PROJECT MANAGEMENT

PHASES
PHASE II:
(PLANNING THE PROJECT- 5 RISK
MANAGEMENT)

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PLANNING FOR PROJECT RISKS
۩ A RISK IS AN EVENT THAT MAY OCCUR AND WHICH COULD HAVE A POSITIVE OR
NEGATIVE IMPACT ON THE PROJECT

۩ - POSITIVE RISKS = OPPORTUNITIES

- NEGATIVE RISKS = DANGERS OR THREATS THAT MAY EFFECT THE PROJECT GOALS

۩ PROJECT RISK MANAGEMENT IS ABOUT CONDUCTING RISK MANAGEMENT PLANNING,

IDENTIFICATION, ANALYSIS, RESPONSES AND CONTROL ON A PROJECT, WITH A VIEW
TO INCREASE THE PROBABILITY AND IMPACTS OF POSITIVE EVENTS ON THE ONE
HAND, AND DECREASE THE PROBABILITY AND IMPACT OF ADVERSE EVENTS ON THE
OTHER

۩ MANAGING RISK IS AN ESSENTIAL FEATURE OF OVERALL PROJECT PLANNING. IT IS

IMPERATIVE TO ATTEMPT TO IDENTIFY TO THE MAXIMUM EXTENT POSSIBLE DURING
THE PROJECT PLANNING PHASE THE RISKS WHICH MAY OCCUR AND THE COSTS
WHICH MAY RESULT. 2
 RISK EVENT GRAPH
‘
RISK COST
HIGH

COST TO FIX RISK

CHANCES OF EVENT
RISKS
OCCURING

LOW

PROJECT LIFE CYCLE

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 THE RISK MANAGEMENT
PROCESS
STEP 1: RISK IDENTIFICATION
Analyze the project to identify sources of risk
Known Risks

New Risks STEP 2: RISK ASSESSMENT

Assess risks in terms of (a) severity of impact
(b) Likelihood of occurring, and (c) controllability
Risk Assessment

New Risks STEP 3: RISK RESPONSE DEVELOPMENT

Develop a strategy to reduce possible damage, and
Develop contingency plans
Risk Management
Plan
New Risks STEP 4: RISK RESPONSE CONTROL
Implement risk strategy, monitor and adjust plan for
new risks, change management

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SOME TYPES OF PROJECT RISKS
PROJECT RISKS ARE PROJECT SPECIFIC AND CAN BE CLASSIFIED INTO
VARIOUS TYPES, FOR EXAMPLE:

1. MACRO RISKS – RISKS WHICH AFFECT THE PROJECT AS A WHOLE

2. MICRO RISKS – RISKS WHICH EFFECT SPECIFIC PORTIONS OF A
PROJECT, FOR INSTANCE, ONE OR MORE DELIVERABLES OR WORK
PACKAGES
3. EXTERNAL RISKS – RISKS WHICH ARE OUTSIDE THE CONTROL OF THE
PROJECT MANAGER AND ORGANIZATION, FOR INSTANCE, THE
ECONOMY AND MARKET PLACE, THE POLITICAL AND SOCIAL
ENVIRONMENT
4. RISKS CAN ALSO BE CATEGORIZED AS TECHNICAL, COST AND
SCHEDULING RISKS.

WBS IS AN IMPORTANT FRAMEWORK OF REFERENCE FOR IDENTIFYING

RISKS.

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 POPULAR TECHNIQUES FOR
IDENTIFYING PROJECT RISKS
• ANALYZING THE PROJECT SCOPE AND CHARTER, PROJECT WBS, PROJECT
SCHEDULE ETC
• RISK PROFILING
• HISTORICAL RECORDS
• BRAINSTORMING
• DELPHI TECHNIQUE
• INTERVIEWING
• ROOT CAUSE IDENTIFICATION
• STRENGTHS, WEAKNESSES, OPPORTUNITIES, THREATS (SWOT) ANALYSIS
• RISK IDENTIFICATION CHECKLISTS
• COMMERCIAL DATABASES AND INDUSTRY STUDIES

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EXAMPLES OF FISHBONE DIAGRAMS

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JAMAICA - HURRICANES AND EARTHQUAKES
RISK PROFILE (WORLD BANK)

The hurricane risk in Jamaica is more significant than the

earthquake risk. Annual average loss (AAL) from
hurricanes is United States (U.S.) 67.3 million dollars (0.5
percent of gross domestic product (GDP) and from
earthquakes is U.S. 36 million dollars (0.3 percent of
GDP). The probable maximum loss for hurricanes (250
year return period) is U.S. 3.5 billion dollars (25.3 percent
of GDP) and for earthquakes (250 year return period) is
U.S. 2 billion dollars (14.6 percent of GDP). Single-family,
wood stud-wall frame with plywood and gypsum board
sheathing, as well as reinforced masonry bearing walls
with concrete diaphragms, are the buildings most
vulnerable to hurricanes, each category accounting for 23
percent of AAL. The budgetary appropriation should be
calculated which will directly help in informing the
development of the disaster risk financing strategy in the
long run.
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ANALYZING AND ASSESSING
RISKS
AFTER PROJECT RISKS HAVE BEEN IDENTIFIED, THEY MUST BE PRIORITIZED IN
ORDER TO DETERMINE WHICH RISKS MAY HAVE A SIGNIFICANT ADVERSE IMPACT ON
THE PROJECT, AND WHICH RISKS MAY NOT. PROJECT MANAGERS USE BASIC TYPES
OF TECHNIQUES LIKE RISK ASSESSMENT FORMS, RISK SEVERITY MATRIX AND RISK
VALUE ANALYSIS FOR THE PURPOSE.

