Risk Management

1
 ?????

1.What is a Project?
2.What is the nature of your
business? Construction,
Infrastructure, Real Estate
3.What is Risk?
4.What is Project Risk
Management (PRM)?
5.What is the importance of
PRM?
 The Project
It is temporary & has limited life.
Defined and limited resources : 3
Ms
Produced by teams of people and
firms
Teams often change during the
project period.
Require contractors to marshal
labor, equipment, material and
components of specific size.
Plans, estimates and time
schedules have to be made in
The Construction Projects
complex and require
understanding of design,
construction and
management.
involve processes,
procedures, objectives,
targets, both human and other
resources, expectations,
promises, contracts,
 Cost
overrun

Risks
Project
Poor Constraints Delays
Quality
 In Sum
The projects are shared efforts of
multiple parties and therefore
uncertainty comes from various sources.

We come to know that 3 factors become

major constraints for any project.
Time overrun/ delays,
Poor performance/ comprising with
quality
results into
cost overrun/ over budget.
 What is Risk?

Rs
.

Risk exists if there is something you

dont want to happen having a
chance to happen!!!
 Perception of Risk

Unknown

endeav
Unexpected
Risk or
Undesirable

Unpredictable

Misleading concept : All Risks are

negative
Understanding Risk
All Risks are not bad risks. Risks need to
be reviewed as
Positive (Opportunities)
Negative (Threats) Concentrate
Neutrals (dont have any impact)

Risk is not static : not related to single

event but also relates to future conditions
of the project. Conditions may turn out to
be favourable or unfavourable.
Understanding Risk
All Risks are not of same degree. Degree of risk
varies depending upon time and
circumstances . project life cycle
Total
I
N Plan Accomplish
C Phase 1 Phase 2 Phase 3 Phase 4
R
Conceive Develop Execute Finish
E
A Opportu
nity & R V
S isk
I A
N (period when highest
G
risks are incurred)
L
R
U
I
t St ake (period of highest E
nt a
S Amou risk impact)
K
TIME
What is the difference
between Risk and
Uncertainty?
Understanding Risk
The word Uncertainty is used to
replace the term risk.
Risk versus Uncertainty :
~ Uncertainty is immeasurable, not
possible to calculate, while risk is
measurable.
~ One may have uncertainty without
risk but not risk without uncertainty.
~ Uncertainty is the absence of
information about future events
Understanding Risk
Risk also has a dimension of
perception.
To whom risk is adverse or
significant?
To whom risk is opportunity or
less relevant factor
Risk perception is identified as
one of the major improvement
area in risk management
Risk as defined by
PMBoK
Rs.

A risk is something that may

happen & if it does will have
a positive or negative impact
on the project
What is Risk?
Phenomenon closely associated with
uncertain events.
It is a chance of loss. It may be either
frequency or a probability of
occurrence .
The magnitude of future loss
Probability of occurrence of Loss
X
Consequence or (Magnitude of
loss)
 Risk Increases the
More You Dont Know

All The Potential Outcomes

The Probability of Occurrence
Cost of an Undesirable Outcome
 Project Implementation -
Current Status
Summary of projects in the Mega Report March,
2016
Number of Projects in Previous Month
280
No of Projects completed/dropped/frozen in
Current Month 01
Project reported Anticipated completion Cost less
than
Rs.1000 crore during the current month
01
Number of Projects in Current Month
278
Number Of projects ahead of schedule
02
Number Of projects on schedule
58
Extent of cost overrun
with respect to original
schedule (All cost/expenditure in Rs. crore)

Sl Sector No. Origina Anticipa Cost

N of l Cost ted Cost Overru
o. Proje n%
cts
1 Power 63 284164. 333142.0 17.24
56 2
2 Railways 85 178727. 229753.9 28.55
35 2
3 Road & 61 92888.0 94067.51 1.27
Highways 2
4 Shipping 1 2427.40 2427.4 0
& Ports
Source : Ministry of Statistics, GOI
Extent of cost overrun
with respect to original
schedule Sectorwise
(All cost/expenditure in Rs. crore)

