risk management - مصرosp.mans.edu.eg/elbeltagi/ien314p ch7.pdf · risk terms and definitions...
TRANSCRIPT
1
Risk ManagementRisk Management
Is it really important to consider risk ?
Risk ManagementRisk Management
14/10/2016 Emad Elbeltagi 2
2
No construction project is risk free It cannot be ignored Risk can be managed, minimized, shared, transferred
, or accepted
Risk ManagementRisk Management
14/10/2016 Emad Elbeltagi 3
DelaysPoorQuality
Costoverrun
ProjectConstraintsRisks
Risk ManagementRisk Management
14/10/2016 Emad Elbeltagi 4
3
14/10/2016 Emad Elbeltagi 5
Risk ManagementRisk Management
A major step in project planning A complex process since the variables are dynamic
and dependent on variety of conditions such as: project size, project complexity, location, season of the year, …etc.
A Time and/or Cost contingency should be added to cover unforeseen occurrence
A major step in project planning A complex process since the variables are dynamic
and dependent on variety of conditions such as: project size, project complexity, location, season of the year, …etc.
A Time and/or Cost contingency should be added to cover unforeseen occurrence
14/10/2016 Emad Elbeltagi 6
Why Risk Analysis?Why Risk Analysis?
Minimize management by crisis Minimize surprises and problems Increase probability of project success or
control Better handling of true costs and schedules by
properly estimating contingencies
Minimize management by crisis Minimize surprises and problems Increase probability of project success or
control Better handling of true costs and schedules by
properly estimating contingencies
Risk ManagementRisk Management
4
Each time we smoke, we might get cancer.Smoking is a Hazard.Smoking is Hazardous.The likelihood we get
cancer is RISK.Each time you go up the
stairs we might fall.The stairs are a “Hazard”. The probability or
likelihood we would fall is the RISK.
HazardHazard
14/10/2016 Emad Elbeltagi 7
Terms and DefinitionsTerms and Definitions
•Risk has to do withPROBABILITY
+IMPACT
We need to differentiate between Cause, Event & Impact.A box of chocolate with 15
pieces. All sugar-free except ONE.Cause: Having a non sugar-free
chocolate in the box Event: Selecting that particular
piece Impact: Gaining Weight!
Terms and DefinitionsTerms and DefinitionsRiskRisk
14/10/2016 Emad Elbeltagi 8
5
14/10/2016 Emad Elbeltagi 9
Risk may be defined as: Any event which is likely to affect (adversely) the ability of
project to achieve the defined objectives
Undesirable extra cost or delay due to factors having uncertain future outcome
Risk can be characterized in terms of its Severity where:
Severity = Likelihood of Occurrence x Magnitude of the Impact
Risk may be defined as: Any event which is likely to affect (adversely) the ability of
project to achieve the defined objectives
Undesirable extra cost or delay due to factors having uncertain future outcome
Risk can be characterized in terms of its Severity where:
Severity = Likelihood of Occurrence x Magnitude of the Impact
Terms and DefinitionsTerms and DefinitionsRiskRisk
An outcome different from what you expected or estimated…Or… different from what you bid!
Risks that are not well-managed may lead to project failure
Risks are always in the future If it occur, it has an effect on at least one of the
project objectives (Scope, Schedule, Cost, Quality) Risk may has one or more causes and it has one or
more impacts.
