The above presentation talks about the risk involved in any project. The project risk identification, quantification, response and its control is also thoroughly explained.

1. Risk Management
for
Projects
1
Prepared by:- Dewang Agrawal

2. Project Risk Management
Session Agenda
• Review risk concepts
– Risk Management Overview and the Risk Management Plan
– Risk Identification
– Risk Quantification
– Risk Response
– Risk Control
• Team exercise
• Team exercise readout
• Closing items
2

3. } No construction project is risk free.
} Risk can be managed, minimized, shared, transferred, or
accepted and it cannot be ignored.“
} What happens if it is ignored?
•Increased costs.
•Loss or reduction in profit.
•Damage to brand / reputation; and at worst.
•Disposal of the business or insolvency.

4. } Introduction
} What is Project Risk ?
} Risks in Construction
} Types of Risks in Construction
} Construction Risk Management
} What does it include?
} How is it done in project?
} Risk in Project Management
} What are the benefits?

5. Success
Project Constraints

6. Poor
Quality
Delays
Cost
overrun

7. } A situation involving exposure to danger.
} Expose (someone or something valued) to danger, harm,
or loss.
} Risk is an uncertain event that may have a positive or
negative impact on the project.
} May effect: scope, schedule, cost, performance, and
quality.

11. Financial &
Economic
Financial &
Economic



Inflation
Availability of funds
Exchange rate
fluctuations
Financial default

12. Design
Design




Incomplete design
scope
Defective design
Errors & omissions
Inadequate
specifications

13. Construction
Related
Constructio
n Related




Labor disputes
Labor productivity
Different site
conditions
Design changes
Equipment failure

14. Political&
Environment
Political& Environment
 Changes in laws and
regulations
 Requirement for
permits
 Law & order
 Pollution and safety
rules

15. } Construction Risk Management is the process of identifying and
migrating risk.
} Proper Construction Risk Management implies control of possible
future events and is proactive rather than reactive.
} Proper Construction Risk Management will reduce not only the
likelihood of an event occurring, but also the magnitude of its
impact.
} Construction Risk Management Systems are designed to do more
than just identify the risk.
} The system must also quantify the risk and predict the impact on
the project.
} The outcome is therefore a risk that is either acceptable or
unacceptable.

16. } Risk Management Planning
} Risk Identification
} Qualitative Risk Analysis
} Quantitative Risk Analysis
} Risk Response Planning
} Risk Monitoring and Control

17. } Make Risk Management Part of Your Project
} Identify Risks Early in Your Project
} Communicate About Risks
} Consider Both Threats and Opportunities
} Clarify Ownership Issues

18. } Prioritise Risks
} Analyse Risks
} Plan and Implement Risk Responses
} Register Project Risks
} Track Risks and Associated Tasks

20. Project Risk Management
Risk Management Overview
and the Risk Management Plan
20

21. Project Risk Management
Risk Management Overview
• What is risk?
Risk: An uncertain event or condition that, if it occurs, has a positive
or negative effect on a project’s objectives
21
VENTURE
(Project)
OUTCOME
(Products)
UNKNOWNS
(Uncertainty)
FAVORABLE
(Opportunity)
UNFAVORABLE
(Risks)

22. Project Risk Management
Risk Management Overview
Project Lifecycle
Risk vs. Amount at Stake
22
$
V
A
L
U
E
I
N
C
R
E
A
S
I
N
G
R
I
S
K
CONCEPT
PHASE
DEVELOPMENT
PHASE
IMPLEMENT
PHASE
CLOSE
PHASE
OPPORTUNITY AND RISK
AMOUNT AT STAKE
PERIOD WHEN
HIGHEST RISKS
ARE INCURRED
PERIOD OF
HIGHEST
RISK IMPACT

