UNIVERSITY OF NAIROBI

OPEN AND DISTANCE LEARNING - NYERI EXTRA MURAL CENTRE

MASTER OF ARTS IN PROJECT PLANNING AND MANAGEMENT

PROECT FINANCE (LDP 602)

GROUP 1

WHY RISK MANAGEMENT IS IMPORTANT IN PROJECT AND DISCUSS THE

RISK MANAGEMENT PROCESS IN PROJECTS

NAME : KIAI ALEX MAINA L50/22173/2019

: DANIEL NJAGI L50/1083/2018

: LISA IRENE WACHUKA 10679612018

SUBMITTED TO : MR. MORRIS MURATHIMI

DATE : 7th APRIL, 2019

TABLE OF CONTENTS

1.0 INTRODUCTION...........................................................................................................................3

2.0 IMPORTANCE OF RISK MANAGEMENT..............................................................................4

2.1 Aid in Planning for Success.........................................................................................................4

2.2 It promotes Communication with Stakeholders...........................................................................4

2.3 Maximizes Results and Meet Deadlines......................................................................................4

2.4 It makes the Management to be Proactive and not Reactive........................................................5

2.5 Evaluates the Entire Project.........................................................................................................5

3.0 RISK MANAGEMENT PROCESSES........................................................................................5

3.1 IDENTIFY THE RISK................................................................................................................5

3.11 PROCESS OF RISK IDENTIFICATION........................................................................................6

3.111 Get the team together.....................................................................................................6

3.112 Each team member contributes risks..............................................................................6

3.113 Collate and group the risks..............................................................................................7

3.114 Use a mind map to display risks visually..........................................................................7

3.12 Analyze The Risk....................................................................................................................7

3.13 Evaluate or Rank the Risk.......................................................................................................8

3.14 Treat the Risk.........................................................................................................................8

3.15 Monitor and Review the Risk.................................................................................................8

4.0 CONCLUSION..............................................................................................................................9

5.0 REFERENCES............................................................................................................................10

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1.0 INTRODUCTION
The study of risk management began after World War II. Risk management has long been
associated with the use of market insurance to protect individuals and companies from
various losses associated with accidents. Other forms of risk management, alternatives to
market insurance, surfaced during the 1950s when market insurance was perceived as very
costly and incomplete for protection against pure risk (Taarup Esbensen, 2018). In times of
increasing global competition, the success of projects becomes more decisive to an
organization’s business performance. However, many projects still present delays, changes in
their scope, failures and, some might be cancelled (Shenhar. A.J, 2002).

All entities face uncertainty, the challenge for management is to determine how much
uncertainty it is prepared to accept as it strives to grow stakeholder value. Uncertainty
presents both risk and opportunity, with the potential to erode or enhance value. Project risk
management enables management to identify, assess, and manage risks in the face of
uncertainty, and is integral to value creation and preservation. (Kenya Airports Authority
Enterprise Risk Management Policy and Framework (ERMPF), 2011).

There are many different types of risks in business and even more in the investing world.
According to (Majeed, 2018), the definition of Risk is any unwanted event or situation that
can lead to the failure of your project. There are different types of risks such as social,
political, cultural etc. Most of the risks can be controlled by doing risk management.

Risk management is basically an approach in which we explore identify, analyze and mitigate
the risks that can affect our project. Risk management is an important part of project
management which if done efficiently leads to the success of your project. Risk management
is an action plan that consists of various steps which are done to ensure the removal of risk. If
you are dealing with uncontrollable risk then you may set such an action plan that can
minimize the effect of these risks as you cannot fully get rid of such risks (Majeed, 2018).

Risk management is done by risk managers who are well aware of all the risks associated
with any particular business or project and different ways to mitigate them. The risk
mitigation technique to be used depends on nature of project risk faced by the team so it is
essential to be careful in developing an action plan for fighting against risks.

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2.0 IMPORTANCE OF RISK MANAGEMENT
Risk management is an essence of project management. It increases the chances of your
success up to a great extent. Following are some of the benefits of developing and
implementing an efficient risk management plan while working on any project (MAJEED,
2018).  Successful project managers recognize that risk management is important, because
achieving a project’s goals depends on planning, preparation, results and evaluation that
contribute to achieving strategic goals (Duggan, 2019). These importances include:-

2.1 Aid in Planning for Success

Risk management plans contribute to project success by establishing a list of internal and
external risks. This plan typically includes the identified risks, probability of occurrence,
potential impact and proposed actions. Low risk events usually have little or no impact on
cost, schedule or performance. Moderate risk causes some increase in cost, disruption of
schedule or degradation of performance. High risk events are likely to cause a significant
increase in the budget, disruption of the schedule or performance problems.

2.2 It promotes Communication with Stakeholders

To ensure that projects run smoothly, effective project managers communicate their plan to
the project sponsors, stakeholders and team members. This sets expectations to people who
provide funding and are affected by the outcomes. It ensures that the project runs smoothly so
one step proceeds to the next without disruption. By identifying, avoiding and dealing with
potential risks in advance, you ensure that your employees can respond effectively when
challenges emerge and require intervention.