Terms and DefinitionsTerms and DefinitionsRiskRisk
14/10/2016 Emad Elbeltagi 10
6
Known Risks are those that have been identified and analyzed
Unknown Risks can not be managed, may be addressed by contingency plan
Terms and DefinitionsTerms and DefinitionsRisks: Known Vs. UnknownRisks: Known Vs. Unknown
14/10/2016 Emad Elbeltagi 11
•Uncertain event or condition that, if occurs, has an effect (impact) on any of the project objectives (Time, Cost, Quality, Scope)
•Impact could be +ve or –ve
Cause
Event(Condition)
Impact
+Opportunity
-Threat
Terms and DefinitionsTerms and DefinitionsProject RiskProject Risk
14/10/2016 Emad Elbeltagi 12
7
Cause Event Impact
Need to have a permit
Permit is delayed Schedule slippage
Buying in $ FOREX rate change
Budget slippage
Cable on floor Someone trips & falls
Schedule slippage
Buying in € FOREX rate change
Budget gain (savings)
No lessons learned Facing a new problem
Reinventing the wheel
Technology is new System becomes unstable
Customer dissatisfaction
Terms and DefinitionsTerms and DefinitionsProject RiskProject Risk
14/10/2016 Emad Elbeltagi 13
Not likely to take a risk that is considered a high risk
Terms and DefinitionsTerms and DefinitionsRisk AverterRisk Averter
14/10/2016 Emad Elbeltagi 14
8
Prefers an uncertain outcome and may be willing to pay a penalty to take a high risk
Terms and DefinitionsTerms and DefinitionsRisk TakerRisk Taker
14/10/2016 Emad Elbeltagi 15
Tolerance to risk is proportional to the amount of money at stake(Financial markets, IRR, Interest)
Terms and DefinitionsTerms and DefinitionsRisk NeutralRisk Neutral
14/10/2016 Emad Elbeltagi 16
9
14/10/2016 Emad Elbeltagi 17
Risk Management Process: The process for identifying, analyzing, and responding to risk events to obtain the acceptable degree of risk elimination or control
Risk Analysis: The process of identifying risk factors and the quantification of those factors (estimating likelihood and magnitude of impacts)
Risk Mitigation: The process of developing a plan to respond or deal with risk on a project
Risk Management Process: The process for identifying, analyzing, and responding to risk events to obtain the acceptable degree of risk elimination or control
Risk Analysis: The process of identifying risk factors and the quantification of those factors (estimating likelihood and magnitude of impacts)
Risk Mitigation: The process of developing a plan to respond or deal with risk on a project
Terms and DefinitionsTerms and Definitions
A (10)
B (9)
D (10)
C (10)
Consider the following small project
The Impact of UncertaintyThe Impact of Uncertainty
14/10/2016 Emad Elbeltagi 18
10
A (10)
B (9)
D (10)
C (10)
0
10
10
10
19
20
20 30
3020
20
2011
10
100
Total Project Duration = 30
Basic Assumption of CPM : Deterministic Estimating What is the impact if you are uncertain about the
durations?
The Impact of UncertaintyThe Impact of Uncertainty
14/10/2016 Emad Elbeltagi 19
Consider small uncertainty in durations; durations = + or – one day from given or any other change
Activity Optimistic Most Likely PessimisticA 9 10 11B 8 9 10C 9 10 11D 9 10 11
The Impact of UncertaintyThe Impact of Uncertainty
14/10/2016 Emad Elbeltagi 20
11
The Impact of UncertaintyThe Impact of Uncertainty
14/10/2016 Emad Elbeltagi 21
The processes whose
objective is to
increase the
PROBABILITY
& IMPACTof positive events
and decrease the
probability and
impact of events
adverse to the project Monitor and Control Risks
Plan Risk Responses
Perform Quantitative Risk Analysis
Perform Qualitative Risk Analysis
Identify Risks
Plan Risk Management (What, when, how)
Risk Management ProcessRisk Management Process
14/10/2016 Emad Elbeltagi 22
12
14/10/2016 Emad Elbeltagi 23
Risk Identification Determining which risks might affect the project
and determining their characteristicsQualitative Risk Analysis Prioritizing risks for further analysis by assessing
and combining their probability of occurrence & impact
Risk Identification Determining which risks might affect the project
and determining their characteristicsQualitative Risk Analysis Prioritizing risks for further analysis by assessing
and combining their probability of occurrence & impact
Risk Management ProcessRisk Management ProcessRisk Management ProcessRisk Management Process
14/10/2016 Emad Elbeltagi 24
