Project Risk Management

What is ?

Hazard

Risk
 What is a Project Risk

Project risk is an uncertain

event or condition that, if it
occurs, has a positive or a
negative effect on a project’s
objectives.(PMBOK4, PMI, USA)
 Risk is UNAVOIDABLE

There is always at least some level of uncertainty in a

Project’s outcome.

Technological and Social Projects are particularly

risky.

Risks on Technological and Social Projects are

significant, and their numbers and severity increases.
 Component of Project Risk

This definition includes two key

dimensions of risk:

 uncertainty and
 effect on a project’s objectives
 Project Risk Management

Project Risk Management

includes the processes of
conducting risk management
planning, identification,
analysis, response planning, and
monitoring and control on a
project.
 Objectives of Project Risk
Management
The objectives of Project Risk
Management are to increase the
probability and impact of
positive events, and decrease
the probability and impact of
negative events in the project.
 Nature of Risk

Risk is the product of these two factors:

i. the expected consequences of the event and
ii. the probability that the event might occur.

Risk may be characterized in the

aggregate for a large population of
events ("macro-risk"), or it may be
considered on an event-by-event basis
("micro-risk").
 Threat & Opportunity

There is a chance “P” that event “E” will occur

during the “T” period, leading to “X” adverse
consequences. This is called Threat

And

There is a chance “P” that, if opportunity “C”

is exploited during the “T” period, benefit “B”
be will be obtained
 The Context of Risk

Risk is contextual:

a. It arises in the context of a person or

organization.
b. It arises in the context of a situation.

c. It arises in the context of an objective, a

task or a commitment.
One person’s (organization's) risk threat may
be another’s risk opportunity.
 Uncertainty in “Risk”

Risk is usually dynamic:

For a risk event, the probability and

impact elements of risk may change
over the time element.
Critical Success Factors For Project Risk
Management
 Individual Risks
Individual risks are specific events or
conditions that might affect project
objectives.

An individual risk may positively or

negatively affect one or more of the
project objectives, elements, or
tasks.
 Overall Project Risk
Overall project risk represents
the effect of uncertainty on the
project as a whole.

Overall project risk represents

the exposure of stakeholders to
the implications of variations in
project outcome.
 Stakeholder Risk Attitude
The risk attitudes of the project stakeholders
determine the extent to which an individual
risk or overall project risk matters.
A wide range of factors influence risk
attitude. These include:

 the scale of the project within the range of

stakeholders’ overall activities,
 the strength of public commitments made about
the performance of the project, and
 the stakeholders’ sensitivity to issues such as
environmental impacts, industrial relations, and
other factors.
 Risk Management is Iterative Process

It is the nature of projects that

circumstances change as they are
being planned and executed.

The amount of information

available about risks will usually
increase as time goes on.
 Risk Management is Iterative Process

Some risks will occur while others will

not, new risks will arise or be discovered,
and the characteristics of those already
identified may change.

As a result, the Project Risk Management

processes should be repeated and the
corresponding plans progressively
elaborated throughout the lifetime of the
project.
Risk Management is Iterative Process
 Risk Management & Communication

Project Risk Management cannot take

place in isolation. Success relies heavily
on communication throughout the
process.

Risk identification and analysis depend

on comprehensive input from
stakeholders in a project to ensure that
nothing significant is overlooked and that
risks are realistically assessed.
 Risk Management & Responsibility
It is important that management of
project risk is not left to a few risk
specialists.

Since project risks can affect project

objectives, anyone with an interest
in achieving those objectives should
play a role in Project Risk
Management
 Risk Management & PM Role
The role of the project manager may
include:

 Encouraging senior management support for Project

Risk Management activities.
 Determining the acceptable levels of risk for the
project in consultation with stakeholders.
 Developing and approving the risk management plan.
 Promoting the Project Risk Management process for
the project.
 Facilitating open and honest communication about
risk within the project team and with management
and other stakeholders.
 Risk Management Processes
Project Risk Management processes are as follows:

 Plan Risk Management

 Identify Risks
 Perform Qualitative Risk Analysis
 Perform Quantitative Risk Analysis
 Plan Risk Responses
 Monitor and Control Risks
 Plan Risk Management

Defines the scope and

objectives of the Project Risk
Management process, and
ensures that the risk process
is fully integrated into wider
project management.
 Plan Risk Management

Risk management plan

may include:
• Methodology
• Roles and
Responsibility
• Budgeting
• Timing
• Definitions of
Probability and Impact
 Identify Risks
A risk cannot be managed unless it is first
identified. Consequently, after risk
management planning has been completed,
the first process in the iterative Project
Risk Management process aims to identify
all the knowable risks to project objectives.
Identify Risks
 Identify Risks

• Everybody should be Techniques:

involved in risk • Brainstorming
identification • Delphi-technique
• It is primarily carried out • Interviewing
in initiation and planning • Rook Cause analysis
phase of the project.
PERFORM QUALITATIVE RISK ANALYSIS
The Perform Qualitative Risk Analysis
process assesses and evaluates
characteristics of individually identified
project risks and prioritizes risks based
on agreed-upon characteristics.
 PERFORM QUALITATIVE RISK ANALYSIS
• The probability and impact of each
risk is determined using a standard
scale such as Low, Medium, High or
from 1 to 10.
• Which risk require immediate
response, or to move further for
quantitative analysis or which one to
move to watch-list.
 PERFORM QUANTITATIVE RISK ANALYSIS
The Perform Quantitative Risk Analysis
process provides a numerical estimate of
the overall effect of risk on the objectives
of the project, based on current plans and
information, when considering risks
simultaneously.
 PERFORM QUANTITATIVE RISK ANALYSIS
Techniques:
• Interviewing
• Delphi-technique
• Historical Information
• Expert Judgement
• Expected Monitory Value analysis
EMV = P X I
PLAN RISK RESPONSES

The Plan Risk Responses

process determines effective
response actions that are
appropriate to the priority of
the individual risks and to the
overall project risk.
 PLAN RISK RESPONSES

Risk Response Strategies:

Avoid: Completely Eliminate
Mitigate: Reduce the probability
and impact
Transfer: Allocate to some other
party like bonds and insurances.
 MONITOR AND CONTROL RISKS

The effectiveness of Project

Risk Management depends
upon the way the approved
plans are carried out.
These plans should be executed
correctly, reviewed, and
updated regularly.
 MONITOR AND CONTROL RISKS

Monitoring and Controlling strategies:

• Workarounds: Unplanned responses
• Risk Audits:
• Reserve Analysis: Like checking balance in
your bank account
• Status Meetings:
• Risk Reassessment: Qualitative, Quantitative,
Risk Response
• Closing risk that are no longer applicable
 End Note

If the probability of success is

not almost one, then it is
damn near zero