Project Risk Management

SESSION 10
PROJECT RISK
MANAGEMENT
Eng.Mukhlis Mirghani
SESSION OBJECTIVES
To know :
• What is risk
• risk management planning
• Risks identification
• Qualitative risk analysis
• Quantitative risk analysis
• Risk responses
• Controlling risks
If your project requires
that you stand on the
edge of a cliff, then
there’s a risk that you
could fall.
If it’s very windy out

or the ground is
slippery
and then falling
is more likely.
If you can’t avoid the
The easiest way to risk, you can mitigate it.
avoid this risk is to This means taking some sort
walk away from the of action that will cause it
cliff…but that to do as little damage to
may not be an option your project
on this project. as possible.
One effective way to
deal with a risk is to If you can’t avoid the risk, and there’s
pay someone nothing you can do to reduce its impact,
else to accept it or then accepting it is your only choice.
you. The most common
way to do this is to buy
insurance.
Project Risk Management
It includes the processes of conducting:
• Risk Management Planning,
• Risk Identification,
• Risk Analysis (Qualitative and Quantitative),
• Risk Response Planning,
• controlling risk on a project.
Project Risk Management
The objectives of project risk management are to:

• INCREASE the likelihood and impact of POSITIVE
EVENTS, and
• Decrease the likelihood and impact of negative events

in the project.
Important terms
PROJECT RISK RISK APPETITE
• an uncertain event or • the degree of uncertainty an
condition that, if it occurs, entity is willing to take on in
has a positive or negative anticipation of a reward.
effect on one or more project
objectives such as scope,
schedule, cost, and quality. RISK TOLERANCE
• the degree, amount, or
volume of risk that an
organization or individual will
Important terms
RISK THRESHOLD plan responses for those risks.
• Below that risk threshold, the
organization will accept the risk. Trigger Condition
• Above that risk threshold, the An event or situation that indicates
organization will not tolerate the that a risk is about to occur.
risk.
KNOWN RISKS
• those have been identified and
analyzed, making it possible to
Important terms
KNOWN RISK UNKNOWN
RISK
Management reserve
Response plan
(cannot be managed
(manage proactively)
proactively)
Contingency plan
(cannot be managed
proactively)
11.1 Plan Risk
Definition Key Benefit

is the process of: • it ensures that the degree,
type, and visibility of risk
• defining how to conduct risk
management are
management activities for a
project. commensurate with both the
risks and the importance of
the project to the
organization.
.1 Project mgt plan
.2 Project charter
.3 Stakeholder .1 Analytical
register techniques .1 Risk management
.4 EEF plan
.2 Expert judgment
.5 OPA .3 Meetings
INPUTS
.1 Project management plan .5 OPA
.2 Project charter • Risk categories,
Provides high-level risks • Common definitions of concepts
.3 Stakeholder register and terms,
• which contains all details related • Risk statement formats,
to the project’s stakeholders, • Standard templates,
provides an overview of their • Lessons learned.
roles.
4 EEF
• risk attitudes,
• thresholds, and tolerances
Tools & Techniques
.1 Analytical techniques
Analytical techniques are used to understand and define the
overall risk management context of the project.
.2 Expert judgment
• groups or individuals with specialized training or knowledge on
the subject area
.3 Meetings
• planning meetings to develop Risk management plan
OUTPUTS
Definitions of risk probability
.1 Risk management plan and impact.
describes how risk management Probability and impact
activities will be structured and matrix.
performed.  Revised stakeholders’
• It includes the following: tolerances.
Roles and responsibilities. Reporting formats.
Budgeting. Tracking.
Timing.
 Risk categories.
11.2 Identify Risks