Quantitative Risk Analysis Numerically analyzing the effect of identified risks on
overall project objectivitiesRisk Response Planning Developing options and actions to enhance opportunities
and reduce threatsRisk Monitoring & Control Tracing identified risks, monitoring residual risks,
identifying new risks, executing risk response plans, and evaluating their effectiveness throughout the project life
Quantitative Risk Analysis Numerically analyzing the effect of identified risks on
overall project objectivitiesRisk Response Planning Developing options and actions to enhance opportunities
and reduce threatsRisk Monitoring & Control Tracing identified risks, monitoring residual risks,
identifying new risks, executing risk response plans, and evaluating their effectiveness throughout the project life
Risk Management ProcessRisk Management ProcessRisk Management ProcessRisk Management Process
13
14/10/2016 Emad Elbeltagi 25
Risk Management ProcessRisk Management ProcessRisk Management ProcessRisk Management Process
Deciding how to conduct risk management activities for the project
Enhances chance of success to the other five risk processes
Ensure that proper risk management is in place as per the importance of a given project
Resources and budget are planned
We agree to how to deal with risks! Not according to personal preference
Start & complete early in PLANNING
Plan Risk ManagementPlan Risk Management
14/10/2016 Emad Elbeltagi 26
14
14/10/2016 Emad Elbeltagi 27
Identify every possible event or issue that may cause harm to the project
Risk identification is not a one time event, but it is to be performed on a regular basis throughout the project
Risk factors can be stated in the form: “…… may happen during the execution of …. which may
impact ……”, or
“ If …… occurs, then an impact to ….. will be realized.” e.g. “If rock discovered during excavation then production rates will be low.”
Identify every possible event or issue that may cause harm to the project
Risk identification is not a one time event, but it is to be performed on a regular basis throughout the project
Risk factors can be stated in the form: “…… may happen during the execution of …. which may
impact ……”, or
“ If …… occurs, then an impact to ….. will be realized.” e.g. “If rock discovered during excavation then production rates will be low.”
Risks IdentificationRisks IdentificationRisk IdentificationRisk Identification
14/10/2016 Emad Elbeltagi 28
A number of approaches can be used including: Documentation Review (a structured review of all project
documents) Information gathering techniques (Brainstorming, Delphi
technique, interviewing, Root-cause identification) Standard Checklists (based on historical information) Learning from previous projects Expert Interviews Diagramming Techniques (cause-and-effect diagram,
Flowcharts, Influence diagrams)
A number of approaches can be used including: Documentation Review (a structured review of all project
documents) Information gathering techniques (Brainstorming, Delphi
technique, interviewing, Root-cause identification) Standard Checklists (based on historical information) Learning from previous projects Expert Interviews Diagramming Techniques (cause-and-effect diagram,
Flowcharts, Influence diagrams)
Risk IdentificationRisk IdentificationTools and techniquesTools and techniques
15
14/10/2016 Emad Elbeltagi 29
Risk IdentificationRisk IdentificationCheck ListsCheck Lists
Category ExamplesAdministrative Delay in possesses of site
Limited working hoursTroubles with public services
Logistical Shortage or late supply of resourcesSite remoteness problemsCommunications
Construction Ground problemsLimited work spaceEquipment breakdown
Physical Placing fill in dry seasonHigh tides, temperature, etc.River diversion in time of low flow.
Design IncompletenessDesign changesDesign errors
14/10/2016 Emad Elbeltagi 30
Risk IdentificationRisk IdentificationCheck ListsCheck Lists
Category ExamplesFinancial Inflation
Exchange rate fluctuationAvailability of fundsDelay payments by client
Management Space congestionScheduling errorsEstimating based on standardsErrors in B.O.Q.
Contractual Contract typeLiability to othersCo-ordination of work
Political Change in local lawsImport restrictionsUse of local resources
Disasters Floods, fire, landslip, earthquakes, etc.
