Project Risk Management

Muhammad Hasnain
Lecturer Construction Engineering &
Management
What is ?

Hazard

Risk
What is a Project Risk
 Risk is UNAVOIDABLE

There is always at least some level of uncertainty in a Project’s

outcome.

Technological and Social Projects are particularly risky.

Risks on Technological and Social Projects are significant, and

their numbers and severity increases.
 Component of Project Risk

This definition includes two key dimensions

of risk:

 uncertainty and
 effect on a project’s objectives
 Project Risk Management

Project Risk Management includes

the processes of conducting risk
management planning, identification,
analysis, response planning, and
monitoring and control on a project.
 Objectives of Project Risk
Management

The objectives of Project Risk

Management are to increase the
probability and impact of positive
events, and decrease the probability
and impact of negative events in the
project.
 Nature of Risk

Risk is the product of these two factors:

i. the expected consequences of the event and
ii. the probability that the event might occur.

Risk may be characterized in the aggregate for

a large population of events ("macro-risk"), or
it may be considered on an event-by-event
basis ("micro-risk").
 Threat & Opportunity

There is a chance “P” that event “E” will occur during the
“T” period, leading to “X” adverse consequences. This is
called Threat

And

There is a chance “P” that, if opportunity “C” is exploited

during the “T” period, benefit “B” be will be obtained
 The Context of Risk

Risk is contextual:
a. It arises in the context of a person or organization.

b. It arises in the context of a situation.

c. It arises in the context of an objective, a task or a

commitment.

One person’s (organization's) risk threat may be

another’s risk opportunity.
 Uncertainty in “Risk”

Risk is usually dynamic:

For a risk event, the probability and impact

elements of risk may change over the time
element.
Critical Success Factors For Project Risk
Management
 Individual Risks
Individual risks are specific events or
conditions that might affect project
objectives.

An individual risk may positively or

negatively affect one or more of the project
objectives, elements, or tasks.
 Overall Project Risk
Overall project risk represents the
effect of uncertainty on the project
as a whole.

Overall project risk represents the

exposure of stakeholders to the
implications of variations in project
outcome.
 Stakeholder Risk Attitude
The risk attitudes of the project stakeholders
determine the extent to which an individual risk or
overall project risk matters.
A wide range of factors influence risk attitude.
These include:

 the scale of the project within the range of stakeholders’

overall activities,
 the strength of public commitments made about the
performance of the project, and
 the stakeholders’ sensitivity to issues such as
environmental impacts, industrial relations, and other
factors.
 Risk Management is Iterative Process

It is the nature of projects that

circumstances change as they are being
planned and executed.

The amount of information available

about risks will usually increase as time
goes on.
 Risk Management is Iterative Process

Some risks will occur while others will not, new

risks will arise or be discovered, and the
characteristics of those already identified may
change.

As a result, the Project Risk Management

processes should be repeated and the
corresponding plans progressively elaborated
throughout the lifetime of the project.
Risk Management is Iterative Process
 Risk Management & Communication

Project Risk Management cannot take place in

isolation. Success relies heavily on
communication throughout the process.

Risk identification and analysis depend on

comprehensive input from stakeholders in a
project to ensure that nothing significant is
overlooked and that risks are realistically
assessed.
 Risk Management & Responsibility
It is important that management of
project risk is not left to a few risk
specialists.

Since project risks can affect project

objectives, anyone with an interest in
achieving those objectives should play a
role in Project Risk Management
 Risk Management & PM Role
The role of the project manager may
include:

 Encouraging senior management support for Project Risk

Management activities.
 Determining the acceptable levels of risk for the project in
consultation with stakeholders.
 Developing and approving the risk management plan.
 Promoting the Project Risk Management process for the
project.
 Facilitating open and honest communication about risk
within the project team and with management and other
stakeholders.
 Risk Management Processes
Project Risk Management processes are as follows:

 Plan Risk Management

 Identify Risks
 Perform Qualitative Risk Analysis
 Perform Quantitative Risk Analysis
 Plan Risk Responses
 Monitor and Control Risks
 Plan Risk Management
Defines the scope and objectives
of the Project Risk Management
process, and ensures that the risk
process is fully integrated into
wider project management.
 Plan Risk Management

Risk management plan may

include:
• Methodology
• Roles and Responsibility
• Budgeting
• Timing
• Definitions of Probability
and Impact
 Identify Risks
A risk cannot be managed unless it is first
identified. Consequently, after risk management
planning has been completed, the first process in
the iterative Project Risk Management process
aims to identify all the knowable risks to project
objectives.
Identify Risks
 Identify Risks

• Everybody should be involved Techniques:

in risk identification • Brainstorming
• It is primarily carried out in • Delphi-technique
initiation and planning phase • Interviewing
of the project. • Rook Cause analysis
PERFORM QUALITATIVE RISK ANALYSIS
The Perform Qualitative Risk Analysis process
assesses and evaluates characteristics of
individually identified project risks and
prioritizes risks based on agreed-upon
characteristics.
 PERFORM QUALITATIVE RISK ANALYSIS
• The probability and impact of each risk is
determined using a standard scale such as
Low, Medium, High or from 1 to 10.
• Which risk require immediate response, or
to move further for quantitative analysis or
which one to move to watch-list.
 PERFORM QUANTITATIVE RISK ANALYSIS
The Perform Quantitative Risk Analysis process
provides a numerical estimate of the overall effect
of risk on the objectives of the project, based on
current plans and information, when considering
risks simultaneously.
 PERFORM QUANTITATIVE RISK ANALYSIS
Techniques:
• Interviewing
• Delphi-technique
• Historical Information
• Expert Judgement
• Expected Monitory Value analysis
EMV = P X I
PLAN RISK RESPONSES

The Plan Risk Responses process

determines effective response
actions that are appropriate to the
priority of the individual risks and
to the overall project risk.
 PLAN RISK RESPONSES

Risk Response Strategies:

Avoid: Completely Eliminate
Mitigate: Reduce the probability and
impact
Transfer: Allocate to some other party
like bonds and insurances.
 MONITOR AND CONTROL RISKS

The effectiveness of Project Risk

Management depends upon the way
the approved plans are carried out.
These plans should be executed
correctly, reviewed, and updated
regularly.
 MONITOR AND CONTROL RISKS

Monitoring and Controlling strategies:

• Workarounds: Unplanned responses
• Risk Audits:
• Reserve Analysis: Like checking balance in your
bank account
• Status Meetings:
• Risk Reassessment: Qualitative, Quantitative, Risk
Response
• Closing risk that are no longer applicable
 End Note

If the probability of success is

not almost one, then it is damn
near zero