Project Risk Management


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East and Southern Africa, Project Risk Management

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Project Risk Management

  1. 1. Project Risk Management Dec 2010
  2. 2. 2 What is Risk? Risk is the uncertainty of an action or activity which may have an impact on the achievement of the (project’s) objectives, outputs & benefits It is the result of the combination of Impact & Probability
  3. 3. Project Risk Management Why? Undertaking any project entails risk A random & ad hoc reaction to identification & management of risk is often fatal to success/ sustainability of the project, or may require costly interventions 3 What? Systematic process of managing risk: To achieve objectives in a manner consistent with public interest, human safety, environmental factors & law To minimize the adverse impact of risk on project's resources, objectives & outputs Does not mean eliminating risk but reducing operational surprises/ losses
  4. 4. Risk Identification Log frame Design & superv’n docs Brainstorm Risk Assessment Measurement Prioritisation Classification Risk Response Avoid (eliminate) Reduce (diminish) Share (outsource) Accept (retain) Risk Monitoring & Reporting Update regularly Communicate 4 Risk Management Cycle Depends on risk appetite/preferences Assists in process of identification/ mitigation Based on assumptions which may be risky
  5. 5. 5 Risk Identification Risk Inventory Pyramid
  6. 6. Risk Universe Define the Risk Universe Develop understanding of business area– review documents, interviews May be structured by process and/or location Define High Priority risks Evaluate the nature & types of errors/ omissions that could occur, i.e., “what can go wrong” Consider significant risks common in the industry or experienced in past Information Technology risks (i.e. - access, backups, security, data integrity) Volume, size, complexity and homogeneity of the individual transactions processed through a given account or group of accounts (revenue, receivables) Susceptibility to error or omission as well as manipulation or loss Robustness versus subjectiveness of processes for determining significant estimates Decentralized authority Extent of change in the business/ human resources Other risks extending beyond potential material errors/ omissions in financial statements 6
  7. 7. 10 UNACCEPTABLE RISKS ACCEPTABLE RISKS “ Black swan” Risk Assessment - Measurement Impact Description 6 Catastrophic: requires urgent/ extensive action; lives lost, funding withdrawn, project failure 5 Major: requires urgent/ extensive action; cancellation/ suspension of funding, very costly remedies 4 Significant: delays in funding, impacts potentially > 1 component, requires urgent intervention of third parties (donors/ ministry), costly remedial actions 3 Moderate: requires remedial action as soon as possible, impacts on 1 component, modest cost 2 Low: requires some remedial action, minor costs 1 Negligible: no interference with other activities, no financial cost Likelihood Description 6 Virtually certain to occur in the time frame 5 Highly likely in the timeframe; several precedents 4 Likely to occur; some precedents 3 Unlikely, but not unprecedented 2 Unlikely, without precedent 1 Virtually impossible
  8. 8. 8 L: Likelihood/ I: Impact/ RP: Risk Priority Risk Monitoring Log frame approach to risks - example # Basic objective Risk event Risk Consequence L I RP Risk Mitigation Strategy Actor Time frame 1 Profitable farmer managed and self-financing irrigation schemes established and operational Decline in the sugar price and impacts on the economic viability of sugar cane as an anchor crop Farm viability deteriorates Financing institutions refuse to fund capital and on farm development Large scale irrigation development compromised with resulting increase in poverty and increased food security risk H H 5 Crop diversification in line with, national & international market needs Develop local livestock ownership into commercial herds with supp. feeds produced on irrigation areas Pursue downstream development initiatives with potential to add value to crops grown on the scheme, these initiatives could be production of crops with potential for bio-fuel starch, oils & fibre production Project leadership, national Sugar Association, project beneficiaries Annual 2 Policy, institutional & social environment supportive of equitable integration of smallholder farmers into the commercial economy People resisting land use change Land and irrigation development delayed; less land is available for redistribution; Few landless people benefit from irrigation M H 5 Facilitate agreement on equity options acceptable to all parties Project leadership land owners, Traditional Authorities & project beneficiaries
  9. 9. Project Risk Management in IFAD Begins at COSOP Countries with high corruption/ poor governance ratings subject to additional checks/ controls embedded into project design & implementation Risks highlighted in project design documents Manage risks through expanded Log Frame – suggested approach for projects Annual Portfolio review – assess fiduciary aspects, project implementation progress, outputs & outcomes, sustainability, likelihood of achieving development objectives & impact in increasing physical & financial assets/improving food security 7
  10. 10. 9 Risks in IFAD projects
  11. 11. 9 10 Golden Rules
  12. 12. Thank You