23. Project Risk Management
Risk Management Overview
• What is risk management?
– Identifying, analyzing, prioritizing, and
responding to risk events
– Integration of risk management activities into
your other project management functions
– Developing responses to risk to meet your
project objectives
– Project risk management is PROACTIVE
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24. Project Risk Management
Risk Management Overview
24
PROJECT
MANAGEMENT
INTEGRATION
INFORMATION /
COMMUNICATIONS
HUMAN
RESOURCE
CONTRACT /
PROCUREMENT
SCOPE
QUALITY
TIME
COST
PROJECT
RISK
Life Cycle and
Environment VariablesExpectations
Feasibility
Requirements
Standards
Time Objectives,
Constraints
Cost Objectives,
Restraints
Services, Plant, Materials:
Performance
Availability
Productivity
Ideas, Directives, Data
Exchange Accuracy
INTEGRATING RISK WITH OTHER PROJECT MANAGEMENT FUNCTIONS

25. Project Risk Management
Risk Management Overview
• Components of the Risk Management Plan
– Methodology
– Roles and responsibilities
– Budgeting
– Timing
– Risk categories
– Definitions of risk probability and impact
– Probability and impact matrix
– Stakeholder’s tolerances
– Reports
– Tracking
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26. Project Risk Management
Risk Management Overview
• Results from developing the Risk Management Plan
– You have a written plan
– You know what actions you have to do
– You know who is responsible for what
– You can track your work
– You can learn from your risk activities and help others with
their risk
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27. Project Risk Management
Risk Identification
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28. Project Risk Management
Risk Identification
• Risk in corporate business is typically divided into 2 basic
types
 Business Risk: Chances of profit or loss associated with a business
endeavor
− Business employs a staff of qualified workers to increase profit and reduce
chances of loss
 Pure or Insurable Risk: Divided into 4 categories
− Direct property: Destruction of property by fire, etc.
− Indirect property: Extra expenses associated with rental property or loss due
to a business interruption
− Liability: Chance of a lawsuit of bodily injury, damages, etc.
− Personnel: Injuries to workers (Worker’s Comp)
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29. Project Risk Management
Risk Identification
• Risk in project management
– Usually not enough attention is paid to risk on projects
– All risks are not independent and frequently the greatest risk on
a project comes from a series of related/integrated events
– Ultimate responsibility of risk management resides with the
project sponsor
– As the project manager representing the sponsor, risk
management becomes a large responsibility for you
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30. Project Risk Management
Risk Identification
• Risk identification is never done
• Risk identification is performed throughout the life of the
project
• The process for identifying risk
– Understand the project
– Identify the risk event
– Document the results and take appropriate actions
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31. Project Risk Management
Risk Identification
• Types of risk
– Technical
– External
– Organizational
– Project Management
Note: These are example types of risk and this list can be modified to
meet the needs of your project
• Developing a project RBS (Risk Breakdown Structure) is
an excellent tool to help identify risks
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32. Project Risk Management
Risk Identification
32
The Risk Breakdown Structure (RBS) lists categories
and sub-categories for project risk. The actual
categories will vary across different types of projects.

