Managing Project Risk

Project Risk
• “…an uncertain event or condition that, if it occurs, has
a positive or a negative effect on a project objective.”

ultimately affecting
The project’s budget, schedule,
and/or deliverables
 Benefits of Risk Management
Project Risk Management requires that these project management processes (e.g. scheduling,
budgeting, and change management) be performed at the level of the best practices available

01 02
THREATS
Decrease the probability and
impact of events adverse to
the Project

03 04

OPPORTUNITIES
On the other hand, any
event that could have a
positive impact should
05 be exploited 06
 Types of Risks

The risk register was sorted by risk types (Known Known – Known Unknown – Unknown Unknown) and
the difference between these types is clarified below.

Known Risks: These are risks that have been correctly identified and properly measured
containing no uncertainty.
Known Unknown Risks: These are risks that have been correctly identified but its impact
still uncertainty.
Unknown Unknown Risks: These are risks that couldn’t be identified as no awareness of it
and its associated impact as well.
• Risk is clear
Known • No Uncertainty

• Knowledge of Risk
Known‐
Unknown • Uncertainty on Influence
• No awareness of Risk
Unknown‐
Unknown • Uncertainty on Influence
 Key project risk management areas
• Capabilities, capacity & experience to
execute project
• Resources and capabilities
• Project characteristics and • Project health and safety • Time for tender preparation &
complexity Time Validity
• Technical Assessment
• Other Site Contractors • Schedule to execute the
Project • Care of works and risk of loss
Conditions project
Description
• Site accessibility and logistics Project • Completion time and LDs
• Site conditions, permits Execution
• Suspension and termination
• Environmental, political and • Critical path and delivery time
security

Scope
Key Risk Contractual
• Scope and Division of work
Management • Terms, conditions and
• Limitation of liabilities
Areas waivers
• Engineering quantities • Changes in Law
• Change orders • Legal remedies
S/Cs &
• Compliance • Resolution of disputes
Customers
• Force majeure
Pricing & Others
• Cash flow over the project Estimating
• HAC’s previous experience
lifecycle Loss of profit & consequential
• reliability, capability, capacity, damage
• Tender calculation margins. strength
• Performance Guarantees &
• Contingencies, risk • Firm backup of HAC tender (time, Bonds
provision. conditions) •
• Confidentiality & Indemnity
• Pricing and Margin • Customer creditworthiness
transparency. • Taxes & risk insurance
• Consortium regulation (If any)
• Currency foreign exchange. • Supply chain management
 Risk Example 1

Technology and project management related

– Positive
• Availability of new project management tools
– Negative
• Assumptions may not be correct
• Formation of experienced teams
 Risk Example 2
Outsourcing Labours
• Positives:
– Expanded skill set availability
– Cheaper labor
– Reduced requirements for non-core competencies

• Negatives:
– Internal resistance
• Possible solutions to reduce risk:
– Ensure strong upper management support
– Select the right personnel
– Involve managers early in the outsourcing process
– Educate and reassure internal employees
 Risk & Project Life Cycle

• Initiation stage
– Identification and selection of specific projects
• Inside or outside of organization’s core competencies

• Planning stage
– Procurement
• Unreliability of new technology delivery timeframe
• Development of accurate project schedule
 Risk & Project Life Cycle (cont.)
• Execution stage
– Missed scheduled delivery date
– Technology upgrades

• Control stage
– Implementation of risk plan
– Modification of project schedule

• Closing stage
– Acceptance of project as finished
Risk Management Process
Plan Risk Management

Identify Risks

Perform Qualitative Analysis

Perform Quantitative Risk Analysis

Plan Risk Responses

Monitor and Control Risk

 Risk Management Planning
• A systematic approach to planning the risk management
activities of a given project

• Risk planning
– Where to look for risk
– Assessing the risk
– Deciding how to handle it
– Developing a plan to handle risk
 Risk Management Planning –
Tools & Techniques
• Risk planning meetings
– Senior managers, project team leaders, stakeholders,
project members with decision-making responsibilities
– Development of specific risk management plans
– Inclusion of risk-related items in budget and schedule
– Creation of risk management templates
Risk Management Planning – Outputs
• Risk Management Plan
– Methodology or approach to risk management
– Roles and responsibilities of project members
– Risk management budget
– Integration of risk management activities into project life
cycle
– Scoring and interpretation of risk analysis
– Risk thresholds
– Reporting formats
– Tracking
 Risk Identification
• The process of identifying potential risks to a project
and documenting them

• Define in a Risk Register

– A formal recording of all project risks, explaining the
nature of the risk and management of the risk
Risk Breakdown Structure (RBS)
 Risks
Risk ID T/O Risk Title Risk category

R-01 T Political situation instability External

R-02 T Non-payment by client Contractual

R-03 T Increase of labor cost for several shifts due to delay in deliverables External

R-04 T Inaccurate cost estimate due to the tight time of call of tender offers. Organizational

