CHPTER ONE
INTRODUCTION
Risk Awareness
Risk is an uncertainty that is characterized by its probability of
occurrence and its impact on project objectives. Uncertainty is about a
future event that may or may not happen.
All projects contain risk, arising from interactions between
OBJECTIVES ... ‘ What must happen
UNCERTAINTY ... What might happen
Risks are uncertainties which, if they occur, would affect the project
objectives either negatively (threats) or positively (opportunities). Project
objectives include scope, schedule, cost, and quality.
In any given decision situation both threats and opportunities are usually
involved, and both should be managed.
Risk management assists project managers in setting priorities,
allocating resources and implementing actions and processes that
reduce the risk of the project not achieving its objectives.
All projects are exposed to risk, denial does not make them go away, it
just makes you unprepared for them if they occur.
Risk should be considered at the earliest stages of project planning and
risk management activities should be continued throughout a project.
Risk management plans and activities should be an integral part of an
organization’s management processes
Integrating risk with other management functions
Uncertainty in Projects
According to Chapman and Ward (2002), uncertainty means ‘lack of
certainty’ -not able to be accurately known or predicted.
Projects may involve uncertainties but they do not matter equally,
indeed some do not matter at all while others are literally vital.
Risk’ is ‘uncertainty that matters’ but not every uncertainty is a risk.
It matters because it can affect one or more objectives.
There are uncertainties that are irrelevant in terms of objectives, and
these should be excluded from the risk management process (RMP)
Example: Unseasonal weather conditions in construction project matters
( the possibility of rain is an uncertainty that matters). But such condition
may not matter if we are conducting an IT project.
The six Ws framework for the roots of uncertainty
Who- Who are involved?
project initiators, later players and other interested
parties
Why- What do the parties want to achieve?
Profit or other motives )
What- what is it the parties are interested in?
Design (building, other physical product, service, or process)
Whichway- how is it to be done? ( Activities)
Wherewithal- What resources are required
When- When does it have to be done? (Timetable)
Risk Management Culture
Organizational culture drives the approach to risk. Thus, organization needs to
build a culture of risk management in order to be successful in managing
project risk.
Risk culture definition
The norms and traditions of behaviour of individuals and of groups within an
organization that determine the way in which they identify, understand,
discuss and act on the risks the organisation confronts and the risks it takes.
(IIF, 2009).
Culture is how organization do things-“ risk is our way of doing business”
Building a risk-based culture involves integrating risk into the project planning
and control process.
Cont.
An organization's risk culture is formed by the ‘behavioral rules’ created
by both an organization's leadership and its staff in the process of
achieving its goals within a specific set of environmental conditions.
‘Behavioral rules’ can be observed in the actions taken, the actions not
taken and interactions between organizational members, in relation to
managing risks.
The Behavior of the group and its members is shaped by their underlying
Attitudes
Characteristics of successful risk management organizations
link corporate and project planning. Risk management program is consistent
with company strategy and planning.
Provide training and development in risk planning and management.
Document past project experiences and learn lessons from the experiences
(Learning organization).
Functional managers address quality
Have a remuneration system which incorporates incentives for management
and staff to optimize risk and returns.
Seeing through
Johari window
One of the major risks in
any project is the
tendency of its key
project decision makers
to overestimate what
they know and
underestimate what they
don’t know.
Within the Johari
Window model,
interpersonal
communication can be
improved by enlarging
the area of Arena (open
area) through self-
disclosure and feedback.
Classifying risks
Different approaches are found to classifying what are often the same types
of risks. The main categories of risk can be classified as:
Physical: loss of (or damage to) information, equipment or buildings as a
result of an accident, fire or natural disasters such as floods, earthquake.
Technical: Systems that do not work or do not work well enough to
deliver the anticipated benefits.
Labor: Key people unable to contribute to the project because of,
for example, illness and career change.
Political/Social: For example, withdrawal of support for the
project as a result of change of government, a policy change by
senior management, or protest from the community, the media,
service user or staff.
Liability: legal action or the treats of it because some aspects of
the project is considered to be illegal or because there may be
compensation claims if something goes wrong.