33. Project Risk Management
Risk Identification
• What you need to identify risk
– Product description
– Planning documents
• Project scope statement
• Cost mgt plan
• Schedule mgt plan
• Communications mgt plan
• Enterprise environmental factors
• Stakeholder register
• Quality mgt plan
• Organizational process assets
– Historical Information
• Previous project data
• Expert knowledge
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34. Project Risk Management
Risk Identification
• In your risk identification meeting
– Validate RBS with core team
– Identify risks by source (RBS)
– Identify risks by level of uncertainty:
Known Known / Unknown Unknown / Unknown
Situation with no
uncertainty
Situation with an
identifiable uncertainty
Situation whose
existence we cannot
imagine
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35. Project Risk Management
Risk Identification
• Conduct a risk identification meeting
– Gather all relevant data
– Schedule a risk management meeting with your core team members
– Use a structured approach: Brainstorming, Nominal Group Technique, Delphi
Technique, Project Lessons Learned
– Focus on identifying risk only
• Schedule risk identification meetings in your project plan
– After certain milestones: Requirements complete, design complete, etc.
• Event driven
– A risk event happens and becomes part of the risk register
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36. Project Risk Management
Risk Identification
• Brainstorming
– Chose a facilitator (best if other than the project manager)
– Chose a scribe to capture the risks
– Use a category or categories to start the creativity flowing
– Do not judge or analyze during this effort
– Focus on getting the universe of risks for your project
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37. Project Risk Management
Risk Identification
• Nominal Group
– Gather the core team for a risk workshop
– Use flip charts or a whiteboard to collect info
– Begin by having each person identify potential areas of risk
– Then within each area have each person write at least 3-5 risk
events
– Repeat until everyone has listed their risks
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38. Project Risk Management
Risk Identification
• Delphi technique
– Identify a facilitator
– The facilitator then identifies qualified experts to participate
– The facilitator poses questions to the experts individually
– The facilitator then analyzes the results to identify common
themes
– The results are then shared with the experts for validation
– The list is then refined and again shared with the panel
– The facilitator the creates a single results document
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39. Project Risk Management
Risk Identification
• Identify your risks in a risk register or a risk log
Functional Area Identify the functional business areas
potentially impacted by the risk
Risk Category Cost; External; Schedule; Technical;
Resources; Operational
Risk Description Description of the risk and the impact of it
Date Identified Date the risk was identified
Raised By Who identified the risk
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40. Project Risk Management
Risk Quantification
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41. Project Risk Management
Risk Quantification
• What are the right risks to manage
– Analyzing risks for probability and impact
– Developing a risk profile for your project
– Prioritizing your risks
• When to quantify risks
– Whenever a new risk is created
– An existing risk changes
– Influential factors change
– New information surfaces
– A change is proposed by the sponsor
– Market conditions change
– Significant personnel leave the project
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42. Project Risk Management
Risk Quantification
• Quantitative Analysis
– Relies on a numeric value
– Uses objective data
– Requires understanding of
probability theory
– Removes some uncertainty
– Should be based on
historical data
– Some examples are:
sensitivity analysis,
expected monetary
analysis, and modeling and
simulation
• Qualitative Analysis
– Uses subjective values:
Green, Amber, Red
– Requires common
understanding of ordinal
ranking system
– May be less precise than
quantitative analysis
– Should be defined in terms
of the parameters of the
project
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43. Project Risk Management
Risk Quantification
• Probability
– Can be done in a basic approach by developing a simple estimate of the probability that an
event will be late in delivery
• Ed says it is 50% likely this task will be late
• Probability of Event 1 x Probability of Event 2 = Probability
– Can be done in a more complex manner by using weighted averages
• Joe says 35% chance of being late
• Mary says 40% chance of being late
• Ed says 50% chance of being late
• Joe gets twice as much credit because he knows more about the situation
• The probability is: ((2 x 35) + (40) + (50)) / 4 = 40%
– Quantifying risk probability can become quite complex, there are many resources to assist
you with more detailed approaches (books, internet research, multi-day training,
consultants). 43

44. Project Risk Management
Risk Quantification
• Assessing Impact
– Schedule Tools:
• Network analysis (relationships, durations, critical
path(s), near critical paths, hard constraints)
• Resources (availability, competency, productivity)
• Estimates (accuracy, source, method)
– Cost tools:
• WBS
• Requirement definition
• Estimating methodologies
• Expected monetary value
• Decision trees
• Financial analysis 44

