PROJECT MONITORING & EVALUATION

CHAPTER ONE

Project Risk Management: An Overview

By: Mohammed G
MAY, 2022
Jimma, Ethiopia
BY M.G [Link]. [Link]
 Chapter Objectives(Discussion Points)

The chapters in this part address the following

questions:
1. What is project risk management?
2. When is project risk management performed?
3. Who performs project risk management?
4. What are the steps of project risk management?
 Risk identification
 Risk Assessment
 Risk Response Development
 Risk Response Control
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 Definition of Project Risk Management

 Risk Definition
Risk:
– An uncertain event or condition that, if occurs has a positive
or negative effect on project duration, cost, scope or quality.
 Risk Management
It is the process of identifying, assessing and controlling threats
to an organization's capital and earnings.
 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).

By Mohammed Getahun (MSc, Assistant professor) , Jimma University 3

 What is Project Risk?
 An event that, if it occurs, causes either a positive or
negative impact on a project
 Keys attributes of Risk
– Uncertainty
– Positive and Negative
– Cause and Consequence

By Mohammed Getahun (MSc, Assistant professor), Jimma University 4

 Project Risk Management
 What is Risk Management in Project Management?
 Project Risk Management is the art and science of
identifying, analyzing, and responding to risk throughout life
of the project and in the best interest of meeting project
objectives.
 The risk management plan includes these definitions and
guidelines:
 List of possible risk sources and categories
 Impact and probability matrix
 Risk reduction and action plan
 Contingency plan
 Risk threshold and metrics

By Mohammed Getahun (MSc, Assistant professor) ,Jimma University 5

 Important Risk Management
Why is Risk Management Important?
Better understand uncertainty to maximize upside &
minimize downside of risk
A proactive rather than reactive approach.
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.
Maximizes Results and Meet Deadlines
Evaluates the Entire Project to project success

By Mohammed Getahun (MSc, Assistant professor) , Jimma University 6

 Risk roles and responsibilities
 Risk management is the responsibility of the most senior member
of a business or a project team, assisted by one or more risk
management professionals.
 For a typical project, risk management roles and responsibilities
are as follows:
 Project sponsor
 Project manager
 Project track leaders
 Risk management professional
 Functional managers
 Local community
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 Risk Management Process
 PMBOK ® Definition "The systematic process of identifying, analyzing,
and responding to project risk”

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By Mohammed Getahun (MSc, Assistant professor) ፣ Jimma University
 Managing Risk

Step 1: Risk Identification

 The initial step in the risk management process is to identify the
risks that the business is exposed to in its operating environment.
Risks are to be identified and dealt with as early as possible in
the project.
Risk identification is done throughout the project life cycle,
with special emphasis during the key milestones.
–Generate a list of possible risks through brainstorming,
problem identification and risk profiling.
• Macro risks first, then specific events
By Mohammed Getahun (MSc, Assistant professor) Jimma University
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 Step 1: Identify the Risk
 There are many different types of risks:
 Legal risks
 Environmental risks
 social risk
 Economic risk
 Market (commercial) risks
 Information technological risk
 Organization risks
 Technical risks
 Regulatory risks etc.
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 Tools & Techniques for identification of risk
 Some of the most widely used tools and techniques by project
managers to ensure that they implement risk management along
with their Project Management strategies successfully.
 Brainstorming
 Root Cause Analysis
 SWOT Analysis Risk
 Probability and Impact Matrix
 Risk Data Quality Assessment Variance and
 Variance and trend analysis

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 Step 2: Risk Assessment

 A Risk Assessment is a process to identify potential hazards and

analyze what could happen if a hazard occurs.
 The purpose is to deeper understand and evaluate risks identified.
 Risk has two main components:
 Probability / likelihood (e.g., medium or 25%): ”How
likely/probably will the risk event occur?”
 Consequence / impact: ”How will the risk event impact the
project?”
 This component can further be divided into e.g.:
 – Consequence for schedule (time)
 – Consequence for budget (money)
 – Cons. for scope (extent – e.g., what features to implement)
 – Consequence for quality (e.g., non-functional properties)
By Mohammed Getahun (MSc, Assistant professor) ,Jimma University 12
 Step 2: Risk Assessment
 There are different methods for risk analysis and evaluation:
Qualitative risk analysis: prioritizing risks based on their
probability and impact occurrence.
level of Occurrence
 High Risk: Substantial impact on cost, technical performance, or schedule.
Substantial action required to alleviate issue. High-priority management
attention is required.
 Medium Risk: Some impact on cost, technical performance, or schedule.
Special action may be required to alleviate issue. Additional management
attention may be needed.
 Low Risk: Minimal impact on cost, technical performance, or schedule.
Normal management oversight is sufficient.

