How can risk management improve your project success? Risk Management expert, Jerry Klanac, answers this question and more.

1. RISK
MANAGEMENT
Jerry Klanac
Managing Director
PMA Consultants

2. Quotable View of Risks
Frederick Wilcox:
“Progress always involves
risk – you can’t steal
second base and keep your
foot on first base.”
George Sifri:
“Project Management
equals Risk Management
… and … Risk
Management equals
Project Management.”
RISK GURUAUTHOR

3. Risk Management Processes
PMI Project Management Body of Knowledge (PMBOK)
Plan Risk Management
Process of defining how to
conduct risk management
activities for a project
Identity Risks
Process of determining which
risks may affect the project and
documenting their
characteristics
Implement Risk Responses
Process of implementing risk
response plans.
Qualitative Risk Analysis
Process of prioritizing risks for
further analysis or action by
assessing and combining
probability of occurrence and
impact
Monitor & Control Risks
Process of tracking identified
risks, identifying new risks, and
evaluating risk process
effectiveness
Quantitative Risk Analysis
Process of defining how to
conduct risk management
activities for a project
Source: Guide to Project Management Body of Knowledge (PMBOK® Guide)
PROJECT RISK MANAGEMENT OVERVIEW
Plan Risk Responses
Process of developing options
and actions to enhance
opportunities and reduce threats
to project objectives

4. Application of Risk Management on a Project
Risk
Register
PlanReview
Identify
Risk Identification
Techniques
Assess
Qualitative Analysis
Quantitative Analysis
Mitigate
Risk Mitigation
Strategies
Respond

5. What is Project Risk?
The probability that an unfavorable outcome will occur.
Risk Event
“discrete occurrence that
may affect the project for
better or worse”
Negative effects: threats
Positive effects: opportunities
1. Probability (likelihood) of its
occurrence
2. Impact when the event occurs
(amount at stake)
Risk has two primary features for a
given event:

6. Key Elements of Risk Management
Risk
Register
Defining a Risk
Event Statement
Prioritization of Risks:
Probability &
Impact Evaluation
Risk Responses
& Risk Mitigation
Quantitative Risk
Analysis (Cost &
Schedule Risk
Analyses)

7. What is a Risk Register?
Risk Identification Risk Identification Risk Response
ID DATE PHASE /
ACTIVITY
CAT. QUARTER
INCURED
RISK CAUSE EFFECT IMPACT PROB. RISK STATUS STRAT. MITIGATE RESP.
STATUS
MAX
COST
PROB. % CON.
RESERVE
1 3/1/18 Phase 1 Outages Q4 2018 Coordinating
transmission
and outage
Limited
outage
availability in
north corridor
Potential
delay in
transmission
outage
Medium Medium Medium In progress Mitigate Include in
design approval
process for the
transmission
line extension.
Project team is
on-track to
receive required
approval
Mitigation
Planned
$100,000 50% $50,000
2 3/1/18 Phase 1 Schedule Q2 2019 Meeting
customer
requested
service date
Design,
equipment,
site readiness,
and
coordination
for
transmission
line outage
could impact
the in-service
date
Delays
associated
with
construction
of substation
on customer
property
Medium Medium Medium In progress Mitigate Bi‐weekly
design meetings
held to insure
design and
equipment
procurement is
on track.
Monthly
executive
leadership
meetings to
resolve
outstanding
issues
Mitigation
Planned
$100,000 50% $50,000
3 3/1/18 Phase 1 Schedule Q2 2019 Delays
associated with
construction of
substation on
customer
property
Project is fast
tracked as it
relates to
substation
construction
Delays
associated
with
construction
of substation
on customer
property
Medium Medium Medium In progress Mitigate Weekly
construction
meeting to
insure
construction
needs
and schedules
are understood
Mitigation
Planned
$100,000 50% $50,000
• Repository for risk information; database or spreadsheet
• Started early in project; updated continuously
• “Risk Champion” usually compiles; entire project team uses
• Need clear risk statements
• Need to define who is responsible
• Need to establish probability and impact