16
14/10/2016 Emad Elbeltagi 31
List of identified risk List of potential responses Root causes of riskUpdate risk categories
List of identified risk List of potential responses Root causes of riskUpdate risk categories
Risk IdentificationRisk IdentificationOutputsOutputs
14/10/2016 Emad Elbeltagi 32
Risk IdentificationRisk IdentificationOutputs: Risk RegisterOutputs: Risk Register
17
14/10/2016 Emad Elbeltagi 33
Includes methods for prioritizing the identified risks for further action such as Quantitative Analysis or Risk response planning
Assess the priority of identified risks using their probability of occurrence and their corresponding impact on project objectives if they occur
Tools: Interviews or meetings
Includes methods for prioritizing the identified risks for further action such as Quantitative Analysis or Risk response planning
Assess the priority of identified risks using their probability of occurrence and their corresponding impact on project objectives if they occur
Tools: Interviews or meetings
Qualitative Risk AnalysisQualitative Risk AnalysisInputs and ToolsInputs and Tools
14/10/2016 Emad Elbeltagi 34
Risk probability investigates the likelihood that a risk will occur, while risk impact investigates the effect on project objectives if the risk event occurs
Risks with obviously low ratings of probability & impact will not be rated, but will be included on a watch list for future monitoring
Risk probability investigates the likelihood that a risk will occur, while risk impact investigates the effect on project objectives if the risk event occurs
Risks with obviously low ratings of probability & impact will not be rated, but will be included on a watch list for future monitoring
Qualitative Risk AnalysisQualitative Risk AnalysisAssess Risk Probability and ImpactAssess Risk Probability and Impact
18
14/10/2016 Emad Elbeltagi 35
Qualitative Risk AnalysisQualitative Risk AnalysisAssess Risk Probability and ImpactAssess Risk Probability and Impact
Evaluating Impact of a risk on Major project Objectives
Very High0.8
High0.4
Moderate 0.2
Low.1
Very low.05
Project objective
>20% cost increase
10-20% cost increase
5-10% cost increase
<5% cost increase
Insignificant Cost increase
Cost
overall Schedule slips
>20%
overall Schedule slippage 10-20%
overall Schedule slippage5-10%
Schedule slippage
< 5%
Insignificant Schedule slippage
Time
Project end items is
effectively useless
Scope reduction unacceptable to
the client
Major areas of scope are
affected
Minor Areas of scope are
affected
Scope Decrease barely
Noticeable
Scope
Project end item is
effectively unusable
Quality reduction
enaccet5able to the client
Quality reduction requires
client approval
Only very demanding applications are affected
Quality degradation
barely noticeable
Quality
14/10/2016 Emad Elbeltagi 36
Qualitative Risk AnalysisQualitative Risk AnalysisCreate Probability and Impact MatrixCreate Probability and Impact Matrix
19
14/10/2016 Emad Elbeltagi 37
Qualitative Risk AnalysisQualitative Risk AnalysisProbability and Impact MatrixProbability and Impact Matrix
Impact
Probability
Very Low Low Moderate High Very High
Very High R1
High R8 R2 , R4
Medium R9 R10 , R3 R6
Low R5 , R7
Very Low
14/10/2016 Emad Elbeltagi 38
Qualitative Risk AnalysisQualitative Risk AnalysisRisk Severity, Prioritize RisksRisk Severity, Prioritize Risks
20
14/10/2016 Emad Elbeltagi 39
Qualitative Risk AnalysisQualitative Risk AnalysisRisk Register UpdateRisk Register Update
14/10/2016 Emad Elbeltagi 40
Performed on risks that have been prioritized during the Qualitative Risk Analysis
Analyzes the effect of those risk events and assigns a numeric rating to those risks
Tools & Techniques: Monte Carlo Simulation and PERT Quantify the possible outcomes for the project & their probabilities
Identify project cost, schedule, quality and scope given the project risks
Performed on risks that have been prioritized during the Qualitative Risk Analysis
Analyzes the effect of those risk events and assigns a numeric rating to those risks