It is the process of: The documentation of existing
• determining which risks may risks and the knowledge and
affect the project ability it provides to the
project team to anticipate
• documenting their events
characteristics.
.1 Risk MP
.2 Cost MP .1 Documentation
.3 Schedule MP reviews
.4 Quality MP .2 Information
.5 HR MP gathering
.6 Scope baseline techniques
.7 Activity cost .3 Checklist analysis .1 Risk register
estimates .4 Assumptions
.8 Activity duration analysis
estimates .5 Diagramming
.9 Stakeholder register techniques
.10 Project documents .6 SWOT analysis
.11 Procurement docs .7 Expert judgment
.12 EEF
.13 OPA
Inputs
• Published checklists,
.11 Procurement documents • Industry studies
• The complexity and the level of • Risk attitudes.
detail of the procurement .13 OPA
documents should be consistent
with the risks associated with, • Project files, including actual
planned procurement data,
12 EEF • Risk statement formats or
templates, and
• Published information, including
commercial databases, • Lessons learned.
• Academic studies,
Tools & Techniques
.1 Documentation reviews
• including plans, assumptions, .3 Checklist analysis
previous project files, agreements, Risk identification checklists are
and other information (SOURCES) developed based on historical
information
.2 Information gathering techniques
• Brainstorming .4 Assumptions analysis
• Delphi technique • explores the validity of assumptions
• Interviewing as they apply to the project.
Tools & Techniques
.5 Diagramming techniques .6 SWOT analysis
• Cause and effect • identifies any opportunities for
diagrams(ISHIKAWA or FISHBONE the project that arise from
DIAGRAMS) identify causes of organizational strengths, and any
risk. threats arising from
organizational weaknesses
outputs
.1 Risk register
It is a document in which the results of risk analysis and risk
response planning are recorded , at this stage it contains:
• List of identified risks
• List of potential responses
Note: It contains the outcomes of the other risk management
processes as they are conducted, resulting in an increase in
the level and type of information contained in the risk register
over time.
11.3 Preform Qualitative Risk Analysis

It is the process of : It enables project managers
to:
• prioritizing risks for further
analysis or action • reduce the level of
uncertainty and
• by assessing and combining
their probability of occurrence • to focus on high-priority
and impact. risks
.1 Risk probability
and impact
.1 Risk management assessment
plan .2 Probability and .1 Project
.2 Scope baseline impact matrix documents updates
.3 Risk register .3 Risk data quality (Risk register
.4 EEF assessment update)
.5 OPA .4 Risk categorization
.5 Risk urgency
assessment
.6 Expert judgment
INPUTS
.1 Risk management plan • contains the information that will
definitions of probability and impact, be used to assess and prioritize risks
the probability and impact matrix, .4 EEF
.2 Scope baseline • Industry studies of similar projects
• Projects of a common or recurrent by risk specialists, and
type tend to have more well- • Risk databases that may be
understood risks. available from industry or
• Projects using state-of-the-art or proprietary sources
first-of-its-kind technology, and .5 OPA
highly complex projects, tend to include information on prior, similar
have more uncertainty. completed projects
.3 Risk register
Tools & Techniques
.1 Risk probability and impact assessment

• Risk PROBABILITY assessment investigates the likelihood of specific risk
• Risk IMPACT assessment investigates the potential effect on a project
objective such as schedule, cost, including both negative effects for
threats and positive effects for opportunities.
• Risk probabilities and impacts are rated according to the definitions given
in the risk management plan
• The organization should determine which combinations of probability and
impact result in a classification of high risk, moderate risk, and low risk
Definition of Impact Scales for
Three Project Objectives
PROJECT Relative/Numerical Scale
OBJECTIVE
LOW (0.1) MODERATE (0.2) HIGH(0.4) VERY HIGH (0.8)
COST < 10% cost 10 – 20% cost 20 – 40% cost > 40% cost
increase increase increase increase
TIME < 5% time 5 – 10% time 10 – 20% time > 20% time
increase increase increase increase
SCOPE Minor areas of Major areas of Scope reduction Project end item
scope affected scope affected unacceptable to is effectively
sponsor useless
*Examples are shown for negative impacts

Eng.Mukhlis Mirghani only
Tools & Techniques
2 Probability and impact matrix

• Ratings are assigned to risks based on their assessed probability and
impact.
• Evaluation of each risk’s importance and priority for attention is
typically conducted using a look-up table or a probability and
impact matrix.
• A matrix specifies combinations of probability and impact that lead
to rating the risks as low, moderate, or high priority
• an organization can rate a risk separately for each objective (e.g.,
cost, time, and scope). In addition, it may develop ways to
determine one overall rating for each risk.
Probability and impact matrix
Tools & Techniques
3 Risk data quality assessment • project phase

