PROJECT RISK MANAGEMENT

CHAPTER ONE: INTRODUCTION

 INTRODUCTION

There are thee key dimensions to a project: time, budget/cost and quality.
Project risks can involve events which prevent the project from being completed
within the original budget, timescales and quality or that make the stakeholders
dissatisfied.
All projects have risks, denial does not make them go away, it just makes you
unprepared for them if they occur
Project risk management plays a key role in achieving the project's objectives by
identifying, analyzing and responding to risks that impact on them throughout the
life of a project.( from initiation to closing).
 Risks are uncertainties which, if they occur, would affect the project
objectives either negatively (threats) or positively (opportunities).

 In any given decision situation both threats and opportunities are

usually involved, and both should be managed.

 opportunities and threats can sometimes be treated separately, but

they are seldom independent.
 UNCERTAINTY IN PROJECTS

 According to Chapman and Ward (2002)

• Uncertainty’ means ‘lack of certainty’
• lack of certainty, involving variability and ambiguity.
 Risk’ is ‘uncertainty that matters’ but not every uncertainty is a risk.
 It matters because it can affect one or more objectives.
 There are uncertainties that are irrelevant in terms of objectives, and
these should be excluded from the risk management process (RMP)

Example: Unseasonal weather conditions in construction project

matters ( the possibility of rain is an uncertainty that matters). But such
condition may not matter if we are conducting an IT project.
 The six Ws framework for the roots of uncertainty
 
 Who- (Project initiators, later players and other interested parties)
 Why- (Profit(revenue, cost) or other motives )
 What- Design (building, other physical product, service, or process)

 Whichway- Activities
 Wherewithal- Resources
 When- Timetable
 The design—be it a building, other physical product, service, or process
—drives the initial activity-based plans, associated plan-based resource
allocations, and plan-based timetable, the initial whichway, wherewithal,
and when.
 Base plans include target scenarios that provide a bases for project preparation,
execution, and control.

 Contingency plans are a second level plan that include predefined actions to be
taken in the event of any of the most likely risks occurring .

 The contingency plan should aim to keep the project on track in terms of
maintaining the balance of budget, time and quality.
 PROJECTS, RISK & PROJCT MANAGEMENT

A project is a one-off, non-repeated activity , which achieves clearly stated objectives

within a limited time.

Maylor (1996) suggests that most projects have the following common
characteristics.

•They are goal oriented

•They have clear beginnings and ends
•They have set of constraints that limit and define the process
•Their output can be measured in terms of performance against agreed
indicators.

 All projects are different. The level of complexity differs and the
context in which a project exist will affect it.
Example: Which of the following activities would you consider to be projects?

A.Developing a new documented administrative procedure.

B.Establishing a jointly agreed protocol to review the quality of a service provided by a
new supplier.
C.Maintaining client recodes for a home cleaning services
D.Managing staff provision in an information center
E.Transferring tasks from an outmoded computer installation to a new system.
 Risk in projects may be defined as ‘an event or situation which can endanger all part
of the project ( Nickson and Siddons, 1997)

Example  
 The possibility that planned productivity targets might not be met
 Interest or exchange rates might fluctuate
 The chance that client expectations may be misunderstood;
 Whether a contractor might deliver earlier than planned
 Project risks are uncertainties which, if they occur, would affect the project
objectives either negatively or positively ( PMI, 2000)

 Project objectives include scope, schedule, cost, and quality.

 The goal of project risk management is to minimize potential threats while

maximizing potential opportunities.

Opportunity. A condition or situation favorable to the project, a positive

set of circumstances, a positive set of events.

Threat. A condition or situation unfavorable to the project, a negative set

of circumstances, a negative set of events,

 Project risk management is proactive.

 DEFINITIONS AND CONCEPTS OF RISK

Uncertainty is about a future event that may or may not happen and that can have
impact on project objectives if it does happen
A “risk” is characterized by its probability of occurrence and its uncertain impact
on project objectives
All projects contain risk, arising from interactions between
• OBJECTIVES ... What must happen
• UNCERTAINTY ... What might happen
 The roots of project risk lie in the forces acting on the company, and
the customer, as a whole.

 Project risk cannot be separated from business planning, project

selection, planning and control.

 Risk management activities are integral to other project management

functions
Integrating risk with other management functions
 Risk-benefit analysis involves the comparison of the risk
of a situation to its related benefits.

 This analysis is used to establish whether is worth assuming

some risks comparing the resulting benefits.

 High risk, low benefit

 High risk, high benefit
 Low risk, low benefit
 Low risk, high benefit

 Can be very dependent on the individual doing the analysis