Tools & Techniques: Monte Carlo Simulation and PERT Quantify the possible outcomes for the project & their probabilities
Identify project cost, schedule, quality and scope given the project risks
Quantitative Risk AnalysisQuantitative Risk AnalysisTools and OutputsTools and Outputs
21
14/10/2016 Emad Elbeltagi 41
Interviewing
Probability Distribution
Three point estimate
Interviewing
Probability Distribution
Three point estimate
Quantitative Risk AnalysisQuantitative Risk AnalysisData GatheringData Gathering
14/10/2016 Emad Elbeltagi 42
Probability: likelihood of occurrence
Mean: average of the values of the event
Range: difference between upper and lower limit
Variance: Average of the squared deviations from the mean
Standard deviation: square root of the variance
Probability: likelihood of occurrence
Mean: average of the values of the event
Range: difference between upper and lower limit
Variance: Average of the squared deviations from the mean
Standard deviation: square root of the variance
Quantitative Risk AnalysisQuantitative Risk AnalysisProbability DistributionProbability Distribution
22
14/10/2016 Emad Elbeltagi 43
Expected Monetary Value
Sensitivity Analysis
Decision Trees
Modeling and Simulation
Expected Monetary Value
Sensitivity Analysis
Decision Trees
Modeling and Simulation
Quantitative Risk AnalysisQuantitative Risk AnalysisQuantitative Risk Modeling TechniquesQuantitative Risk Modeling Techniques
14/10/2016 Emad Elbeltagi 44
Expected Monetary Value = Probability x Consequence ($) Expected Monetary Value = Probability x Consequence ($)
Quantitative Risk AnalysisQuantitative Risk AnalysisExpected Monetary Values (EMV)Expected Monetary Values (EMV)
23
14/10/2016 Emad Elbeltagi 45
Expected Monetary Value = Probability x Consequence ($) Expected Monetary Value = Probability x Consequence ($)
Quantitative Risk AnalysisQuantitative Risk AnalysisExpected Monetary Values (EMV)Expected Monetary Values (EMV)
PayoffProbabilityStatus
80,00015%Good Market
50,00045%Good Market
20,00025%Poor Market
-20,00015%Poor Market
Task/Action/Event Probability Consequence Expected Value
A 20% €100,000
B 10% SR 2,000,000
C 50% LE - 200,000
EMV (Good market) = 0.15*80,000 + 0.45*50,000
EMV (Overall) = 0.15*80,000 + 0.45*50,000 + 0.25*20,000 + 0.15* (-20,000)
14/10/2016 Emad Elbeltagi 46
The program evaluation and review technique (PERT) was developed by late 1950’s
Scheduling the project with activities that have uncertainty in their duration estimates
the PERT technique recognizes the probabilistic, rather than deterministic nature
PERT technique incorporates three durations for each activity into its methodology
The program evaluation and review technique (PERT) was developed by late 1950’s
Scheduling the project with activities that have uncertainty in their duration estimates
the PERT technique recognizes the probabilistic, rather than deterministic nature
PERT technique incorporates three durations for each activity into its methodology
Quantitative Risk AnalysisQuantitative Risk AnalysisPERTPERT
24
14/10/2016 Emad Elbeltagi 47
Optimistic duration (a): estimated time (comparatively short) of executing the activity under very favorable working conditions
Pessimistic duration (b): estimated time (comparatively long) of executing the activity under very unfavorable working conditions
Most Likely duration (m): estimated time of executing the activity that is closest to the actual duration
Optimistic duration (a): estimated time (comparatively short) of executing the activity under very favorable working conditions
Pessimistic duration (b): estimated time (comparatively long) of executing the activity under very unfavorable working conditions
Most Likely duration (m): estimated time of executing the activity that is closest to the actual duration
Quantitative Risk AnalysisQuantitative Risk AnalysisPERTPERT
14/10/2016 Emad Elbeltagi 48
With the three estimates of time for each activity, CPM analysis will be unable to determine project duration. Therefore, a single average duration for each activity is needed called expected duration:
