PM DeepDivePM DeepDive

Project Risk ManagementNiraj Agarwal- Niraj Agarwal

May 2011Slide 1

Project Risk ManagementProject Risk ManagementDefinition of Risk

• Risk is an uncertain event or condition that, if it occurs, has aRisk is an uncertain event or condition that, if it occurs, has apositive or negative effect on a project objective.

• Risk has a cause and, if it occurs has a consequence.

• Project environment may contribute to project risk such as poorproject management practices, or external dependencies which cannot be controlled.

• Project risk includes both threats to the project’s objectives andopportunities to improve on those objectives.

May 2011Slide 2

Project Risk ManagementProject Risk ManagementRisk Factors

• Risk Event - “A discrete occurrence that may effect the project”—forRisk Event A discrete occurrence that may effect the project forbetter or worse

• Risk Probability - The likelihood of occurrence. The ratio of thenumber of chances by which an event may happen (or not happen)number of chances by which an event may happen (or not happen)to the sum of the chances of both happening and not happening.

• Amount at Stake - “The extent of adverse consequences which couldqoccur to the project”. It equals amount wasted plus amount requiredto rebuild

• Risk Timing - When Is the risk event expected to occur in the Project• Risk Timing - When Is the risk event expected to occur in the ProjectLifecycle

May 2011Slide 3

Project Risk ManagementProject Risk ManagementProcesses

• Risk Management planningRisk Management planning

• Risk Identification

Qualitative Risk Analysis• Qualitative Risk Analysis

• Quantitative Risk Analysis

• Risk Response Planning

• Risk Monitoring and Control

May 2011Slide 4

Risk Management planningRisk Management planningDefinition & ITTO

Deciding how to approach and plan risk management activities.Deciding how to approach and plan risk management activities.

May 2011Slide 5

Risk Management planningRisk Management planningITTO

May 2011Slide 6

Risk Management planningRisk Management planningImpact Analysis

May 2011Slide 7

Risk IdentificationRisk IdentificationDefinition

• The process of systematically identifying all possible risk events The process of systematically identifying all possible risk events which may impact on a project.

• They may be conveniently classified according to their cause or source and ranked roughly according to ability to manage effective source and ranked roughly according to ability to manage effective responses.

• Not all risk events will impact all projects, but the cumulative effect f l i k t i i j ti ll b of several risk events occurring in conjunction may well be more severe

than examination of individual risk events might suggest.

May 2011Slide 8

Risk IdentificationRisk IdentificationITTO

May 2011Slide 9

Risk IdentificationRisk Identification

May 2011Slide 10

Risk IdentificationRisk IdentificationRisk Register

• List of risks that includes an identification number risk name risk List of risks that includes an identification number, risk name, risk description, and risk owner i.e. the person responsible for monitoring the project to determine whether the potential for this risk event is high and then implementing the risk response plan should it occur.p g p p

May 2011Slide 11

Qualitative Risk AnalysisQualitative Risk AnalysisDefinition & ITTO

• Qualitative Risk Analysis uses a subjective approach to determine the Qualitative Risk Analysis uses a subjective approach to determine the likelihood that a risk will actually occur and the impact to the project if it does occur. This process also involves prioritizing the risks according to their effect on the project.p j

May 2011Slide 12

Qualitative Risk AnalysisQualitative Risk AnalysisITTO

May 2011Slide 13

Qualitative Risk AnalysisQualitative Risk AnalysisProbability/Impact

• Risk Probability is the likelihood that a risk event will occur For Risk Probability is the likelihood that a risk event will occur. For example, if you a flip a coin, there ’ s a .50 probability the coin will come up heads. Probability is expressed as a number from 0.0 to 1.0, with 1.0 being an absolute certainty the risk event will occur.g y

• Risk possibility and consequences may be described in qualitative terms such as very high, high, moderate, low and very low.

I t i th t f d ( t it ) th i k t • Impact is the amount of damage (or opportunity) the risk poses to the project if it occurs. Simple rating like the following to rate risk impact: High, Medium, Low

May 2011Slide 14

Qualitative Risk AnalysisQualitative Risk AnalysisProbability/Impact Matrix

• A matrix can be constructed on probability and impactA matrix can be constructed on probability and impact.

• A risk with high probability and high impact needs further analysis.

• Also called Risk Rating Matrix

May 2011Slide 15

Quantitative Risk AnalysisQuantitative Risk AnalysisDefinition & ITTO

Aims to analyze numerically, the probability of each risk and its Aims to analyze numerically, the probability of each risk and its consequence on project objective, as well as the extent of overall project risk.

May 2011Slide 16

Quantitative Risk AnalysisQuantitative Risk AnalysisITTO

May 2011Slide 17

Risk Response Planning Risk Response Planning Definition & ITTO

Risk Response Planning is the process of reviewing the risk analysis and Risk Response Planning is the process of reviewing the risk analysis and determining what, if any, action should be taken to reduce negative impacts and take advantage of opportunities as a result of a risk event occurring.

May 2011Slide 18

Risk Response Planning Risk Response Planning ITTO

May 2011Slide 19

Risk Response Planning Risk Response Planning Strategies for Risk

• Avoid : Avoiding the risk altogether or eliminating the cause of the Avoid : Avoiding the risk altogether or eliminating the cause of the risk event

• Transfer : Moving the liability for the risk to a third party by purchasing insurance, performance bonds, and so onp g , p ,

• Mitigate : Reducing the impact or the probability of the risk

• Accept : Choosing to accept the consequences of the risk

May 2011Slide 20

Risk Response Planning Risk Response Planning Strategies for opportunities

• Exploit : Looking for opportunities to take advantage of positive Exploit : Looking for opportunities to take advantage of positive impacts

• Share : Assigning the risk to a third party who is best able to bring about the opportunitypp y

• Enhance : Monitoring the probability or impact of the risk event to assure benefits are realized

May 2011Slide 21

Risk Monitoring and ControlRisk Monitoring and ControlDefinition & ITTO

Is the process of keeping track of the identified risks, monitoring Is the process of keeping track of the identified risks, monitoring residual risks and identifying new risks, ensuring the execution of risk plans, and evaluating their effectiveness in reducing risks.

May 2011Slide 22

Risk Monitoring and ControlRisk Monitoring and ControlITTO

May 2011Slide 23

Pop QuizPop QuizQuestion 1

Risk Identification is the process of which of the following?Risk Identification is the process of which of the following?

A. Quantifying the impact to the project of a potential risk event

B. Determining and documenting potential risk events on the project

C. Assigning a probability that a particular risk event will occur

D. Defining the action to take in response to a risk event

May 2011Slide 24

Pop QuizPop QuizQuestion 2

This risk analysis technique uses a complex mathematical This risk analysis technique uses a complex mathematical approach to numerically analyze the probability and impact of risks.

A. Quantitative Risk AnalysisQ y

B. Risk impact analysis

C. Risk probability analysis

D Q lit ti Ri k A l iD. Qualitative Risk Analysis

May 2011Slide 25

Pop QuizPop QuizQuestion 3

All of the following are strategies for dealing with negative risks, except All of the following are strategies for dealing with negative risks, except for which one?

A. Accept

B TransferB. Transfer

C. Share

D. Mitigate

May 2011Slide 26

Pop QuizPop QuizQuestion 4

Once risks have been identified and analyzed, this tool helps you Once risks have been identified and analyzed, this tool helps you determine an overall risk score.

A. Probability impact matrix

B Risk listB. Risk list

C. Risk register

D. Risk template

May 2011Slide 27

Thank You!Thank You!