• A technique used to evaluate the • common root causes.
degree to which the data about risksit can lead to the development of
is useful for risk management. effective risk responses.
• It involves examining the accuracy, .5 Risk urgency assessment
quality, reliability, and integrity of
the data about the risk. • Sometimes the assessment of risk
urgency is combined with the risk
.4 Risk categorization ranking to give a final risk severity
• Risks can be categorized by: rating.
• sources of risk
• the area of the project affected
(e.g., using the WBS),
OUTPUTS
.1 Project documents updates

• Risk register updates.
 probability and impacts for each risk,
 risk ranking or scores,
 risk urgency information or
 risk categorization, and
 a watch list for low probability risks or risks requiring further
analysis.
• Assumptions log updates. As new information becomes available
through the qualitative risk assessment, assumptions could change
11.4 Perform Quantitative Risk
Analysis

Is the process of:
it produces QUANTITATIVE RISK
• NUMERICALLY ANALYZING the INFORMATION to support
effect of identified risks ON decision making in order to
OVERALL PROJECT reduce project uncertainty
OBJECTIVES.
.1 Risk mgt plan .1 Data gathering
.2 Cost mgt plan and Representation .1 Project
.3 Schedule mgt plan techniques documents updates
.4 Risk register .2 Quantitative risk (Risk register
.5 EEF analysis and update)
.6 OPA modeling techniques
.3 Expert judgment
INPUTS
.1 Risk management plan

• provides guidelines, methods, and tools to be used in quantitative risk
analysis.
.2 Cost mgt. plan & .3 Schedule mgt. plan
• provides guidelines on establishing and managing risk reserves.
.4 Risk register
• is used as a reference point for performing quantitative risk analysis.
.5 EEF
• Industry studies of similar projects by risk specialists
• Risk databases that may be available from industry or proprietary sources
.6 OPA
information from prior, similar completed projects
Tools & Techniques
.1 Data gathering and Representation techniques

Interviewing
• Interviewing relevant stakeholders to quantify the probability and
impact of risks on project objectives
• information would be gathered on the optimistic (low), pessimistic
(high), and most likely scenarios for some commonly used
distributions .e.g. three point estimates
Probability distributions
• Continuous probability distributions, which are used extensively in
modeling and simulation, represent the uncertainty in values such as
durations of schedule activities and costs of project components
• Beta and triangular distributions
Tools and techniques
.2 Quantitative risk analysis and modeling techs.
Sensitivity analysis (e.g. tornado dia.)
• helps to determine which risks have the most potential impact on the project
Expected monetary value analysis
• (EMV) analysis is a statistical concept that calculates the average outcome when
the future includes scenarios that may or may not happen
• A common use of this type of analysis is a decision tree analysis
Modeling and simulation
• e.g. Monte Carlo technique. In a simulation, the project model is computed many
times (iterated), with the input values (e.g., cost estimates or activity durations)
chosen at random for each iteration from the probability distributions of these
variables
Total Project Cost Cumulative Chart
Tornado Diagram
60 % Strong
Build New Demand $80M = $200M – $120M
Plant ($200M)
(Invest
$120M) 40 % Weak
Demand
$36M = .60 ($80M) ($90M) –$30M = $90M – $120M
+ .40 (–$30M)
Build or
Upgrade?
60 % Strong
Demand
$70M = $120M – $50M
Upgrade Plant ($120M)
(Invest $50M)
Weak Demand
$46M = .60 ($70M) + 40 % ($60M) $10M = $60M – $50M
.40 ($10M) Eng.Mukhlis Mirghani
outputs
RISK register updates could include:
Probabilistic analysis of the project.
Probability of achieving cost and time objectives
e.g. the likelihood of achieving the cost estimate of US$41 million is about 12%.
• Prioritized list of quantified risks.
 risks that pose the greatest threat or present the greatest opportunity to the
project.
 risks that may have the greatest effect on cost contingency
 most likely to influence the critical path.
11.5 Plan Risk Responses

