PROJECT RISK MANAGEMENT.

DEFINITIONS.

A risk is an event that has the ability to either positively or negatively affect project
objectives.

Risk management is the process of identifying, assessing, prioritizing, and

monitoring risks to control the negative impact of risk events.

RISK COMPONENTS.

A risk has 3 components;

The Cause; The trigger that is going to lead or enable the risk to take place and
affect the business objectives; for example, climate change.

The Risk Event: This is the risk itself; the component that will directly and
immediately affect the project objectives for example heavy rains.

The risk Effect: This is the aspect of the business that is affected by the risk event
when it occurs for example, the gardens that are washed away by the heavy rains.

FEATURES OF A RISK.

A risk has 3 typical features.

1. Uncertainity: The outcome of the risk event can either be positive or negative
and before it happens, we may not be sure of what the outcome will be.
2. Futuristic: Risks and risk analysis are futuristic in nature and in description; the
risk events will happen in future; at the time of analysis, they have not happened
yet and analysis is only speculative.
3. Imperical: Understanding risks in general requires informed information and
this information must be accurate and reliable. This information must be the
basis of risk analysis and decision making.

RISK PERSPECTIVES.

These refer to how individuals or business handle and approach risks.

Individually, a business owner can be a risk taker, risk averse or risk neutral.

A risk taker: The risk taker will take decisions that ensure maximum rewards
irrespective of the risk involved. They often focus on the positive side of risk taking
and completely ignore the negative; as long as the positive rewards seem significant.

Risk Averse: A business owner who is risk averse fears risk; they will only pursue
the alternatives that present with the lowest risk facts; irrespective of how low the
 rewards or potential revenues will be. At any one decision making point, they will
choose low-risk options and attempt to avoid or minimize risk as much as possible.

Ideally, low risk = low rewards and high risk = high rewards.

Risk Neutral: A risk neutral business owner, when making business decisions will
look at other business aspects and not risk. A risk neutral manager is not concerned
with the risk element of the business environment. He is indifferent to risk.

A business itself can also have its own operating risk perspectives irrespective of the
business owner’s risk attitude.

Risk Appetite; This is the level of risk that the business is willing to accept in a bid
to achieve all its objectives.

Risk Tolerance: This is the maximum amount of a risk that a business can take on
and comfortably shock absorb and recover from the negative impacts of a risky
decision.

Risk Threshold: This is the highest point beyond which risk becomes unacceptable
to the business. Now, a business might be able to recover from a loss of 40,000,000
UgShs; but the business managers have agreed that the risk threshold is 10,000,000.
Just because we can afford to recover from 40m risk loss; our business tolerance;
doesn’t mean we should risk it all! The maximum we can afford to lose, is the
businesses’ risk threshold.

CLASSIFYING RISKS.

We can classify risk basing on the following categories.

1. According to Project objectives.

Risks can be classified according to how they affect project objectives ie. Risks that
affect project quality, cost, time and scope.
2. Degree of Control.
Risks can either be controllable or uncontrollable. Controllable risk are those which
the business owner can control for example recruiting staff. Uncontrollable risks are
those which are beyond the manager’s control for example heavy rains.
3. Degree of spread.
Risks can either be fundamental or particular. Fundamental risks are those that
affect the entire project set up. All departments in any agribusiness will be affected
by heavy rains. But an event like bad roads will only affect the sales department. Bad
roads won’t directly affect milk production on the farm for instance. Bad roads are
particular risk factors; the affect only a specific department in the business.
4. Level of probability.
 Risks can be classified according to the level of probability. This is the likelihood of
the risk taking place or not. Risks can be highly likely, moderately likely risks and
unlikely risks.
5. According to source of the risk.
Risks can have different sources in the business environment. The most ideal way to
identify risk sources is PESTEL- analysis. Risks can from Political sources, Economic
sources, Socio-cultural sources, Technological, Environmental and Legal.
6. According to the business life cycle.
The business life cycle has 4 fundamental stages; Inception stage, Planning stage,
Execution stage and the Closure stage. Risks can affect the business at any of these
stages.
7. According to availability of information.
Risks can either be known or unknown. Known risks are those that have historical
information to back them up; for instance it might be known that it rains in the
Month of March; that’s a known risk. But conversely, in 2019, COVID19 was an
unknown risk; no one knew it was coming.
8. Level of risk.
Risks can be classified according to the risk impact. Risks can be of Low impact,
moderate impact or high impact.

