Managing

Risk
Sr Ts. Muhamad Zaihafiz bin Zainal
Abidin, MRISM, [Link]
 Learning outcome

• Define Risk and Risk management

• Explain process involve in Risk Management
• Explain on how to identify project risk
• Describe difference responses of risk

7–2
 Risk Management Process
• Risk
–Uncertain or chance events that planning can not
overcome or control.
• Risk Management
–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 (risk event).
• How to minimize the risk event’s impact (consequences).
• What can be done before an event occurs (anticipation).
• What to do when an event occurs (contingency plans).

7–3
The Risk Event Graph

FIGURE 7.1

7–4
 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.

7–5
Risk register

Qualitative or
Quantitative
The Risk
Management
Process

FIGURE 7.2

7–6
 Managing Risk
• Step 1: Risk Identification
–Generate a list of possible risks through
brainstorming, problem identification and risk profiling.
• Macro risks first, then specific events
• Step 2: Risk Assessment
–Scenario analysis for event probability and impact
–Risk assessment matrix
–Failure Mode and Effects Analysis (FMEA)
Impact × Probability × Detection = Risk Value
–Probability analysis
• Decision trees, NPV, and PERT
–Semiquantitative scenario analysis
7–7
Information-gathering techniques

Root cause • Analyzing all risks and figuring what actually

behind it.
identification • Finding root cause

• Find everyone who might have opinion and ask

Interview them about how could cause trouble to project
i.e. client

The Delphi • Use facilitator

• Questionnaires are deliver to experts in a
technique group but each experts will keep anonymous

• Get all team member in a room and start

Brainstorming umping out ideas
• Use facilitators
Information-gathering tools

Documentation • Look at plans, requirements and documents form organization process

asset
Reviews • Using checklist

Assumption • Assumption was made during planning

• Analysis of the assumptions
Analysis

• Analyze strengths, weaknesses, opportunity and threats

SWOT Analysis • Start with strength and weaknesses
• From strength analyze opportunity and from weakness analyze threats

• Use Ikishawa or Fishbone diagram

Diagramming • Use flowchart to see how system interact
 Horizon Scanning

 3 P - People, Process and Technology

 SPECTRES (Social, Political, Economic,
Competitive, Technological, Regulatory,
Environmental, Security)
 Root Cause Identification

Five Whys – Toyota

Production System (1970s)
– Find causes that is at the
very root of the problem

5W2H – What? Why?

When? Where? Who ?
How Often? How
much/how many?
The Risk Breakdown Structure (RBS)

FIGURE 7.3

7–7
Partial Risk Profile for Product Development Project

FIGURE 7.4

7–8
Scenario analysis for event probability and impact
Risk Severity Matrix
 Managing Risk (cont’d)
• Step 3: Risk Response Development
–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.

7–16
How to deal with risk? (-
ve)
• The best thing that we can do is to avoid it
• If you can prevent it from happening, it definitely wont
Avoid hurt your project

• If you cant avoid the risk, you can mitigate it

• Taking some sort of action that will cause it to do as
Mitigate little damage as possible

• One effective way to deal with risk is to pay someone

else to accept it
Transfer • To buy insurance

• When you cant avoid, mitigate or transfer risk then

you have to accept it.
Accept • Even if we accept the risk, we must know the end
results
How to deal with risk? (+
ve)
• This is when you do everything you can to make sure that
you take advantage of an opportunity. You can assign you
Exploit best resources to it. Or allocate more than enough funds
to be sure that you get the most out of it

• Sometimes it’s harder to take advantage of an opportunity

on your own. Then you might call in another company to
Share share it with you

• This is when you try to make the opportunity more

probable by influencing its trigger
Enhance

• Like negative risk, sometimes an opportunity just falls to

your lap, just accept it
Accept
 Mitigate? Share? Accept? Exploit?
Transfer? Avoid? Enhance?

