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Risk Management

Chapter 7

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Risk

Risk management - the artandscience of

identifying, analyzing, and respondingto risk

factors throughout the life of a projectand in

the best interest of its objectives.

Project risk any possible event that cannegatively affect the viability of a project

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Risk Vs Amount at Stake

Phase 1

Conceive

(C)

Phase 2

Develop

(D)

Phase 3

Execute

(E)

Phase 4

Finish

(F)

Time

$

Value

IncreasingRisk

Total Project Life Cycle

Amount at stake

Plan Produce

Opportunity and riskPeriod of

highest

risk impact

Combinedrisk

impact

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Process of Risk Management

What is likely to happen?

What can be done?

What are the warning signs?

What are the likely outcomes?

Project Risk = (Probability of Event)(Consequences of Event)

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Four Stages of Risk Management

1. Risk identification

2. Analysis of probability and consequences

3. Risk mitigation strategies

4. Control and documentation

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Risk Clusters

Financial Technical Contractual/Legal

Commercial Execution

Common Types

Absenteeism

Resignation

Staff pulled away

Time overruns

Skills unavailable

Ineffective Training

Specs incomplete

Change orders

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Risk Factor Identification

Brainstorming meetings

Expert opinion

Past history

Multiple (or team based) assessments

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Risk Impact MatrixConsequences

Like

lihoo

d

High

Low

Low High

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Project Risk Scoring

1. Identify factors and assess the probability

(Pf) and consequences (C

f) of failure

2. Calculate overall probability & consequence

3. Calculate overall risk factor

3

m c df

P P P P

+ +=

4

c s r p

f

C C C C C

+ + +

=

( )( ) f f f f RF P C P C = +

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Risk Mitigation Strategies

Accept Minimize Share Transfer Contingency Reserves

Task contingency

Managerial contingency Mentoring Cross training

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Control & Documentation

Help managers classify and codify risks, responses, andoutcomes

Change management report system answers

What?

Who?

When?

Why?

How?

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Project Risk Analysis & Management

Extends risk management over projects life cycle

Key Features of PRAM

Risk management follows a life cycle

Risk management strategy changes over the

project life cycle

Synthesized, coherent approach

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Nine Phases of Risk Assessment

1.Define

2.Focus

3.Identify

4.Structure5.Clarify ownership of risks

6.Estimate

7.Evaluate8.Plan

9.Manage

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