8. Example of Entry into Risk Register
Risk Name
34: Insufficient laydown / warehouse areas - fewer options available
Cause Event Consequence
Refinery cannot rent space in
surrounding community
Insufficient laydown /
warehouse areas - fewer options
available
Increased cost and schedule
delays
Risk Owner Risk Strategy
Steve Rahn Accept
Risk Evaluation (OMS Ratings)
Business Risk: Worst Credible Business Risk: Net Credible
F8 G6
Action Plans
Action Plan Description Action Plan Comments (including due dates)
Develop onsite warehouse and laydown strategy;
Ensure cost are included in cost estimates; Work
with WPT Construction Manager to determine
appropriate location
By start of construction; Continue development of
logistics plan (including material
management/warehousing). Due by 1 March
2017.
Risk Evaluation
Action Plans
Risk Name
Medium Low

9. Risk Event Statement
Should include cause, event, and consequence.
Format:
“Because of _________,
_________ may occur during _________, thereby causing
an impact to _________”
Example statement:
Because of excessive wet weather,
inefficiency may occur during civil work, thereby causing
an impact (delay) to the construction schedule.

10. Probability Very Low Low Medium
(or Moderate)
High Very High
Cardinal 10% 30% 50% 70% 90%
Cardinal
(w/Range)
< 10% 10% - 30% 30% - 60% 60% - 90% > 90%
Impact Very Low Low Medium
(or Moderate)
High Very High
Cost Insignificant Cost
Increase
< 5% Cost Increase 5 - 10% Cost Increase 10% - 20% Cost
Increase
> 20% Cost Increase
Schedule Insignificant
Schedule Slip
Delay: < 2 weeks Delay: 2 weeks to 1
month
Delay: 1-2 months Delay: > 2 months
Technical
(Scope)
Scope Barely
Affected
Minor Areas of Scope
Affected
Major Areas of Scope
Affected
Scope Difference is
Unacceptable
Project is now useless
Technical
(Quality)
Quality Degradation
Barely Noticeable
Only Very Demanding
Applications Are
Affected
Quality Reduction
Requires Client
Approval
Quality Reduction
Unacceptable to
Client
Project is now useless
Safety Assessment Required May add to a hazard Creates a hazard Potential for injury or
fatality
Likely to cause injury
or fatality
Risk Prioritization
Example Risk Evaluation Scales

11. Risk Prioritization
Very Low
Probability
Low
Probability
Medium
Probability
High
Probability
Very High
Probability
Very High Impact Medium Medium High High High
High Impact Low Medium Medium High High
Medium Impact Low Medium Medium High High
Low Impact Low Low Medium Medium High
Very Low Impact Low Low Low Medium Medium
Example Probability – Impact Matrix (Pre Mitigation)
1 - Excess Rain Event (work at grade)
2 - Excess Rain Event (work at
excavation levels)
5 - Contaminated Groundwater
6a - Breach into Public Access Spaces
8 - Delay in Award of Construction
contract
9 - Unexpected High Bid
10 - Survey Coordinates error
11 - Rock Removal More Difficult
12 - Change Work Plan: External
Project Influence
13 - Laydown Space Insufficient
14 - Existing Rockbolts Insufficient
9 13
8 1217
5 210 1116
14 16a

12. Risk Prioritization
Very Low
Probability
Low
Probability
Medium
Probability
High
Probability
Very High
Probability
Very High Impact Medium Medium High High High
High Impact Low Medium Medium High High
Medium Impact Low Medium Medium High High
Low Impact Low Low Medium Medium High
Very Low Impact Low Low Low Medium Medium
Example Probability – Impact Matrix (Post Mitigation)
1 - Excess Rain Event (work at grade)
2 - Excess Rain Event (work at
excavation levels)
5 - Contaminated Groundwater
6a - Breach into Public Access Spaces
8 - Delay in Award of Construction
contract
9 - Unexpected High Bid
10 - Survey Coordinates error
11 - Rock Removal More Difficult
12 - Change Work Plan: External
Project Influence
13 - Laydown Space Insufficient
14 - Existing Rockbolts Insufficient
9 13
8 1217
5 2 1116
16a 2
10
11
10
14
14
10

