Its all about risk, risk analysis, method, pros and cons, important factors and stake holders. Ignoring risk does not make the risk go way. So organizations and stake holders has to accept some certain degree of risk which we called it risk tolerance.

1. Mekelle university
I
Institute of Mechanical &
Industrial Engineering

2. Content
o What is risk
o Risk analysis
o Methods of risk analysis
o Data collection
o Out puts
o Important Factors &
stakeholder
II
Samuel G. MSc

3. Risk
Possibility of events that may have impact
(negative or positive) on objectives and
strategies.
Risk is made up of two things: the probability of
something going wrong, and the negative
consequences that will happen if it does.
“Even a correct decision is wrong when it was
taken too late.” - Lee Iacocca
Risk is inherent with any project, and project
managers should assess risk continually and
develop plan to address them.
Why do cars have
break???
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Samuel G. MSc

4. If risks are not considered and controlled, you will
not be able to minimize their impact on the
schedule, scope, cost or quality.
It is possible for a project to be stopped
For example
 If the availability of resources become an issue, or
 The potential benefits might not be sufficient.
…….cont’d.
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Samuel G. MSc

5. Types of Risk
Risk exist the moment a project is conceived .
Organization and stakeholders are willing to accept
varying degree of risks. The is called risk tolerance.
Risk categories helps organize, rank and isolate risks
with in the project.
Systematic
Due to the influence of
external factor in org.
Uncontrollable by an org.
Macro in nature
Unsystematic
Due to the influence of internal
factors prevailing within org.
Controllable by an org.
Micro in nature
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Samuel G. MSc

6. RISK ANALYSIS
Risk analysis is a systematic process to estimate the level of risk for
identified and approved risks. This involves estimating the
 Probability of occurrence
 Consequence of occurrence and
 Converting the results to a corresponding risk.
RISK =likelihood*consequence
Example
In a project the risk of supplier delivering some material late is
quite common, and could have a relatively serious impact on
the project schedule. If the risk of probability is 0.6 and the
impact is quantified as 0.5, then the total risk score will be
Risk = 0.6*0.5 =0.30
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Samuel G. MSc

7. Steps of Risk Analysis
1st Step Identify Risks
2nd Step Assess event to determine levels of risk
3rd Step Identify Methods to Manage Risks
4th Step Implement Methods
5th Step Manage and Evaluate
5
Identify risk
Assess
event to
determine
levels of risk
Identify
Methods to
Manage
Risks
Implement
Methods
Manage
and
Evaluate
Samuel G. MSc

8. Components of Risk Analysis
Risk assessment provides information on
the extent and characteristics of the risk
attributed to a hazard.
Risk management includes the activities
undertaken to control the hazard.
Risk communication involves an exchange of
information and opinion concerning risk and
risk-related factors among the risk assessors,
risk managers, and other interested parties.
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Samuel G. MSc

9. There are two kinds of methods used for
determining the level of risk of our
business. The methods can be:
 Qualitative Methods
 Quantitative Methods
Methods of risk analysis
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Samuel G. MSc

10. Qualitative Methods
This is the kind of risk analysis method most often
used for decision making in business projects;
entrepreneurs base themselves on their judgment,
experience & intuition for decision making.
In this level risk is low and does not warrant the time
and resources necessary for making a full analysis.
Also used when the numerical data
available are not adequate
Its all about figuring out two things
 How likely is it occur??
 What would it be its impact??
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Samuel G. MSc

11. o Probability/impact matrixes
o The Top Ten Risk Item Tracking
o Expert judgment
o Delphi technique
o Heuristics (rule of thumb)
o Check list analysis
Techniques Of Qualitative Method
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Samuel G. MSc

12. Probability/impact matrixes
The relative probability of a risk occurring on one side of a matrix
and the relative impact of the risk occurring on the other.
List the risk and then label each one as low, medium, or high in
terms of its probability of occurrence & its impact if it did occur
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Samuel G. MSc

13. E.g. say you have to cross a road & you try to figure it out what
a risk associated with this is.
1st scenario our hazard is bicycle
Lets assume only 1 bicycle is allowed in these road every 5
minute down that road, lets also assume that road is not busy
Now because of that bicycle don’t go very often the likelihood
of the bicycle crush's in to you is low if the bicycle crush's in to
you the consequence would be low
There fore the over all risk is low
2nd now obviously if there are bicycles traveling more
frequently the likelihood of the crash would be higher but the
consequence of the bicycle crash's into you would be low
3rd but what if things be different lets change that bicycle in to
truck, 1 truck passing every 5munite the likelihood of the crash
would be still low, how ever the consequence is far more sever
(higher).
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Samuel G. MSc

