7/18/2025

Project Management

Lecture No.
Project Risk Management
Kwasi Dartey-Baah, PhD

Overview
◼ Defining Risk
◼ Relationship of risk management to primary
project management functions
◼ The role of the executive management in risk
management
◼ The difference between Business Risk and
Project Risk
◼ Developing a Risk profile
◼ Risk management plan & transferring risk
◼ Discussions
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Defining Risk
◼ Defining Risk & Risk Management
❑ Risk is a problem that might occur and the potential
negative impact of the problem.

❑ Risk management is the means by which uncertainty

is systematically managed to increase the likelihood of
meeting project objectives.

❑ Note the key word is systematic because the more

disciplined the approach, the more we are able to
control and reduce risks.

Defining Risk
◼ Defining Risk
❑ Every project contains risks – dangers – both known and
unknowns.
❑ Project risk management contains the disciplined practices
we use to plan for and react to the uncertainty inherent in
every project.
❑ Risk responses attempt to reduce the probability and or
impact.
❑ The primary outcome for developing response plans is
a risk log.
❑ The risk log is the full list of risks the project team will
actively manage and contains the specific tasks
associated with managing each risk.

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Risk Log

Task/ Risk Response/ Level Cost Responsibility

Activity Mitigation L,M.H

Defining Risk

◼ The advantage of managing risk

❑ All project experience the unexpected but some
project managers are ready for it.

❑ Known - unknowns: Represents identified potential

problems such as enough rains to delay a construction
project during the rainy season.

❑ Unknown-unknowns: Problems that arrive

unexpectedly. These are problems that are honestly
unknown but seasoned project managers do expect
them because they know something unexpected
always happens.

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Managing Risk
Steps to Managing Risk Management
Be collaborative. ...
•Step 1: Brainstorm all possible risks. ...
•Step 2: Analyse the risks. ...
•Step 3: Determine Probability and Impact. ...
•Step 4: Capture the risk response.
•Stey 5: Determine the cost
•Step 5: Assign owner. ...
•Step 6: Monitor and communicate risks.

Relationship: Risk Management & Primary

Project Management functions
◼ Primary project management functions

❑ The project manager’s primary functions are:

❑ Initiation/Definition
❑ Planning
❑ Control

❑ The project manager carries out these activities in

collaboration with the project team throughout the life
cycle of the project.

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Relationship: Risk Management & Primary

Project Management functions
◼ Definition
❑ The first risk surfaces once the project is conceived.

❑ Detailed risk assessment are usually carried out

during the planning stage but some of the most
important risk management occurs during initial
development of the business case.

❑ Risk assessment in the business case stage is

essential because that is where budget reserves are
allocated to accommodate the risks of the project.

❑ Discuss: Public Sector & Private Sector Applications

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Relationship: Risk Management & Primary

Project Management functions
◼ Planning
❑ Planning has to do with scheduling and budget
development for the detailed plans required for the
day-to-day management of the project.
However, risk planning is also a function of planning.

❑ Risk planning represents the formal, conscious

activities of the project manager and the team to
identify risks and to formulate strategies for managing
the risks.

❑ Risk planning is on-going continuously updated as the

project schedule.

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Relationship: Risk Management & Primary

Project Management functions

❑ Inputs to risk planning are initially, the outputs of the

definition process: the goals, scope and the vision
for the project.

❑ As the project team analyses these parameters they

identify risks and develop strategies to nullifying them.

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Relationship: Risk Management & Primary

Project Management functions
◼ Control
❑ Control functions consists of the activities performed by the
project manager to keep the team coordinated and
progress on track.

❑ As a project is monitored for progress, known risks are

watched and new risks are identified. Risks that never
happen are removed from the risk register and new ones
are added and the process of risk planning is repeated.

❑ These activities result in updates to the statement of work,

budget reserves, progress reports, work breakdown
structures and other project management deliverables.

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The role of the executive management in

Project Risk Management
◼ Executive Management role in risk management

❑ Executive management play important role in every project

success.

❑ Primarily the responsibility of carrying out risk

management activities lie with the project manager and
project team but they cannot and SHOULD NOT do it
alone.

❑ Note:
❑ The project sponsor and the executives responsible largely
for project selection and portfolio oversight make four
essential contributions to risk management.