With the three estimates of time for each activity, CPM analysis will be unable to determine project duration. Therefore, a single average duration for each activity is needed called expected duration:
Quantitative Risk AnalysisQuantitative Risk AnalysisPERTPERT
25
14/10/2016 Emad Elbeltagi 49
Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: Analysis StepsPERT: Analysis StepsStep 1: Individual Activity Durations
• a = Optimistic duration = Minimum duration
• m = Most Frequent duration (most likely)
• b = Pessimistic duration = Maximum duration
• te = activity expected duration = (a + 4 m + b) / 6
• v = activity duration variance = [(b - a) / 6]2
Step 2: CPM Calculations
Using the activities’ te durations, CPM calculations are performed to determine the project duration (TE), activity floats and critical activities
14/10/2016 Emad Elbeltagi 50
Quantitative Risk AnalysisQuantitative Risk AnalysisPERT Approach: Analysis StepsPERT Approach: Analysis StepsStep 3: Distribution of Project Duration
Since the probability is 0.5 that each activity will finish at its tedurations, there is a probability of 0.5 for the entire project being finished at time TE. The resulting project duration may be assumed normally distributed
The normal distribution of project duration is defined by its mean () and standard deviation () values, determined as follows:
TE = TE = te of activities on one critical path; T = Square root ( v) of activities on one critical path
26
14/10/2016 Emad Elbeltagi 51
Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: Analysis StepsPERT: Analysis Steps
Step 4: Analysis of Project Completion Probabilities
Using the project normal distribution, it is possible to find the probability values associated with specific project duration
By scaling the project distribution to the standard normal distribution, we can obtain probabilities from standard probability tables and make conclusions, as follows:
Z = (Desired Completion Date - TE) / T
14/10/2016 Emad Elbeltagi 52
Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: ExamplePERT: Example
Pessimistic Time (b)
Most Prob. Time (m)
Optimistic Time (a)
PredecessorsActivity
852-------A1296AB876AC741B,CD888AE17145D,EF21123CG963F,GH1185HI
27
14/10/2016 Emad Elbeltagi 53
Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: ExamplePERT: Example
Variance [(b-a)/6]2
Standard Deviation [(b-a)/6]
Expected time Te =
Activity
115A119B
1/91/37C114D008E4213F9312G116H118I
14/10/2016 Emad Elbeltagi 54
Quantitative Risk AnalysisQuantitative Risk AnalysisPERT Approach: ExamplePERT Approach: Example
0 5
0 5 5A
5 14
5 9 14B
5 12
7 7 14C
5 13
10 8 18E
14 18
14 4 18D
12 24
19 12 31G
18 31
18 13 31F
31 37
31 6 37H
37 45
37 8 45I
Ơ Total = Ơ2A + Ơ2
B + Ơ2D + Ơ2
F + Ơ2H + Ơ2
I
Ơ Total = (1)2 + (1)2 + (1)2 + (2)2 + (1)2 + (1)2
= 9 = 3
28
14/10/2016 Emad Elbeltagi 55
Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: Normal Distribution CurvePERT: Normal Distribution Curve
14/10/2016 Emad Elbeltagi 56
Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: Normal Distribution TablePERT: Normal Distribution Table
SD Area % from the center SD Area % from the center
0.1σ0.20.30.40.50.60.70.80.91.01.11.21.31.41.5
4.07.9
11.815.519.222.625.828.831.634.136.438.540.341.943.3
1.61.71.81.92.02.12.22.32.42.52.62.72.82.93.0
44.545.546.447.147.748.248.648.949.249.449.549.649.749.9849.99
29
14/10/2016 Emad Elbeltagi 57
Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: ExamplePERT: Example What is the probability of completing the project in 50 days? And
what is the probability of completing the project in 4 days less than the expected duration
Prob. (T = 50) = 50 +45.25 (from Table) = 95.25%
Prob. (T = 50) = 50 - 40.82 (from Table) = 9.18%
T - Te
Ơ T=1Z
50 _ 45
3= 1.67=
T - Te
Ơ T=2Z
41 _ 45
3= = - 1.33
14/10/2016 Emad Elbeltagi 58
Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: ExamplePERT: Example What will be the total duration if you want to be 97.5%
confident that the project will not exceed it?