Is the process of : • it addresses the risks by their
priority,
• developing options and actions
to: • inserting resources and
activities into the budget,
 enhance opportunities and
schedule and project
 to reduce threats to project management plan as needed
objectives
.1 Strategies for
negative risks or .1 Project
threats management plan
. .1 Risk management .2 Strategies for updates
plan positive risks or .2 Project
.2 Risk register opportunities documents updates
.3 Contingent
response strategies
.4 Expert judgment
.1 Strategies for negative risks or Transfer
threats • shifts the impact of a threat to a
Avoid third party
• eliminate the threat entirely. • it does not eliminate it.
• extending the schedule, or • insurance, guarantees
reducing scope
• Most Radical is to Shut down
the project entirely
Accept
Mitigate • not take any action unless the
• reduce the probability of risk occurs
occurrence or impact of a risk • not to change the project mgt.
• conducting more tests, or plan to deal with a risk
choosing a more stable supplier • Passive: to deal with the risks as
they occur
• Active: establish a contingency
reserve, including amounts of
time, money
.2 Strategies for positive risks or Share
opportunities • allocating some or all of the
Exploit ownership of the opportunity to
• to ensure that the opportunity is a third party who is best able to
realized capture the opportunity
• assigning an organization’s most • special-purpose companies, or
talented resources to the project joint ventures
to reduce the time
Enhance Accept
• increase the probability and/or • being willing to take advantage
the positive impacts of an of the opportunity if it arises,
opportunity • not actively pursuing it.
• adding more resources to an
activity to finish early.
.3 Contingent Response Strategies
• designed for use only if certain events occur
• there will be sufficient warning to implement the plan
• include identified triggering events
• e.g. missing intermediate milestones
outputs
.1 Project management plan updates
e.g. Scope, schedule and cost baselines
Risk register update:
• Risk owners and assigned responsibilities;
• Agreed-upon response strategies;
• Specific actions to implement the chosen response strategy;
• Trigger conditions of a risk occurrence;
• Budget and schedule activities required to implement the chosen responses
• Residual risks
• Contingency reserves
11.6 Control Risks

Is the process of: it improves efficiency of the
• implementing risk response risk approach throughout the
plans, project life cycle to
• tracking identified risks, continuously optimize risk
• monitoring residual risks, responses
• identifying new risks,
• evaluating risk process
effectiveness throughout the
project.
.1 Project .1 Risk reassessment .1 Work performance
management plan .2 Risk audits information
.3 Variance and trend .2 Change requests
.2 Risk register
.3 Project
.3 Work analysis
management plan
performance data .4 Technical updates
.4 Work performance .4 Project documents
performance reports measurement updates
.5 Reserve analysis .5 OPA updates
.6 Meetings
.1 Risk reassessment
• identification of new risks,
• reassessment of current risks,
• the closing of risks that are outdated.
.2 Risk audits
examine and document the effectiveness of risk responses in dealing with identified
risks (the effectiveness of the risk management process)
.3 Variance and trend analysis
• Outcomes from these analyses may forecast potential deviation of the project at
completion(cost, schedule..)
• Deviation from the baseline plan may indicate the potential impact of threats or
opportunities.
Tools & techniques
.4 Technical performance measurement
• measures may include weight, transaction times, number of delivered
defects, etc.
• Deviation, such as demonstrating more or less functionality than planned
can help to forecast the degree of success in achieving the project’s scope.
.5 Reserve analysis
• compares the amount of the contingency reserves remaining to the amount
of risk remaining at any time in the project in order to determine if the
remaining reserve is adequate
.6 Meetings
Project risk management should be an agenda item at periodic status
meetings.
Outputs
.2 Change requests
Implementing contingency plans or workarounds sometimes results in a change
request
.3 Project management plan updates
If the approved change requests have an effect on the risk management
processes, the corresponding component documents of the project
management plan are revised and reissued to reflect the approved changes
.4 Project documents updates (Risk register)
Outcomes of risk reassessments, risk audits, and periodic risk reviews
.5 OPA updates
Templates , RBS, lessons learned
. Final versions of the risk register and the risk management plan templates,
checklists, and risk breakdown structure are included.
Thanks For your ATTENTION
Any Questions

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SESSION 10

If it’s very windy out

The objectives of project risk management are to:

• Decrease the likelihood and impact of negative events

Definition Key Benefit

Definition Key Benefit

Definition Key Benefit

.1 Risk probability and impact assessment

*Examples are shown for negative impacts

2 Probability and impact matrix

3 Risk data quality assessment • project phase

.1 Project documents updates

Definition Key Benefit

.1 Risk management plan

.1 Data gathering and Representation techniques

Definition Key Benefit

Definition Key Benefit

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