RISK EVENT LIKELIHOOD IMPACT DETECTION WHEN

DIFFICULTY
INTERFACE 4 4 4 CONVERSION
PROBLEMS
SYSTEM 2 5 5 START-UP
FREEZING
USER 4 3 3 POSTINSTALL-
BACKLASH ATION
HARDWARE 1 5 5 INSTALLATION
MALFUNCTI-
ONING

RISK ASSESSMENT FORM

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 RISK SEVERITY MATRIX

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USER INTERFACE
RED ZONE
4 BACKLASH PROBLEMS
(MAJOR RISK)

LIKELIHOOD
3
SYSTEM YELLOW ZONE
2 FREEZING (MODERATE RISK)

HARDWARE
1 MALFUNCTI-
ONING GREEN ZONE
(MINOR RISK)

1 2 3 4 5
IMPACT

IMPACT X PROBABILITY X DETECTION = RISK VALUE 10

 RESPONDING TO RISKS
1. RISK MITIGATION – RISK MITIGATION CAN BE DONE BY TWO METHODS
1. REDUCE THE LIKLIHOOD THAT THE EVENT WILL OCCUR.
i.e. BEFORE INSTALLATION, A TEAM TESTS NEW SYSTEM ON AN ISOLATED
NETWORK.
2. REDUCE THE IMPACT THAT THE ADVERSE EVENTS WOULD HAVE ON THE
PROJECT.
i.e. HAVE A NUMBER OF SUPPLIERS DISTRIBUTED ON DIFFERENT LOCATIONS.

2. RISK AVOIDANCE – AVOIDING THE RISK IS CHANGING THE PROJECT PLAN TO

ELIMINATE RISK OR CONDITIONS.
i.e. ADOPTING PROVEN TECHNOLOGY INSTEAD OF NEW TECHNOLOGY.

3. RISK TRANSFERENCE – THIS ENTAILS SHIFTING THE ADVERSE IMPACT OF A

RISK, AND THE RESPONSIBILITY FOR DEALING WITH IT, TO A THIRD PARTY (THIS
TRANSFER HOWEVER DO NOT CHANGE RISK). EXAMPLES INCLUDE INSURANCE
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CONTRACTS AND GUARANTEES.
 4. RISK SHARING – THIS ENTAILS SHARING PROJECT RISKS

AMONGST DIFFERENT PARTIES. EXAMPLES INCLUDE FORMATION

OF CONSORTIUMS TO SHARE RESEARCH AND DEVELOPMENT RISK
IN LARGE ENGINEERING CONSTRUCTION PROJECTS.

5. RISK RETENTION – IN SOME CASES A CONSCIOUS DECISION IS

MADE TO ACCEPT THE RISK OF AN EVENT OCCURING. IN SUCH
CASES PROJECT OWNER ASSUMES THE RISK i.e. FLOODS,
EARTHQUAKES e.t.c.

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 CONTINGENCY PLANNING
• “A CONTINGENCY PLAN IS AN ALTERNATIVE PLAN THAT WILL BE
USED IF A POSSIBLE FORSEEN RISK BECOMES A REALITY”
• THE CNTINGENCY PLAN WILL REDUCE THE NEGATIVE IMPACT OF A
RISK EVENT
• CONTINGENCY PLAN ASKS THE QUESTIONS OF WHAT, WHERE,
WHEN AND HOW MUCH ACTION WILL TAKE PLACE
• ABSENCE OF IT CAN DELAY A MANAGEMENT ACTION WHICH MIGHT
RESULT IN PANIC
• CONTINGENCY PLAN SHOULD BE COMMUNICATED TO AND
ENDORSED BY ALL PROJECT STAKEHOLDERS IN ADVANCE AND
SHOULD ALSO INCLUDE AN ESTIMATION OF THE COST
• CONTINGENCY FUNDS-EXTRA RESERVES ARE USED FOR THIS
PARTICULAR PURPOSE

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 RISK RESPONSE MATRIX

RISK EVENT RESPONSE CONTINGENCY TRIGGER WHO IS

PLAN RESPONSIBLE
INTERFACE REDUCE WORK AROUND NOT SOLVED ADEEL
PROBLEMS UNTIL HELP WITHIN 24
COMES HOURS

SYSTEM REDUCE REINSTALL OS STILL FROZEN SULTANA

FREEZING AFTER ONE
HOUR

USER REDUCE INCREASE CALL FROM TOP ERUM

BACKLASH STAFF SUPPORT MANAGEMENT

EQUIPMENT TRANSFER ORDER REPLACEMENT ALI

MALFUNCTIONS DIFFERENT DOES NOT
BRAND WORK

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 RISK RESPONSE CONTROL
Change
Originates
• IT MEANS EXECUTING THE
RISK RESPONSE
STRATEGY, MONITORING
TRIGGERING EVENTS,
INITIATING CONTINGENCY Change
PLANS AND WATCHING Request
FOR NEW RISKS Submitted

• SOME ORGANIZATIONS
MAINTAIN A RISK Review
REGISTER IN WHICH Change
ANYTHING PERTAINING Request No
TO CHANGE AND RISK IS
RECORDED Approved
?

• CHANGE MANAGEMENT Yes

SYSTEM IS ESTABLISHED Update Plan
WHICH RECORDS EVERY of Record
CHANGE MINUTELY
Distribute for
Action
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