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Risk Management

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Chapter 7 Learning ObjectivesAfter 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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RiskRisk 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

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Risk versus Amount at Stake: Challenge in Risk Management

07-04Figure 7.2

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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)

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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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Risk ClustersFinancial

Technical

Contractual/Legal

Commercial

Execution

Common Types

• Absenteeism

• Resignation

• Staff pulled away

• Time overruns

• Skills unavailable

• Ineffective Training

• Specs incomplete

• Change orders

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Risk Factor Identification

Brainstorming meetings

Expert opinion

Past history

Multiple (or team based) assessments

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Risk Impact Matrix

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Project Risk Scoring

1. Identify factors and assess the probability (Pf ) and consequences (Cf) of failure

2. Calculate overall probability & consequence

3. Calculate overall risk factor3

m c df

P P PP

4

c s r p

f

C C C CC

( )( )f f f fRF P C P C

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Risk Mitigation Strategies

Accept

Minimize

Share

Transfer

Contingency Reserves

Task contingency

Managerial contingency

Mentoring

Cross training

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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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FIGURE 7.6 Contingency Document for Adjustments to Project Plan

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Project Risk Analysis & Management

Extends risk management over project’s life cycle

Key Features of PRAM

Risk management follows a life cycle

Risk management strategy changes over the project life cycle

Synthesized, coherent approach

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Nine Phases of Risk Assessment1.Define

2.Focus

3. Identify

4.Structure

5.Clarify ownership of risks

6.Estimate

7.Evaluate

8.Plan

9.Manage

07-15 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

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.

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07-17Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall