Project Management
Chapter 12
Project Risk Management
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Session will cover
•
•
•
•
What is risk management?
Identify risks in a project
Assess the risks
Mitigate the risks - contingency
planning
• Project recovery
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Terms
• hazard: a rare or extreme event that adversely
effects the successful completion of the
project
• vulnerability: the degree of loss to a given
element that is at possible risk from the impact
of a hazard
• risk: the expected losses that a particular
phenomenon might cause or the existence of
significant uncertainty
• probability: the degree to which the risk event
is likely to occur
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Terms……
• frequency: the number of times a particular
risk can impact on a project
• severity: the impact of a risk on a project
• risk mitigation: defining the necessary
steps to counter threats
• risk response: the development of
measures to counteract risk in a project
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Concept
• Risk management attempts to minimise
the impact of adverse events and to
maximise the likelihood of positive
outcomes, so that the project is
successfully completed
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Risk Management Dilemma
Risk
HIGH
chances of
risk occuring
cost to fix
the risk event
LOW
Project life cycle
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Risk Management Dilemma
The chances of a risk event occurring
e.g. error in cash flow, time or cost
estimates being wrong are greatest in
the concept and planning stages
BUT are much harder to anticipate!
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Risk Management
3 elements to risk management
– risk assessment – identification &
analysis of risk
– risk mitigation – pre-emptive &
contingency actions
– risk response – plan for resolving
critical risks
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Risk Assessment
• Identification, quantifying and evaluation of
the probability of the occurrence of risk
events and the impact of these events on a
project
• What are the possible consequences and
how likely are they to occur?
• Risk assessment is proactive and reactive!
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Risk Identification
Determining risks likely to affect a project
Internal risks – aspects that the project team
can control or influence (staff assignment,
cost estimates)
External risks – beyond the control of the
project team (market shift, government
legislation)
Positive and negative outcomes
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Risk Assessment
Likelihood x Severity x
Frequency
Uses traffic lights to
indicate biggest threats
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Risk Assessment
LIKELIHOOD
THREAT
low
medium
inadequate
funding
high
X
lack of technical
skills in client's
business unit
natural disaster
IMPACT
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
medium
high
X
X
X
low
X
X
Risk Mitigation
Pre-emptive
Will reduce the
chance that a
threat will be
realised or a risk
will occur
(likelihood)
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
V
Reactive/
contingency
Will reduce the
impact of the
threat if it occurs
(severity)
Contingency planning
Evaluates alternative strategies
for possible foreseen events
before they occur and selects
the best alternative
Don’t confuse with contingency
(buffer) that you build in to a cost
estimate or time plan
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Contingency Planning
• Risk management planning for a known event
• Preventative actions to reduce or mitigate the negative
impact of the risk event
• Evaluates alternative strategies for possible foreseen
events before the risk events occur, and selects the best
option
• Must be communicated to all stakeholders in order to
avoid ‘surprises’ and are activated by ‘a trigger event’.
• Must be well documented
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Who’s responsible for risk mgmt?
•
Many people in the project will have some
responsibility for risk management.
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–
–
–
•
PM
risk manager
Steering committees
Project team members
Risk cannot be managed by one
individual – it is a communal activity
involving a range of people associated
with the project
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Who’s responsible for risk mgmt?
• PM has overall responsibility like:
– the development of a risk management
plan
– continual monitoring to identify new or
increasing risks
– monitoring of the effectiveness of the risk
management plan
– regular reports to sponsors and steering
committees
• For big projects the PM might appoint
a risk manager, but the PM still
maintains overall responsibility
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Risk mitigation examples
Pre-emptive - In a project where you are encouraging
people to walk and cycle to work, you might include a
bicycle shed to ensure that people have somewhere
safe to lock up their bikes
Contingency actions - for example, if your bike gets
stolen, enlisting people to help you find it
Oil rig, where pre-emptive action is to ensure that no fire
causing materials are used on the oil rig.
Contingency actions would be to have a life raft at
every station, for a quick getaway.
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Risk management plan
• The risk management plan should cover:
– a description of each risk
– an assessment of the likelihood of it occurrence and
its impact
– a grading of each risk
– the person(s) responsible for managing the risk
– an outline of the proposed countermeasures
– the estimated cost for each countermeasure and the
collective costs
– full details of assumptions and limitations
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
When things go wrong…..
What to do when things go wrong…….i.e. when a
project is
• out of control and failing
• over budget
• out of scope
AND YOU HAVEN’T PUT TOGETHER A
CONTIGENCY PLAN......
• How do you achieve the project objectives in the
least amount of time without incurring huge cost?
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Project recovery
• Take a structured review of the project
in its present state
• Look at the deliverables and
milestones with an eye towards
getting the project back on track
• Assess risk, crash the schedule or
develop deliverables simultaneously
• Project Recovery is determining
where to target resources to get the
project back on plan as quickly as
possible and at least cost!
Dr. Jana Jagodick Polytechnic
of Namibia, 2012
Deliverables for Project Recovery
• Project recovery plan
• Recovered project
• Trained project team members and project
sponsors/customers and stakeholders
• Tools and techniques for future projects
Dr. Jana Jagodick Polytechnic
of Namibia, 2012