Chapter 7

Risk Management

07-01

Chapter 7 Learning
Objectives
After completing this chapter, students will be able
to:
Define project risk.
Recognize four key stages in project risk
management and the steps necessary to manage
risk.
Understand five primary causes of project risk and
four major approaches to risk identification.
Recognize four primary risk mitigation strategies.
Explain the Project Risk Analysis and Management
(PRAM) process.
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01-02

Risk
Risk management - the art and science
of identifying, analyzing, and
responding to risk factors throughout the
life of a project and in the best interest
of its objectives.
Project risk any possible event that can
negatively affect the viability of a project

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

01-03

Risk versus Amount at Stake:

Challenge in Risk Management

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07-04
Figure 7.2

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)

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

07-05

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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07-06

Risk Clusters
Commercial
Execution

Financial
Technical
Contractual/Legal

Common Types
Absenteeism
Resignation
Staff pulled away
Time overruns

Skills unavailable
Ineffective Training
Specs incomplete
Change orders

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07-07

Risk Factor Identification

Brainstorming meetings
Expert opinion
Past history
Multiple (or team based) assessments

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07-08

Risk Impact Matrix

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07-9

Project Risk Scoring

1. Identify factors and assess the

probability (Pf ) and consequences (Cf) of

failure
2. Calculate overall probability &
consequence
Pm Pc Pd
Cc Cs Cr C p

Pf

Cf

3. Calculate overall risk factor

RF Pf C f ( Pf )(C f )

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

07-10

Risk Mitigation Strategies

Accept
Minimize
Share
Transfer
Contingency Reserves
Task contingency
Managerial contingency
Mentoring
Cross training
Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

07-11

Control & Documentation

Help managers classify and codify risks,
responses, and outcomes
Change management report system answers
What?
Who?
When?
Why?
How?
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07-12

FIGURE 7.6 Contingency Document for Adjustments to Project Plan

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

07-13

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
Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

07-14

Nine Phases of Risk

Assessment
1. Define
2. Focus
3. Identify
4. Structure
5. Clarify ownership of risks
6. Estimate
7. Evaluate
8. Plan
9. Manage

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

07-15

Summary
1. Define project risk.
2. Recognize four key stages in project risk

management and the steps necessary to

manage risk.
3. Understand five primary causes of project risk
and four major approaches to risk identification.
4. Recognize four primary risk mitigation
strategies.
5. Explain the Project Risk Analysis and
Management (PRAM) process.
Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

07-16

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

07-17