed and that appropriate controls andresponses are in place%

+, - ld l f P j t i k


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+, -olden ules of Project iskManagement

.Bart Jutte )• ule +: Make isk Management Part of our Project

• ule 0: 1dentify isks Early in our Project• ule 2: (ommunicate )!out isks

• ule 3: (onsider "oth Threats and Opportunities

• ule 4: (larify O5nership 1ssues .5ho is responsi!le for5hich risk6

• ule 7: Prioritise isks

• ule 8: )nalyse isks

• ule 9: Plan and 1mplement isk esponses

• ule : egister Project isks

• ule +,: Track isks and )ssociated Tasks

• The 10 golden risk rules above give you guidelines on how to

implement risk management successfully in your project.owever! keep in mind that you can always improve. Thereforerule number 11 would be to use the Japanese "ai#en approach$measure the e%ects of your risk management e%orts and

continuously implement improvements to make it even better.