14. Now imagine if it’s a busy truck road & truck going
in this road very frequently in this scenario both
likelihood and consequence are high, which means
the over all risk is high
…….cont’d.
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Samuel G. MSc

15. Quantitative Methods
It’s a numeric estimate of the overall effect of risk on the project
objectives such as cost and schedule.
It’s primary purpose of quantitative risk analysis is
 Quantify the risk exposure
 Determine the size of the cost and the schedule contingencies.
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Samuel G. MSc

16. Techniques of quantitative method
• Expected monetary value (e.g. decision tree
analysis)
• Monte Carlo analysis
• CPM
• Program evaluation and review technique (PERT)
• Sensitivity analysis
• Variance trend analysis
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Samuel G. MSc

17. Monte Carlo Simulation
Its mathematical technique that allows you to account for risks
in decision-making.
It helps you determine the impact of the identified risks by
running multiple simulations and finding a range of outcomes.
Gives you a range of possible outcomes and the probabilities
that will occur for any choice of action.
You can run this simulation to analyze the impact of the risks on
cost, schedule estimate etc.
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Samuel G. MSc

18. Example: Suppose that you have three activities with the
following estimates (in months).
Activity Optimistic Most likely Pessimistic PERT Estimate
A 5 4 4.5 4.5
B 5 6 6 6
C 6 7 7 7
Total 16 17 17.5 17.5
…….cont’d.
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Samuel G. MSc

19. Now, if we run the Monte Carlo Simulation for these
tasks, five hundred times, it will show us the following
results.
2% chance of completing the project in 16 months
.
.
…….cont’d.
Duration (in moths) chances of completion
16 2%
17 8%
18 55%
19 70%
20 95%
21 100%
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Samuel G. MSc

20. PROS & CONS of Risk Analysis
Pros
o Save time and money
o Increased knowledge of exposure
to risk
o Reduction in validation cost
o Reduce level of an certainty
o Identification of critical parameter
o Improve project control
o Improve organization learning
Cons
o It is measured based on
probability, so it can’t give
the exact measurement of
the risk exposure.
o If there is any manipulation
in the data or the data is
wrong, it will not give the
correct results.
o There is no standard
method for its calculation,
so it depends on the
personal approach.
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Samuel G. MSc

21. DATA COLLECTION
Interview: draws the historical data to quantify the impact of risk
on the objective of the project.
It is also important to create the necessary documents such as the
risk ranges to provide important insight on the credibility of the
analysis of the data.
Probability distribution: uses simulation and modeling It
represents uncertain values like duration of scheduled activities as
well as the cost of the different components of the project.
The information that needs to be collected and organized depends
on the type of probability distributions used.
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Samuel G. MSc

22. THE OUTPUTS
 List of urgent risks.
 A prioritized list of quantified risk.
 List of risk grouped by categories.
 Trends in the results of quantitative risk analysis
 List of risk for additional analysis and investigation
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Samuel G. MSc

23. IMPORTANT FACTORS AND STAKE HOLDERS
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Important factors
 External influences: may require the approval of gov’t & other
parties
 Organizational structure: may required fast and inexpensive
method
 Organizational size: the organization size must considered
 Cost
Stakeholders
Risk stakeholders are the people who are (or perceive themselves
to be) affected by a decision, treatment, strategy or process.
Management’s, owner’s, customer’s (internal or external), gov’t
agencies, team member’s, general public, sponsor's.
Samuel G. MSc

25. Reference
A. Jack R. Meredith & Samuel J. Mantel, Jr. Project
Management A managerial Approach 7thedition
B. Sylim, Y. Hori, Comparison of Risk Analysis Methods:
Mehari, Magerit,NIST800-30 and Microsoft’s Security
Management Guide, International Conference on
Availability, Reliability and Security, 2009.
C. Loosemore, M, Raftery, J, Reilly, C and Higgon, D
(2005) Risk Management in Projects, Taylor and
Francis, London, UK.
D. www.pmi.org/Resources/Pages/ Project Management
Journal.aspx(Project Management Journal)