Unit-06

Risk Management
 Risk has been defined as a measure of probability,
the severity, and the exposure of all hazards of an
activity. (Osama Jannadi)
Hertz and Thomos (1983) defined risk as uncertainty
and result of uncertainty. It refers to lack of probability
about the structure, outcome or consequences in
planning or decision or situation.
Risk analysis involves estimating the probabilities
needed as input data for the evaluation of decision
alternatives. (Lifson and Shaifar 1982)
Risk= Probability of an accident x Losses per
accident. (or)
Probability of an event occurring x Impact of event
occurring
Risk versus uncertainty
Uncertainty: The lack of complete certainty, that is,
the existence of more than one possibility. The "true"
outcome/state/result/value is not known.
Measurement of uncertainty: A set of probabilities
assigned to a set of possibilities. Example: "There is
a 60% chance this market will double in five years"
Risk: A state of uncertainty where some of the
possibilities involve a loss, catastrophe, or other
undesirable outcome.
Measurement of risk: A set of possibilities each with
quantified probabilities and quantified losses.
Example: "There is a 40% chance the proposed oil
well will be dry with a loss of 12 million Rs. in
exploratory drilling costs".
Factors responsible for Risk and
uncertainty
1. Place - Ground strata Dewatering conditions at site beyond control
Vastu shastram etc
2. Entrepreneur/management/organization - Relation ship between
Contractor / engineer-in-charge and owner
Frequent changes in designs/planning/execution instructions etc
Financial and economical risk (e.g. inflation, unavailability of funds)
Change in orders) (Al Bahar 1990)
3. Construction machinery/labor - Availability or paucity of
Materials of construction / labors/ machinery
Fluctuation in cost of material or labor
Theft of materials at crucial time
Run away of labor at crucial time
Injury & failure
4. Construction activities/processes/environment- Environmental conditions /
Seasonal restraints and constraints
Rehabilitation
5. X factor -Act of God, (e.g. Earthquake, Flood, Fire, Cyclone, & Unknown factor)
International / local market conditions
Political risks. (e.g. changes in rules and regulations, War or political
uncertainty).
Type of Risk
Risk can be of different types.
They may be
1. Physical Causing direct harm or damage,
2. Psychological Causing damage to self-
esteem
3. Social Causing loss of reputation
4. Contagious Causing infectious,
communicable, transmittable losses
 Risk management
Risk management is concerned with
identifying risks and drawing up plans to
minimise their effect on a project.
A risk is a probability that some adverse
circumstance will occur
Project risks affect schedule or resources;
Product risks affect the quality or performance
of the software being developed;
Business risks affect the organisation
developing or procuring the software.
The risk management process
Risk identification
Identify project, product and business risks;
Risk analysis
Assess the likelihood and consequences of
these risks;
Risk planning
Draw up plans to avoid or minimise the effects
of the risk;
Risk monitoring
Monitor the risks throughout the project;
Risk identification & Methods for
identifying risks
Risk identification
(What they are, when, what effect and what measures)
Technology risks.- The RCC design, Quality of materials, New
Technologies used
People risks: Skill level of people.
Organisational risks:
Requirements risks.
Estimation risks.
Methods for identifying risks
Brainstorming- session attended by the client, PM, RM and design team
Interviews- The Delphi technique
Questionnaires- Combination of previous experience and specific project criteria.
Use of specialists
Pervious experience
 Risk Assessment
Qualitative assessment
Classification of reference- environmental: site condition health
and safety contractual: client, contractor, third party. Design: planning permission

Description of the risk

Relationship of risk to other risks
Potential impact
Probability of occurrence
Response/ mitigation strategy- Avoidance, Transfer, Reduction,
Risk responsibility

Risk responsibility/ owner

 Risk Assessment

Quantitative assessment-
Simple assessment
Probabilistic analysis
Multiple estimating using risk analysis
Sensitivity analysis
Decision trees
Monte Carlo simulation.
 Risk management strategies (i)
Risk Strategy
Organisational & Prepare a briefing document for senior management
financial problems showing how the project is making a very important
contribution to the goals of the business.
Recruitment Alert customer of potential difficulties and the
problems possibility of delays, investigate buying-in
components.
Staff illness Reorganise team so that there is more overlap of work
and people therefore understand each others jobs.
Defective Replace potentially defective components
components
Risk Strategy
Requirements Derive traceability information to assess requirements
changes change impact, maximise information hiding in the
design.
Organisational Prepare a briefing document for senior management
restructuring showing how the project is making a very important
contribution to the goals of the business.
Database Investigate the possibility of buying a higher-
performance performance database.
Underestimated Investigate buying in components, investigate use of a
development time program generator
 The Cost of Risk
The total direct and
indirect cost of risk

The Cost of losses that Cost due to the

Costs incurred in
Nature occurs existence of risk
handling risk
of cost

The
Private cost Social cost
distribution
of cost
 Risk Handling Cost
Insurance premium, charges for loss prevention devices, and
fees for consulting services.
Loss cost
Direct costs to a firm of industrial accidents include the
compensation payable to injured employees, damage to
machinery, loss of production
Indirect costs
Private and social costs
Role of Risk Manager