From tableZ = 1.96
Duration = 1.96 (ơ) + 45 = 51 days
Thus means that, a 6 days (contingency) has been added to be 97.5% confident that the project will not exceed the duration
30
14/10/2016 Emad Elbeltagi 59
Risk register update
Probabilistic Analysis
Probability of achieving objectives
Prioritized list of quantified risks
Trends in quantitative risk analysis results
Risk register update
Probabilistic Analysis
Probability of achieving objectives
Prioritized list of quantified risks
Trends in quantitative risk analysis results
Quantitative Risk AnalysisQuantitative Risk AnalysisOutputsOutputs
Increase the opportunity of success by reducing the probability and / or consequences of high probability risks
Identify and address the most critical risk categories and cost
/ schedule elements
Provide a way – forward plan for mitigating risks that includes actions items, responsibilities and dates
To translate risk information into decisions and mitigating action plans
14/10/2016 Emad Elbeltagi 60
Plan Risk ResponsesPlan Risk ResponsesObjectivesObjectives
31
14/10/2016 Emad Elbeltagi 61
Risk responses can be made at two stages: First Stage: Develop responses to avoid, reduce, or
transfer risk (before risk analysis) Second stage: dealing with residual risks, one of the
two following approaches can be adopted: Residual risks can be transferred through
contractual arrangements and/or insurance policies
Cover retained risk impact by time and/or cost contingency
Risk responses can be made at two stages: First Stage: Develop responses to avoid, reduce, or
transfer risk (before risk analysis) Second stage: dealing with residual risks, one of the
two following approaches can be adopted: Residual risks can be transferred through
contractual arrangements and/or insurance policies
Cover retained risk impact by time and/or cost contingency
Plan Risk ResponsesPlan Risk ResponsesRespond StrategiesRespond Strategies
Plan Risk ResponsesPlan Risk Responses
14/10/2016 Emad Elbeltagi 62
Negative risk strategies
Avoid
Transfer
Mitigate
accept
positive risk strategies
Exploit
Share
Enhance
Accept
Respond StrategiesRespond Strategies
32
14/10/2016 Emad Elbeltagi 63
Plan Risk ResponsesPlan Risk Responses
Identified Risk
Avoidance (prevention)
Mitigation (corrective actions)
Transference (shift
responsibility)
Accept (accept consequences) C
onsi
der
each
res
pons
e /
miti
gatio
n
stra
tegy
Remove the cause Consider alternative solutions
Abort the project
Consider alternative solutionsExamine in detail and obtain more information
Take management or design action
InsuranceSelection of contracts
Warranties or guaranteessharing
Contingency management
Respond StrategiesRespond Strategies
14/10/2016 Emad Elbeltagi 64
Changing the project plan to eliminate the risk or to protect the project objectives from its impacts
Take an alternate approach to delivering the project
Use alternative technology
Reduce/Change Scope OR Change way of meeting the requirements
Abort the project
Changing the project plan to eliminate the risk or to protect the project objectives from its impacts
Take an alternate approach to delivering the project
Use alternative technology
Reduce/Change Scope OR Change way of meeting the requirements
Abort the project
Plan Risk ResponsesPlan Risk ResponsesAvoidanceAvoidance
33
14/10/2016 Emad Elbeltagi 65
Modifying the probability and/or consequence of an adverse risk event to an acceptable threshold
Modify the project plan in such a way as to reduce the probability of the threat or its impact (or both)
Modify the technology to reduce probability or impact Consider alternative solutions Translate risk information into decisions and mitigating plans Implementing new courses of action to reduce the problem or
changing the current conditions so that the probability of the risk occurring is reduced
Modifying the probability and/or consequence of an adverse risk event to an acceptable threshold
Modify the project plan in such a way as to reduce the probability of the threat or its impact (or both)
Modify the technology to reduce probability or impact Consider alternative solutions Translate risk information into decisions and mitigating plans Implementing new courses of action to reduce the problem or
changing the current conditions so that the probability of the risk occurring is reduced
Plan Risk ResponsesPlan Risk ResponsesMitigation (Reduction)Mitigation (Reduction)
14/10/2016 Emad Elbeltagi 66
Shifting the impact of a risk event to another party together with the ownership of the risk
The risk can not be eliminated, just transfer it Modify the contract or agreement with contracting parties Purchase risk insurance Share the risk as in a joint venture partnership Typically is used in connection with financial risk exposure
