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Chapter 7 - Managing Risk What Is A Risk?

This document discusses risk management and contingency planning for projects. It defines risk as an uncertain event that can affect a project's success. The risk management process involves identifying risks, assessing their likelihood and impact, developing strategies to mitigate risks, implementing the risk response plan, and monitoring for new risks. Contingency planning develops alternative plans of action to reduce the impact of risks that occur. The benefits of risk management and contingency planning include a proactive approach, reduced surprises, improved chances of meeting objectives, and better control over the project's future.

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51 views5 pages

Chapter 7 - Managing Risk What Is A Risk?

This document discusses risk management and contingency planning for projects. It defines risk as an uncertain event that can affect a project's success. The risk management process involves identifying risks, assessing their likelihood and impact, developing strategies to mitigate risks, implementing the risk response plan, and monitoring for new risks. Contingency planning develops alternative plans of action to reduce the impact of risks that occur. The benefits of risk management and contingency planning include a proactive approach, reduced surprises, improved chances of meeting objectives, and better control over the project's future.

Uploaded by

Meghna Cm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 7 - Managing Risk

What is a risk?
● An uncertain or chance event that planning cannot overcome or control
● Things that are never supposed to happen always do!
Risk Management Process:
● A proactive attempt to recognize and manage internal events and external threats that
affect the likelihood of a project’s success
○ What can go wrong?
○ How to minimize the risk event impact (consequences)
○ What can be done before an event occurs (anticipation)
○ What to do when an event occurs (contingency plans)
Risk Management’s Benefits:
● A proactive rather than reactive approach
● Reduces surprises and negative consequences
● Prepares the project manager to take advantage of appropriate risks
● Provides better control over the future
● Improves chances of reaching project performance objectives within budget and on
time
The Risk Management Process:
● Step 1 - Risk Identification: Analyze the project to identify sources of risk
○ Generate a list of possible risks through brainstorming, problem identification,
and risk profiling
■ Macro risks first, then specific events
● Step 2 - Risk Assessment: Assess risks in terms of Severity of impact, Likelihood of
occurring, Controllability
○ Scenario analysis for event probability and impact
○ Risk assessment matrix
○ Failure Mode and Effects Analysis (FMEA)
■ Impact x Probability x Detection = Risk Value
● Step 3 - Risk Response Development: Develop a strategy to reduce possible damage,
Develop contingency plans
○ Mitigating Risk
■ Reducing the likelihood an adverse event will occur
■ Reducing impact of adverse event
○ Avoiding Risk
■ Changing the project plan to eliminate the risk or condition
○ Transferring Risk
■ Paying a premium to pass the risk to another party
■ Requiring Build-Own-Operate-Transfer (BOOT) provisions
○ Retaining Risk
■ Making a conscious decision to accept the risk

Step 4 - Risk Response Control: Implement risk strategy, Monitor and adjust plan for
new risks, Change management
○ Risk Control
■ Execution of the risk response strategy
■ Monitoring of triggering events
■ Initiating contingency plans
■ Watching for new risks
○ Establishing a Change Management System
■ Monitoring, tracking, and reporting risk
■ Fostering an open organization environment
■ Repeating risk identification/assessment exercises
■ Assigning and documenting responsibility for managing risk

Risk and Contingency Planning:


● Contingency Plan:
○ An alternative plan that will be used if a possible foreseen risk event actually
occurs
○ A plan of actions that will reduce or mitigate the negative impact (consequences)
of a risk event
● Risks of Not Having a Contingency Plan
○ Having no plan may slow managerial response
○ Decisions made under pressure can be potentially dangerous and costly
● Technical Risks
○ Backup strategies if chosen technology fails
○ Assessing whether technical uncertainties can be resolved
● Schedule Risks
○ Use of slack increases the risk of a late project finish
○ Imposed duration dates (absolute project finish date)
○ Compression of project schedules due to a shortened project duration date
● Cost Risks
○ Time/cost dependency links: Costs increase when problems take longer to solve
than expected
○ Deciding to use the schedule to solve cash flow problems should be avoided
○ Price protection risks (A rise in input costs) increase if the duration of a project is
increased
● Funding Risks
○ Changes in the supply of funds for the project can dramatically affect the
likelihood of implementation or successful completion of a project
Opportunity Management Tactics:
● Exploit - Seeking to eliminate the uncertainty associated with an opportunity to ensure
that it definitely happens
● Share - Allocating some or all of the ownership of an opportunity to another party who
is
best able to capture the opportunity for the benefit of the project
● Enhance - Taking action to increase the probability and/or the positive impact of an
opportunity
● Accept - Being willing to take advantage of an opportunity if it occurs, but not taking
action to pursue it
Contingency Funding and Time Buffers:
● Contingency Funds
○ Funds to cover project risks - identified and unknown
■ Size of funds reflect overall risk of a project
○ Budget reserves
■ Are linked to the identified risks of specific work packages
○ Management reserves
■ Are large funds to be used to cover major unforeseen risks (e.g., change
in project scope) of the total project
Change Management Control:
● Sources of change
○ Project Scope Changes
○ Implementation of Contingency Plan
○ Improvement Changes
Change Control System Process:
1. Identify proposed changes
2. List expected effects of proposed changes on schedule budget
3. Review, evaluate, and approve or disapprove of changes formally
4. Negotiate and resolve conflicts of change, condition, and cost
5. Communicate changes to parties affected
6. Assign responsibility for implementing change
7. Adjust master schedule and budget
8. Track all changes that are to be implemented
Benefits of a Change Control System:
1. Inconsequential changes are discouraged by the formal process
2. Costs of changes are maintained in a log
3. Integrity of the WBS and performance measures is maintained
4. Allocation and use of budget and management reserve funds are tracked
5. Responsibility for implementation is clarified
6. Effect of changes is visible to all parties involved
7. Implementation of change is monitored
8. Scope changes will be quickly reflected in baseline and performance measures

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