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Risk Management

Chapter 7

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Risk

Risk management - the art and science of identifying, analyzing, and responding to risk factors throughout the life of a project and in the best interest of its objectives.

Project risk – any possible event that can negatively affect the viability of a project

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Risk Vs Amount at Stake

Phase 1 Conceive

(C)

Phase 2 Develop

(D)

Phase 3 Execute

(E)

Phase 4 Finish

(F)

Time

$ V

alue

Incr

easi

ng R

isk

Total Project Life Cycle

Amount at stake

Plan Produce

Opportunity and riskPeriod of highest

risk impact

Combined risk impact

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Process of Risk Management

• What is likely to happen?

• What can be done?

• What are the warning signs?

• What are the likely outcomes?

Project Risk = (Probability of Event)(Consequences of Event)

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Four Stages of Risk Management

1. Risk identification

2. Analysis of probability and consequences

3. Risk mitigation strategies

4. Control and documentation

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Risk Clusters

• Financial

• Technical

• Contractual/Legal

• Commercial

• Execution

Common Types•Absenteeism•Resignation•Staff pulled away•Time overruns

• Skills unavailable• Ineffective Training• Specs incomplete• Change orders

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Risk Factor Identification

Brainstorming meetings

Expert opinion

Past history

Multiple (or team based) assessments

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Risk Impact MatrixConsequences

Like

lihoo

dH

igh

Low

Low High

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Project Risk Scoring

1. Identify factors and assess the probability (Pf ) and consequences (Cf) of failure

2. Calculate overall probability & consequence

3. Calculate overall risk factor

3m c d

f

P P PP

4c s r p

f

C C C CC

( )( )f f f fRF P C P C

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Risk Mitigation Strategies

• Accept

• Minimize

• Share

• Transfer

• Contingency Reserves–Task contingency

–Managerial contingency

• Mentoring

• Cross training

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Control & Documentation

Help managers classify and codify risks, responses, and outcomes

Change management report system answers• What?• Who?• When?• Why?• How?

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Project Risk Analysis & Management

Extends risk management over project’s life cycle

Key Features of PRAMRisk management follows a life cycleRisk management strategy changes over the

project life cycleSynthesized, coherent approach

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Nine Phases of Risk Assessment

1.Define2.Focus3. Identify4.Structure5.Clarify ownership of risks6.Estimate7.Evaluate8.Plan9.Manage

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