Sl Sector No. of Origin Anticipa Cost

No Proje al Cost ted Cost Overr
. cts un %

1 Power 02 64869. 113847.1 75.50

72 8
2 Railway 63 55242. 161798.4 192.89
s 40 2
3 Road & 1 1108.0 2288.00 106.5
Highwa 0
ys
Extent of Time overrun
with respect to original
schedule (All cost/expenditure in Rs. crore)

Sl Sector No. Origina Anticip Time

N of l Cost ated Overr
o. Proje Cost un
cts (in
mont
hs)
1 Power 42 16209 198706 1-
4.34 .68 123
2 Railwa 21 33197. 85502. 3-
ys 41 82 261
3 Road 31 47617. 48797. 6 - 61
Can you guess what
are the reasons for
time overruns
reported by various
project implementing
agencies?
Reasons for time overruns reported
delay by
in forest
various project
delay in land implementing agencies
clearance
acquisition delay in supply of
delay in forest equipments
clearance geological surprises
fund constraints geo-mining
problems in conditions
equipment shortage of labour
erection maoist problems
Slow progress in contractual issues
civil works inadequate
court cases mobilization by the
Right of Use (RoU) contractor
/ Right of Way law and order
(RoW) problems situation, etc.
 Reactive Risk Strategies
Reactive risk strategies seem to be the
normal fire-fighting mode which most
of the construction business firms
follow :
"Don't worry, I'll think of something
Ill deal with it when it happens, if it
happens
The majority of contractors,
subcontractors, teams and managers
rely on this approach
Nothing is done about risks until
something goes wrong
Proactive Risk Strategy:
Attack Risks

If you dont actively attack

the risks, they will actively
attack you

Proactive risk strategies

accept uncertainty
identify it
assess probability and
Project Risks

They threaten the project plan

If they become real, it is likely
that the project schedule will
slip and that costs will
increase
liability and legal claims
upset customers (loss of
reputation and market)
Objective of Project Risk
Management
Risk Management in Project is
about proactively working with
project stakeholders to
minimize the risk (Threats) and
maximize the opportunities
associated with project
decisions.
Reduce the number of surprise
events
Minimize consequences of
Benefits of Project Risk
Management
More and better information is
available during planning and
decision making
Project objectives are verified
Improved communications
Higher probability of project
success
Proactive approach
Project might be canceled
Why many firms dont do
Risk Mgt.
Unwillingness to admit risks exist
Postpone the hard parts of the project
until later
Risk management costs money
Up front investment of time
Cant prove its necessary Think
health insurance
Can Do management style severely
inhibits risk mgt
Ways to Avoid Risk Management
Managing risk is everybodys
business
What is Risk Management?

~ Process steps that enable

improvement in decision making
~ A logical and systematic
approach
~ Identifying opportunities
~ Avoiding or minimizing losses
What is Risk Management ?

RM is the name given to a logical

and systematic method of
identifying, analyzing, treating
and monitoring the risks involved
in any activity or process.
RM is a methodology that help
managers make best use of their
available resources.
The Risk Management process
steps are a generic guide for
 Risk Management

The aim is not to avoid risk but to

make more informed decisions to
ensure that project objectives are
achieved and , ideally, exceeded.

The Challenge is not to avoid risk

, but to take calculated risks, by
recognising and managing
effectively
 Who uses Risk
Management ?
Risk Management practices are
widely used in public and the
private sectors, covering a wide
range of activities or
operations.
These include:
~ Finance and Investment
~ Insurance
~ Health Care
~ Public Institutions
Risk Management Process
The basic process steps are:
~ Establish the context
~ Identify the risks
~ Analyze the risks
~ Evaluate the risks
~ Treat the risks
Risk is dynamic and subject to
constant change, so the process
includes continuing:
~ Monitoring and review
When Should Risk Management
be Carried Out?
Risk management planning
should be applied early in the
project planning process, ideally
at the conceptual design phase
to help identify risks and
opportunities in time to
incorporate any necessary
response actions into final
designs and to help refine