45. Project Risk Management
Risk Quantification
• Assessing Impact (cont.)
– Quality
• Ask yourself the question “What if the project fails to
perform as expected during its operational life?”
• Of all the project objectives, conforming to quality
objectives is the one most remembered
• Therefore, this is one of the most important dimensions
impacting your project
• You can use financial analysis to identify risk for poor
quality by quantifying long term activities that will
impact the product lifecycle for your analysis
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46. Project Risk Management
Risk Response
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47. Project Risk Management
Risk Response
• Risk response is:
– Defining steps for responses to opportunities and threats
– Assigning responsibility
– Developing responses for negative risks:
• Avoiding: Changing the project mgt plan to eliminate
the risk. Could involve changing the objective,
modifying the schedule, or reduction in scope.
• Mitigating: A reduction in the probability or impact to
the project. Taking early action to reduce the
probability, adopting less complex processes, or
conducting more tests.
• Transferring: Shifting the risk to a third party for the
management of the risk. Does not eliminate the risk,
could involve insurance, warranties, bonds.
• Insurance: Purchase insurance to reduce/eliminate risk
– an athlete may purchase insurance against injury to
guarantee their income.
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48. Project Risk Management
Risk Response
• Risk response is:
– Developing responses for negative risks(cont.):
• Accepting: It is possible that the risk cannot be
eliminated or managed. Can be active or passive in
approach – a contingency reserve in time, money,
or resources.
– Developing responses for positives risks or opportunities
• The strategies for managing positive risks are:
– Exploit the situation. We will do whatever we can to
make sure the event does happen so we can enjoy the
rewards of the event.
– Enhance the probability and positive impacts of the
event.
– Share the ownership with a third party who can better
enhance the situation.
– Accept the opportunity, take the advantages provided
by the event, but do not actively pursue the event.
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49. Project Risk Management
Risk Response
• Approach response development from a project wide
perspective
• Consider related risks
• Stay within your project scope on your responses
• 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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50. Project Risk Management
Risk Control
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51. Project Risk Management
Risk Control
• Actively work your risk register/log
• Update risks as needed (data, new resources,
new/changing requirements)
• Review the log in status calls, set and use due dates for
active contingency plans
• Hold assigned resources accountable for their action
items
• Engage sponsor when invoking contingency plans to
ensure they know a risk has happened and the team is
actively working the response plan
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52. Project Risk Management
Risk Control
Example Log
Risk ID Sequential number assigned
Functional Area Identify the functional business areas potentially impacted by the risk
Risk Category Cost; External; Schedule; Technical; Resources; Operational
Risk Description Description of the risk and the impact of it
Date Identified Date the risk was identified
Raised By Who identified the risk
Date Assigned Date the risk was assigned
Assigned To Who the risk was assigned to
Probability 1, 2, 3, 4
Potential Impact 1, 2, 3, 4
Risk Factor (P*I) Probability * Impact
Positive or Negative Impact Will the potential impact of the risk have a Positive, Negative, Both or Unknown impact if realized?
Response Category Acceptance; Mitigation; Transfer; Avoidance
Status/Comments Status of risk and update/comments about it
Trigger Preliminary event that will indicate the risk is about to take place
Proposed/Actual Resolution Risk Response plan
Contingency Plan Alternate Plan if Risk Response fails 52

53. Project Risk Management
Conclusion
• Risk management requires:
– Planning
– Structure
– Analysis
– Creativity
– Constant attention
– Flexibility
– Communications, communications, communications!!
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54. Project Risk Management
Conclusion (cont.)
• The PMBOK has a lot of great reference materials to assist
you with your Risk Management planning activities
• Whatever you do, just do SOMETHING to address risk on your
projects – and do it in a structured manner
• If your company/organization does not have templates or a
process in place, develop your own tools.
– Use the PMBOK for ideas on the approach and build a risk register in
Excel.
– A tab in Excel identifying your “plan” and another tab with the Risk
Register will work much better than nothing.
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55. Project Risk Management
Conclusion (cont.)
• Program Risk Management
– Project risk management principles can be applied
to programs
– Use of an RBS will be helpful for programs
– Project risks will roll up to the program
– Program risks will take on a more global nature in
addition to the project risks within the program
• External events, company profits, legal/compliance
issues, political issues, company strategies
– Communication with your sponsors is even more
critical on programs than on projects
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