This is a short story about four people named

Chapter 5: Everybody, Somebody, Anybody and Nobody.

Project Risk Management There was an important job to be done and Everybody was asked to
do it. Everybody was sure that Somebody would do it. Anybody could
have done it, but Nobody did it. Somebody got angry about that
BSS 310 Engineering Management
because it was Everybody’s job. Everybody thought Anybody could do
Department of Industrial and Systems
Engineering it but Nobody realised that Everybody wouldn’t do it.
University of Pretoria
In the meantime, Nobody got the job done. It ended up that Everybody
Content compiled by Mrs Saija Bezuidenhout blamed Somebody when Nobody did what Anybody could have done.
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What is a Risk and Risk Management?

▪ Project risk is an unforeseen event or activity that can
What is a risk? impact project’s progress, result or outcome in a positive
or negative way
▪ Projects are unique in nature and this comes with certain
How and in what extent one can be prepared for risks and uncertainty
risks? ▪ Objective of risk management function is to minimise the
negative impact and maximise the positive impact.

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History History
▪ Historically risk is seen an option, not a fate or wish of gods, and ▪ 17th century shipping insurances were a sophisticated
therefore man are not passive before it
business in London, mathematicians competing against
▪ Insurance, one form of mitigating the risk, dates back to 1700 BC
each other to vent new life expectancy charts, Abraham
when ship owners included an additional amount in payment to have
their debt cancelled should the content of a ship be stolen de Moire demonstrated the normal distribution (i.e. bell
▪ In 1654 the nobel knight rider Méré with a keen taste for games curve, concept of standard deviation and ground concept
challenges the famous mathematician Blaise Pascal ‘How to split a for the Law of the Averages)
bet on a game that had been interrupted when one player was
winning?’ Collaboration was pure intellectual dynamite and led to the
▪ 1952 Harry Markowitz demonstrated mathematically
discovery of the probability theory - the mathematical core of the when putting all eggs in the same basket is an
concept of risk. unacceptable and risky strategy

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Original:
• Estimate
AUS$7m
• Schedule 4
years

Actual:
• Cost
AUS$102m
• Duration 17
years

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 Most Common Types of Risks
What is a Risk?
Risk is a possibility for positive or negative impact, a Pure risks Financial risk
function of two; Risk = f(probability, impact) ▪ Statistical activities that cannot •Project funding related
effectively be prepared against •Financial instruments (such as
with any business or project loans, futures) can be utilised in
management tools preparation
▪ Low probability but big impact
(loss is the only possible outcome)
▪ Typically companies (and people)
insure themselves against the
pure risks

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Most Common Types of Risks Risk Management Process

Business risks Project risks

▪ Common for projects, requires • Changes in scope (scope creep..)
analysis and preparation • Changes in schedule
▪ Typically technology utilisation • Budgetary control problems
or technology development • Supply chain management issues
related (delivery reliability, quality related,
▪ Mostly caused by human etc)
errors such as communication
or co-operation issues

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Risk Analysis Risk Impact
▪ Typically a workshop with different areas of
specialists
▪ List of risks where probability (P) and impact (I)
for each individual risk has been assessed
▪ Impact should be analysed as cost to the project
▪ List organised according to the P x I value
▪ Preparation plan for highest and most important
risks (realistic and achievable)
▪ Responsible person nominated for each risk
together with a set date when the preparatory
plan must be implemented

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Risk Depends on the Viewpoint Sources of Risk Identification

▪ Risk analysis is dependent on the stakeholders’ point of ▪ Historical data and information, lessons learned
view ▪ Project management plan
▪ What one sees as positive opportunity (production -using ▪ Work Breakdown Structure (WBS)
more resources), the other can consider it as negative ▪ Project schedule
(management - more costs, less profit)
▪ Cost Breakdown Structure (CBS) and budget
▪ Technical specifications and performance goals
▪ Systems engineering documentation, etc.
▪ Risk checklists

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Risk Assessment and Prioritisation Deliverables Risk Register
▪ Project risk register - the project risk register is derived from
assessing the probability impact of the risk list and utilising
score ratings to rank the risks
▪ Risk matrix - risk matrix displays current prioritisation of risks,
it is the high level tool used to communicate risks and priorities
▪ List of risks for additional management - risks classified as
high or moderate would be prime candidates for more
analysis, including quantitative risk analysis, and for risk
management action

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Risk Matrix (Risk Preparation Grid) Risk Impact / Probability Chart

▪ Used to prioritize risks
▪ Based on the assumption
risk has two primary
dimensions: impact and
probability

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 Risk Impact / Probability Chart
(1) List all of the likely risks that your project faces, make
the list as comprehensive as possible
(2) Assess the probability of each risk occurring, and assign
its rating
(3) Estimate the impact on the project if the risk occurs
(4) Map out the ratings on the Risk Impact/Probability Chart
(5) Develop a response to each risk, according to its
position in the chart

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Low impact/
high
probability –
moderate High impact/high
importance – probability – critical Risk Response and Strategy
if these importance. These
things are your top
happen, you priorities, and are ▪ Risk elimination
can cope risks that you must
with them pay close attention
to
▪ Risk transfer and risk sharing
and move
on. However,
you should
▪ Reducing (minimising) the impact
try to reduce
the High impact/low
▪ Accept Risk (do nothing)
likelihood
that they'll
probability – high
importance if they do ▪ Resolving and preparing for all the risks is almost
occur, but they're
occur.
very unlikely to impossible and very expensive > correct balance!
happen. For these,
however, you should
Low impact/ do what you can to
low reduce the impact
probability – they'll have if they do
low level, occur, and you should
and you can have contingency
most often plans in place just in
case they do.
ignore them.
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Typical Risks to a Project Project Risk Management
1. Poor leadership ▪ It is human nature not to like to report negative matters
2. Staff problems such as risks
3. Lack of resources ▪ Common believe that the problems will magically
4. Change to business strategy disappear by themselves, ‘time will solve’
▪ Too much over optimistic trust that problems can be
solved effectively as they come
▪ As a overall result the reaction to the risk is delayed or
too late

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Project Risk Management

1. Preparing the Project Plan
2. Analysis of all the practical problems the execution of the
Project Plan can face
3. Planning and preparing of ways to solve and meet these
problems
4. Execution of the project and hoping that the all the relevant
risks have been covered in the risk analysis and
preparation
5. At the end we will see how the reality met the planning

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 Recommended reading in the handbook:
Project Management - A Multi-disciplinary Approach (4th edition)

Chapter 16: Project Risk Management, pages 375 - 410

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