R-05 T Outsourcing of design activities Technical

R-06 T Partners supply risk External

R-07 O Same material cost as per Tender Organizational

R-08 T Shortage of materials in site due to design faults Technical

R-09 T Increase of material waste in site Technical

R-10 O Governmental permits which leads to quick release in custom clearance External
 Risk Identification Techniques
• Information gathering techniques
– Documentation reviews
– Brainstorming
– Interviewing & Delphi technique
– Strengths, weaknesses, opportunities, and threats (SWOT)
– Checklists
– Diagramming techniques (Cause and effect, process
flowcharts, Influence diagrams)
Risk Identification Techniques
Risk Identification Techniques
Risk Identification Techniques
Risk Identification Techniques
Risk Identification – Output
 Risk Assessment
• Two basic approaches
– Qualitative judgments
– Quantitative calculations

• Three kinds of impact to consider

– Budget impact
– Time impact
– Quality impact on deliverables

23
 Qualitative Risk Assessment
• Broader judgments of risk
– Likelihood problem will occur (low to high)
– Impact if problem occurs (minor to major)

• Likely the most commonly used method of risk

assessment
– Can be formalized to produce useful risk assessments
– Care must be taken to assess risk seriously

24
 Qualitative Risk Analysis –
Tools & Techniques
• Risk probability and impact assessment

• Probability/impact risk rating matrix

• Risk data quality assessment

• Risk categorization

• Risk urgency assessment

Probability/Impact Risk Rating Matrix
 Probability/Impact Risk Rating Matrix
• A technique used to analyze project risk in terms of
its probability of occurrence and its impact on project
outcomes
 Quantitative Risk Analysis
• Analysis of the probability of occurrence and impact
of risk on project objectives using numerical
techniques

• Probability the problem will occur (0 to 100%)

• Estimated cost if problem does occur
• Expected value of the risk =
– (Probability of occurrence X estimated cost)
• Actual numbers with probability and cost allow other
kinds of calculations
 Quantitative Risk Analysis –
Tools & Techniques
– Sensitivity analysis
• Technique used to examine the potential impact of specific risks to
a project (Tornado analysis)
– Decision tree analysis
• Diagramming technique used to evaluate courses of action in terms
of their potential cost and benefits relative to other courses of action
 Quantitative Risk Analysis –
Tools & Techniques (cont.)
– Expected monetary value analysis (EMV)
• Statistical technique which captures the average value of potential
projects by analyzing the likelihood of possible project outcomes as
well as each outcome’s financial consequences
– Simulation
• Statistical technique where what-if analyzes are run to determine
the impact of a given situation on a project objective (Monte Carlo)
Expected Monetary Value + Decision
Tree Analysis
 Monte Carlo Simulation
QUANTITATIVE COST RISK ANALYSIS Cost
 Monte Carlo Simulation
2. QUANTITATIVE SCHEDULE RISK ANALYSIS Time

 The Cumulative Probability Curve shows the range of possible outcomes on the project. The minimum
value, or 0% confidence point, states that the project delivery date will not be earlier than this date, based
on the risks and uncertainty identified. The maximum value, or 100% confidence point, states that the project
delivery date should not exceed this date.
 Monte Carlo Simulation

QUANTITATIVE SCHEDULE RISK ANALYSIS Most Critical items

By analyzing the relationship between risks and the outturn duration it establishes which risks the project is most sensitive to
i.e. which of the risk model inputs had the biggest influence on the output. The results of the sensitivity analysis identify the
most influential risks.
 Risk Response (-Ve Risks)
• Avoidance
– Identified risks are avoided through a different course of
action
• Transfer
– Transfer of risk to another party through the use of
contracts
• Mitigation
– Steps are taken to reduce the occurrence or impact of stated
risks
• Acceptance
– Risks are accepted and contingency strategies are planned
Risk Response (+Ve Risks)
 Risk Response
Sample

Risk Risk
O/T Risk Title Response EMV Remarks
I.D Category
Trying to reduce the time between the
R-02 T Non-payment by client Contractual
Mitigate 125 invoices in order to reduce the probability
of loses the value of done work.

R-08 T Shortage of materials in Technical Drawing Office with different team to

Mitigate 100 validate the equipment needed from the
site due to design faults DWG

R-13 T Damage during External

Transfer 30 insurance
transportation
R-16 T Miss Communication Communic
Between Client and ation Mitigate 350 Define channels of communication
Contractor
R-17 O Good Relationship with Communic
Enhancement 270 Enhance reporting systems
Consultant ation
R-19 O Early Completion (Saving Organizati
Man-Days) onal Exploitation 30 Hire Best Expert to get the most benefit
 Risk Response Plan Contents
• Any risks that have been identified along with a description and the areas and objectives the
identified risk may affect

• The roles and responsibilities of any risk owners

• Qualitative and quantitative risk analysis results as well as any trends identified during either
of these processes

• A description of the risk response strategies including avoidance, transference, mitigation, and
acceptance, and the risk that the strategies will be applied to

• An acknowledgement of any residual risk projected to remain after any risk response
strategies have been applied

• A list of actions to be used to implement the risk response strategies

• Budget and schedule information in terms of risk response

• Any contingency plans used as part of an active response to accept risks

 Risk Monitoring & Control
• The process of monitoring identified risks for change
and controlling those changes

• Review successes and failures at handling risk

– After significant milestones
– After significant risk events
– After the project is completed
• Develop “lessons learned”
– To carry on to the next phase or project
Questions?