Siti is project manager on construction project. When

she hears that her project has run into snag due to
weeks of bad weather on the job site, she says “No
problem, we have insurance that covers cost
overruns due to weather”
 Mitigate? Share? Accept? Exploit?
Transfer? Avoid? Enhance?

The project manager for construction project

discovers that the local city council may change the
building code to allow adjoining properties to
combine their sewerage systems. He knows that a
competitor is about to break ground in the adjacent
lot and contact him to discuss the possibility of
having both projects save cost by building sewage
system for the two project
 Mitigate? Share? Accept? Exploit?
Transfer? Avoid? Enhance?

A construction project manager has a meeting with

the team foreman, who tells him that there’s a good
chance that a general strike will delay the project.
They brainstorm to try to find a way to handle it but in
the end decide that if there is a strike, there is no
useful way to minimise the impact of the project
 Mitigate? Share? Accept? Exploit?
Transfer? Avoid? Enhance?

One of your construction project team members

warns you that your concrete supplier caused serious
delays in his last project because he delivered the
wrong kind of concrete. You discuss it with the team,
and decide that you need to accept the possibility
that this will happen. But you make back up plans
with an alternative provide by putting down payment
on an emergency shipping, just in case
 Mitigate? Share? Accept? Exploit?
Transfer? Avoid? Enhance?

Your project team informs you that another team

working at the company built a tool that will save
three weeks on the project. You ask the other team’s
project manager to have his team member share the
tool with your team
 Mitigate? Share? Accept? Exploit?
Transfer? Avoid? Enhance?

Your team has identify risk with some of the

chemicals you are using on your highway
construction project. It is really difficult to mix them
just right and based on past projects, you have
figured out that there’s a high probability that 14% of
the chemical supply will be lost in mixing problems.
You decide to buy an extra 15% of chemicals up front
so that you will be prepared for those losses and your
project won’t be delayed
 Mitigate? Share? Accept? Exploit?
Transfer? Avoid? Enhance?
While identifying risks for a new construction project, you
discover that a chemical you are using on your building cannot
be applied in rainy conditions. You also learn that your project
will be ready for the chemical application around the time
when most of the rainfall happens in this part of the country.
Since the project can’t be delayed until after the rainy season
and you need to make sure the building gets the chemical
coating, you decide that your team will just have to allow
enough time in schedule for nonworked rain days
 Mitigate? Share? Accept? Exploit?
Transfer? Avoid? Enhance?

A project manager on construction project includes a

line item in the budget for insurance for the
equipment and job site
 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.

7–27
 Risk and Contingency Planning
• 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.

7–28
 Risk and Contingency Planning (cont’d)
• Costs 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.

7–29
 Contingency Funding and Time Buffers
• Contingency Funds
–Funds to cover project risks—identified and unknown.
• Size of funds reflects 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.
• Time Buffers
–Amounts of time used to compensate for unplanned
delays in the project schedule.
• Severe risk, merge, noncritical, and scarce resource activities

7–30
 Managing Risk (cont’d)
• Step 4: Risk Response Control
–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

7–31
 How to Control Risk

Risk • Regularly scheduled reassessment meeting, to see if

risk register still holds truth
Reassessment • Main goal – find new risks

Variance and • Comparing actual project performance to plan

• To find – over budget or behind schedule
Trend Analysis • Might show patterns that indicate that the risks

• Always know how much money you have set aside for
Reserve risk
• Contingency fund – its use is contingent on a certain
Analysis risk happening
 How to Control Risk

• When you have outside party to come and look at

your risk respond strategies to judge how effective
Risk Audit they are
• Risk audit will point out better way to handle risk

Technical • Comparing the performance of your project with

Performance its planned performance
• Check with the milestone
Measurement

Status • Should happen throughout the project

• Risk review agenda
Meeting • Also find new opportunity
Risk management at the top of the world
 Risk Register

No. Identify Potential Root Category Priority Urgency Risk Monitoring

Risk Response Causes Respond and
(Details) Control

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Tutorial