METHODS OF RISK IDENTIFICATION.

A business owner can identify risks using the following tools/methods.

1. Objective based.

Objective based risk identification means the business owner will list their objectives
first; and the identify what the potential risks to these objectives are.

2. Scenario Based.

This is where the business owner identifies risks by imagining and analyzing
hypothetical scenarios that could affect the business. It is also called simulation; you
make up situations and imagine what risks could possibly occur at that point.

3. Risk Charting.

Risk charting takes on 2 forms; either the business owner starts with listing the
resources (Man, Money, Machines) and the identifying the risks that could affect
these resources during the business execution. The other form is identifying the risks
first; and then pointing out what resources will be affected by those potential risks.

4. Common Occurrence.
Common occurrence is historical based analysis. You identify risks based on what
has happened in the past; or from the experiences of similar businesses operating
from similar situations.

RISK MANAGEMENT STRATEGIES.

The business can adopt the following strategies to handle risk along the business life
cycle.

1. Risk avoidance; The business can deal with risk by running away from it! For
example, if there’s a bad road, you can choose to use a different longer route.
2. Risk mitigation: Risk mitigation means putting in place measures to deal with
risk when it happens. For example, you can carry an umbrella planning for when
it rains; or you can buy a 4 Wheeled car to handle the bad roads.
3. Risk acceptance: This means facing the risk when it happens and doing nothing
about it. It is mostly for low impact risks. For example, you can choose to
continue working in the rain. You’ve accepted that risk.
4. Risk sharing: In risk sharing, the business can bring on board people to partner
with; if as a company, you were going to risk losing 10m in a venture, you can
bring in a partnering company to contribute 5m and you contribute 5m. The level
of risk reduces from 10m to 5m for your business.
5. Risk transfer: Risk transfer is typically insurance. The organization transfers the
entire risk to an external organization. For instance, you can insure your business
against fire. It means if your office catches fire and you lose 100% of your
property, the insurance organ will compensate your business 100% of what you
lost.
6. Contingency budgeting: This means putting aside extra cost and time
allowances for when risks occur. If you can execute a project in 10 days using 10m
UgShs, you can request for 15 days and 15m UgShs. The extra amount is for
dealing with delays and time overshoots arising from unforeseen risk events.
7. Risk Monitoring: This just means you keep watching out for the risk so that
you are aware of it shortly before it happens. An example is weather forecast and
how it can aid you to know whether its going to rain the next day.

THE RISK MANAGEMENT PROCESS.

The risk management process involves the following steps.

i. Risk planning.
ii. Risk identification
iii. Risk analysis – Qualitative and Quantitative.
iv. Risk response (discussed above in risk management strategies)
v. Monitoring, evaluation and control.

NEXT TOPICS: Project Design and Project Closure.

COURSEWORK Question.

A56N Realty (U) Ltd is a real estate advisory and land surveying firm. In its
operations, it also does construction. The CEO has heard that you’ve been bragging
about being a project manager to impress people in your village just because you
were taught by the best project manager in the region. Hmm.

As such, he has hired you to write a Project Plan for his most recent project; the
construction of a 3-story building for Metropolitan International University
Teaching Hospital in Biharwe, Mbarara.

Also add a WBS just to show him that you know what it is.

Deadline of submission: 25th September, 2025 @ 1000hrs.

(20 marks)