13. Risk Responses (Threats)
Threat
Avoidance
Acceptance
Mitigate
Transfer
Taking actions to avoid the risk
Moving forward, recognizing the risk and its consequences
Taking actions to reduce probability of risk
and/or impact of risk
Being able to shift risk to another party (e.g., insurance)
1
2
3
4

14. Risk Responses (Opportunities)
Opportunity
Exploit
Ignore
Enhance
Share
Taking actions to ensure opportunity happens
Prepare to seize opportunity at a later time
Take steps to seize a bigger “prize”
Engage another party to assist in capturing opportunity
1
2
3
4

15. Risk Mitigation Comparison
Airlines Automobiles
Mitigation
emphasis
Reduce probability of risk event
(crash)
Reduce impact of risk event
(collision)
Mitigation
actions
• Multiple redundancies of key
airplane systems
• Extensive maintenance program
• Extensive training of pilots
• Constant communication of
weather conditions
• Personal safety devices (air bags,
seat belts)
• Designed to withstand certain
collision forces
• Mirrors and cameras to allow for
broad field of vision
• Proximity sensors
Contrast and compare risk mitigation approaches in two transportation related businesses: airlines and car manufacturers.

16. •Ensure starting point – either estimate or schedule – is suitable to
use as basis for the analysis.Review
•Identify and prioritize risks that can affect the project’s cost and
schedule outcome.Identify
•Create model and set up inputs to use for Monte Carlo simulation.Model
•Determine probabilistic characteristics of model inputs (probability
distributions, ranges, etc.).Range
•Perform Monte Carlo simulation. Select number of iterations in
order results are stable and repeatable.Simulate
•Interpret simulation results for project team’s use.Report
Cost & Schedule Risk Analysis
Commonly used 6 Step Process for Analysis

17. Cost & Schedule Risk Analysis
Details for Process for Cost v. Schedule Analyses
Process Cost Risk Analysis Schedule Risk Analysis
• Review estimate and estimate basis
document to ensure it is credible and
reflects Project Execution Plan.
• Review project schedule and schedule basis
document to ensure it is comprehensive , has
CPM integrity and reflects Project Execution
Plan.
• Interact with project team to identify and
prioritize risks that could affect the project’s
cost outcome.
• Interact with project team to identify and
prioritize risks that could affect the project’s
schedule outcome.
• Develop a cost model . Usually the model is
a summarization of the estimate with cost
variables added to simulate effects of risks.
• Develop CPM schedule model – usually it is a
summary schedule of 75-250 activities
containing the project’s critical, near-critical or
“risk sensitive” sequences.
• Determine probabilistic distribution for cost
risk variables. Determine “range” inputs to
the variables.
• Develop the probabilistic parameters for the CPM
model: ranges to activity durations, use of risk
events, and use of risk factors.
• Use simulation tool, such as @RISK™, to
perform Monte Carlo risk simulation
• Use simulation tool, such as Oracle Primavera
Risk Analysis (OPRA), to perform Monte Carlo
risk simulation.
• Interpret the results of the simulation for the
project team’s use . Key item: Probability
Distribution of overall cost.
• Interpret the results of the simulation for the
project team’s use. Key items: Probability
Distribution of key project milestone events and
probabilistic critical path.
Review
Identify
Model
Range
Simulate
Report
Better Practices: Perform schedule risk analysis first, then use results to feed cost risk analysis. Or create an integrated model.

18. THANK YOU
Jerry Klanac
Managing Director
PMA Consultants
info@pmaconsultants.com