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BY M.G [Link]. [Link]
 Qualitative risk analysis
The numbers in the colored squares represent the
product of the probability and consequence
ratings.
The squares of the matrix are color coded as
follows:
Green: Low risk;
Yellow: Medium risk;
Orange: Significant risk; and
Red: High risk.
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 Risk Probability and Impact
Probability is the likelihood that an event will occur.
 Impact is the amount of pain (or the amount of gain)
the risk event poses to the project.

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 Quantitative risk analysis definition refers to an objective and
numeric risk analysis tool that offers extensive details concerning
the impact and probability of a certain risk.
 The process of numerically analyzing the effect of identified risks
on the project’s objectives. In particular, the project schedule and
the project costs.
 Focuses on all the risks that have a possibility and high impact on
the project elements.
 Uses mathematical calculations
 Calculates the effect of risk as a monetary value (cost) or number
(duration).
 It is often applied to large and complex projects

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 Quantitative Risk Analysis Tools
There are many tools and techniques available to perform
quantitative risk analysis. Below are a few of them;
I. Decision Tree Analysis: A diagram that shows the
implications of choosing one or other alternatives.
II. Expected Monetary Value: A method used to establish
the contingency reserves for a project budget and
schedule.
III. Three-Point Estimate: A technique that uses the
optimistic, most likely, and pessimistic values to
determine the best estimate.
IV. Sensitivity Analysis: A technique used to determine
which [Link]
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 Example of Quantitative Risk Analysis
 Suppose ABC Infrastructure, a manufacturing company, uses
the expected monetary value (EMV) method to analyze a
project’s risk exposure and develop a contingency reserve.
 The following table shows the calculation.
Risk Probability Cost Effect EMV (Cost Effect x
Probability)
Risk A (Threat) 12% Br.24,000 Br.2,880
Risk B (Opportunity) 15% (Br.15,000) Br.2,250
Risk C (Threat) 9% Br.54,000 Br.4,860
 Therefore, the overall EMV is Br.5,490. It denotes ABC’s
contingency reserve and the project’s risk exposure.

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Defined Conditions for Impact Scales of a Risk on Major
Project Objectives (Examples for negative impacts only)
 Difference Between Qualitative and Quantitative Risk
Analysis

 The below table summarizes the difference between these two

risk analysis.
Qualitative Risk Analysis Quantitative Risk Analysis
Focuses on all the risks identified in the Focuses on all the risks that have a possibility
identify risk process. and high impact on the project elements.

Does not use numerical methods. Uses mathematical calculations

Scales risks by using numbers (0-5) or Calculates the effect of risk as a monetary
percentages. value (cost) or number (duration).

It is often applied to large and complex

It is applied to almost all projects
projects
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 Step 3: Risk Response Development
(Managing Risk)
 Risk response planning is the process of developing
options and determining actions to enhance opportunities
and reduce threats to the project`s objectives.

 It includes the identification and assignment of

individuals or parties to take responsibility for each
agreed risk response.

 Developing a response to risks involves developing

options and defining strategies for reducing negative
risks and enhancing positive risks
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 Step 3: Risk Response Development
 Four elementary strategies to treat risks:
 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.
 Retaining Risk
 Making a conscious decision to accept the risk.
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 Opportunity Management Tactics
 The Four basic response strategies for positive risks are:
 Exploit
 Seeking to eliminate the uncertainty associated with an
opportunity to ensure that it definitely happens.
 Share
 Allocating some or all of the ownership of an opportunity
to another party who is best able to capture the opportunity
for the benefit of the project.
 Enhance
 Taking action to increase the probability and/or the positive
impact of an opportunity.
 Accept
 Being willing to take advantage of an opportunity if it
occurs, but not taking action to pursue it. 23
 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.

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 Risk and Contingency Planning
Technical Risks
Backup strategies if chosen technology fails.
Assessing whether technical uncertainties can be resolved.

Schedule Risks
Imposed duration dates (absolute project finish date)
Compression of project schedules due to a shortened project
duration date.

7–25
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 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.
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 ………Cont’d
In generally, consider the following for contingency
planning:
 The management of a contingency budget

 The development of schedule alternatives and work-arounds

 Complete emergency responses to deal with major areas of

risk
 An assessment of project shut-down liabilities

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 Step 4:Risk Monitoring and Control(Managing
Risk)
Monitoring risks involves knowing their status

Controlling risks involves carrying out the risk

management plans as risks occur.

Workarounds are unplanned responses to risk events that

must be done when there are no contingency plans

The main outputs of risk monitoring and control are

corrective action, project change requests, and updates to
other plans.
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 Step 4:Risk Monitoring and Control
(Managing Risk)
Risk response control involves executing the risk
management processes and the risk management plan
to respond to risk events
Risks must be monitored based on defined milestones
and decisions made regarding risks and mitigation
strategies
Sometimes workarounds or unplanned responses to
risk events are needed when there are no contingency
plans.

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 End of Chapter One

Thank you for

your attention!
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