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The role of the Executive Management in

Project Risk Management
◼ Four Essential Executive contributions to risk
(1) Maintain both contingency and a reserve within the project
budget.
◼ Contingency accounts for known risks and the possible cost of
dealing with them if they arise.
◼ Reserve accounts for the unknown – unknowns.
(2) Hold project manager and team accountable for risk
management deliverables and allow the time it takes to create
them.

Ben Franklin’s adage – ‘An ounce of prevention is worth a pound of cure’.

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The role of the executive management in

Project Risk Management
(3) Promote a climate that recognises the value of risk
management.
◼ Be aware that you may be criticised for identifying risks and
developing contingency plans but you are RIGHT to do that. You
should rather receive praise for thinking about risk.

(4) Never forget the relationship between cost, schedule,

quality and risk.
◼ The so-called triple constraint is well known in project management:
Time, Cost and Quality are related because it takes time and
money to produce a product but risk is inherent though often
unrecognised factor in that relationship

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The role of the Executive Management in

Project Risk Management
❑ Note

❑ When an executive asks a project team to produce a

more aggressive schedule (i.e. cut some time off the
team’s proposed schedule) or reduce budget
estimates, that executive is asking the team to add
risk.

❑ Be aware that most strategies to cut schedule and

cost increases risk.

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Business Risk & Project Risk: The difference

◼ Business Risk versus Project Risk
❑ Selecting the right project is business risk and managing
uncertainty to meet the stakeholders’ objectives is project
risk.

❑ For example you could anticipate an opportunity to invest in

a major project. While the project may be completed on
time to specification and within budget despite the
associated risks; it may become a huge business risk if the
anticipated opportunity no longer exist after the
implementation of the project.

❑ Business risk is inherent in all business activities but

seldom the project manager’s job to manage it; that
responsibility lies with the project owner – Sponsor ,
executives etc.

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Continuous Risk Management

◼ Continuous Risk Management
❑ If it is smart to proactively plan for a project at the start of it,
then it is even smarter to continuously plan for risk during
the project.
❑ Continuous risk management is a conscious repetition of
risk identification, response development and carrying out
risk plans.
❑ As part of this, risk plans are updated to record whether
risk actually occurred and whether the response strategy
actually worked.
❑ Reports to management include updates on the status of
high-profile risks and the amount of contingency and
reserves expended to date.

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Transferring Risk

◼ Risk Transfer – How to do it.

Insurance
❑ Purchase insurance for a variety of risks ranging from theft
to fire. If a disaster should occur the insurance will pay for it
❑ Purchasing insurance can be the most direct method for
transferring risk

Fixed – price contract

❑ Fixed price contract states that a work will be done for an
amount specified before the work starts.
❑ Note: The downside is the subcontractor may make the bid
higher to make up for the risk it is assuming.

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Transferring Risk
◼ Risk Transfer – How to do it.
Reimbursable Cost or Time and materials
❑ Reimbursable contracts pay the subcontractors based on
the labour, equipment and materials use on the project.
❑ The risk of cost overruns is borne completely by the
project on these contract.

❑ Most subcontractors like such arrangement especially

when services to be performed appears open-ended.

❑ Note transferring risks have advantages but also introduces

risks and the way to deal with this strategy is effective
contracting and subcontractor management.
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Reading List
◼ Hamilton, A (1997) Management by Projects, Thomas Telford, London.
◼ Winch, GW (2002) Managing Construction Projects, Blackwell Science
Ltd., Oxford.
◼ Young, T.L., (2006), Successful Project Management. Kogan Page,
London.
◼ Carroll, J., (2009), Project Management for effective business change.
In Easy Steps, London.
◼ Heyworth, F., (2003), A Guide to Project Management. Council of
Europe Publishing.
◼ Pinto, J. K., (2007), Project Management: Achieving Competitive
Advantage. New Jersey: Pearson-Prentice Hall.
◼ Turner, J.R., and Simister S.J., (2004), Project Management: A
Comprehensive Handbook. New Delhi: Gower Publishing Ltd.
◼ Nokes, S., and Newton R., (2007), Definitive Guide to Project
Management /Project Manager, Pearson.
◼ Chandra, P., (2008), Projects Planning, Analysis, Selection, financing,
Implementation and Review, 6th edition, New Delhi: Tata McGraw-Hill
Publishing company limited.
◼ Westland, J., (2006), The Project Management Life Cycle. Kogan Page,
London.
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