and most often involves payment of a risk premium to the party assuming the risk
Shifting the impact of a risk event to another party together with the ownership of the risk
The risk can not be eliminated, just transfer it Modify the contract or agreement with contracting parties Purchase risk insurance Share the risk as in a joint venture partnership Typically is used in connection with financial risk exposure
and most often involves payment of a risk premium to the party assuming the risk
Plan Risk ResponsesPlan Risk ResponsesTransferenceTransference
34
14/10/2016 Emad Elbeltagi 67
Recognize the risk, but do not take any action because the impact or probability is small or translate risk information into decisions and mitigating action plans
Active Acceptance – Accept the risk, but include a contingency or contingency plan to execute, should the risk occur
Passive Acceptance – Accept the risk, and plan no action. Deal with the risks as they occurRetained risks: contingency (time and/or cost)
Recognize the risk, but do not take any action because the impact or probability is small or translate risk information into decisions and mitigating action plans
Active Acceptance – Accept the risk, but include a contingency or contingency plan to execute, should the risk occur
Passive Acceptance – Accept the risk, and plan no action. Deal with the risks as they occurRetained risks: contingency (time and/or cost)
Plan Risk ResponsesPlan Risk ResponsesAcceptanceAcceptance
14/10/2016 Emad Elbeltagi 68
Plan Risk ResponsesPlan Risk ResponsesStrategies for ThreatsStrategies for Threats
35
14/10/2016 Emad Elbeltagi 69
Plan Risk ResponsesPlan Risk ResponsesExampleExample
14/10/2016 Emad Elbeltagi 70
Risk exploitation Eliminate any uncertainty to make the opportunity happen Hire best expert, get most advance technologies, acquire
another firm, etc. Risk sharing
Partnering up with another party in an effort to give your team the best chance of seizing the opportunity,
Joint ventures are common example of risk sharing Risk enhancement
Increase the probability that an opportunity will occur Focusing on trigger condition of the opportunity and try to
optimize their chances for occurrence
Risk exploitation Eliminate any uncertainty to make the opportunity happen Hire best expert, get most advance technologies, acquire
another firm, etc. Risk sharing
Partnering up with another party in an effort to give your team the best chance of seizing the opportunity,
Joint ventures are common example of risk sharing Risk enhancement
Increase the probability that an opportunity will occur Focusing on trigger condition of the opportunity and try to
optimize their chances for occurrence
Plan Risk ResponsesPlan Risk ResponsesPositive RisksPositive Risks
36
14/10/2016 Emad Elbeltagi 71
Plan Risk ResponsesPlan Risk ResponsesStrategies for OpportunitiesStrategies for Opportunities
Risk register (updates)
Identified Risk Risk owner Results from qualitative and quantitative risk analysis
processes Agreed response Specific action to implement the chosen response strategy Residual and secondary risk Budget and time of responses Contingency plan and triggers
14/10/2016 Emad Elbeltagi 72
Plan Risk ResponsesPlan Risk ResponsesOutputsOutputs
37
Risk related contractual agreements: Insurance, partnerships and risk sharing parties will generate language that specifies each party’s responsibility for different risk
Residual Risk: risks that remain after avoidance, transfer or mitigation responses have been taken. This also includes minor risks that have been accepted
Secondary Risk: risks that arise as a direct result of implementing a risk response
14/10/2016 Emad Elbeltagi 73
Plan Risk ResponsesPlan Risk ResponsesOutputsOutputs
Is the process of responding to identified and unforeseen risk. It involves tracking identified risk, identifying new risks, implementing risk response plans, and monitoring their effectiveness
14/10/2016 Emad Elbeltagi 74
Risk Monitoring & ControlRisk Monitoring & ControlProcessProcess
38
An examination of the effectiveness of risk response plans and the performance of the risk owner
May be conducted by a third party, the project’s risk officer, or other qualified personnel
Project Risk Response Audit Process Gather relevant project data regarding work results including risk database Review the risk response plans and implementation of the plans Prepare a report of the findings and distribute to the project team and key
stakeholders Unplanned responses to emerging risks that were previously unidentified
or unexpected
14/10/2016 Emad Elbeltagi 75
Risk Monitoring & ControlRisk Monitoring & ControlProject Risk response AuditProject Risk response Audit
Thank youThank you