2.3 Maximizes Results and Meet Deadlines

By defining risk management processes for your company, you make success more likely by
minimizing and eliminating negative risks so projects can be finished on time. This enables
you to meet your budget and fulfill targeted objectives. When you don’t have risk
management strategies in place, your projects get exposed to problems and become
vulnerable. Effective risk management strategies allow your company to maximize profits
and minimize expenses on activities that don’t produce a return on investment. Through
detailed analysis, effective leaders prioritize ongoing work based on the results produced,
despite the odds.

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2.4 It makes the Management to be Proactive and not Reactive
Having a risk management plan in place allow you to be proactive and take steps to mitigate
possible harms before they arise, instead of constantly fire fighting. The project team can take
the risk that have been identified and convert them to actionable steps that will reduce
likelihood. Those steps then become contingency plans that hopefully can be aside. Should a
risk event occur, the contingency plan can be whipped out quickly, reducing the downtime on
a project.

2.5 Evaluates the Entire Project

To evaluate your project’s success so you can use the best practices on your next project,
assess the impact of your activities on mitigating exposure to problems and exploiting
opportunities that capitalize on your company’s strengths. For example, if you develop and
deliver a training program that creates awareness about internet security, including phishing,
viruses and identity theft, measure the number of help desk calls received about these
problems. If they go down, you can reasonably assume your risk management initiatives have
contributed to success. If not, revise your training program.

3.0 RISK MANAGEMENT PROCESSES

Risk management philosophy and framework must be capable of quickly reevaluating the
project’s options against surprise developments and provide a systematic basis for its re-
structuring (Jaafari, 2001).

All risk management processes follow the same basic steps, although sometimes different
jargon is used to describe these steps. Recent development in the field of project risk
management has enabled better understanding of the overall risk management concept by
introducing risk management processes nine phases (Chapman, 1997), or five phases as per
(Tummala, 1999) instead of the three phases of identification, analysis, and mitigation. The
following is a five risk management process steps combine to deliver a simple and effective
risk management process.

3.1 IDENTIFY THE RISK. 

You and your team uncover, recognize and describe risks that might affect your project or its
outcomes. There are a number of techniques you can use to find project risks. During this
step you start to prepare your Project Risk Register.

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3.11 PROCESS OF RISK IDENTIFICATION

3.111 Get the team together.

Most project teams are blended, with a combination of more senior and experienced team
members, who mine their historic data banks to identify project risks; and the new and less
experienced members who look at project risks with fresh eyes. Your team members are also
likely to be a mixture of personality types across the full introversion-extroversion spectrum.
Your challenge is to bring this diversity and complementary viewpoints together to yield the
richness of project risks that you want to identify.

Traditionally, getting the team together involves a face-to-face session, where everyone
contributes their ideas verbally. Extroverts love this approach, they shine in a social
environment, and enjoy the thrust and parry of a vigorous debate. But you run the risk of
missing out on contributions from the quieter, more introverted members of your team, who
value the time and opportunity to reflect on issues and often feel more comfortable delivering
their thoughts in writing. So aim to create an environment that encourages equal contributions
from all team members regardless of their rank or personality type. One option is to bring
your team together online or virtually. It is efficient and cost-effective, especially if you have
a geographically dispersed team, and you are likely to get a more complete contribution from
all team members.

3.112 Each team member contributes risks. 

When you have assembled your team, either face-to-face or online, then ask each team
member to contribute a set number of risks. Depending on the size of your project, 5 to 10
risks from each team member is realistic. Requesting these risks in writing has the advantage
that each team member thinks individually and separately about the risks. This independent
thinking, which is not led or influenced by other, perhaps more dominant, team members,
leads to a more divergent range of risks, with more potential risks being identified.

If your team session is face-to-face, then each team member writes their risks on post-it notes
which go into a central container.

If you are meeting virtually or online, team members e-mail their identified risks to a central
coordinator. This can be asynchronous. You can request team members to deliver their 10
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risks to you by an agreed date; it does not need to be done at the same time. This gives team
members the flexibility to fit this task into their individual work schedules.

3.113 Collate and group the risks.

Now it’s time to move into left brain territory for some convergent thinking. After you have
collected the risks, you combine any duplicate risks and then sort them into categories.
Grouping risks into categories, groups them together in an ordered, structured way. Typically
you have between 10 and 15 high level categories. For instance, the three project constraints:
Cost, Time and Scope are typical risk categories. The number and type of categories will
depend on the project as well as your organization’s management systems.

3.114 Use a mind map to display risks visually. 

Mind mapping is a powerful technique to display a large number of risks in an ordered and
compact visual form. A mind map is a diagram based on a central concept. In our case the
central concept is Project risks. Mind maps use a non-linear graphical format to build a
framework of ideas around the central concept. Visually, think of a spider web or the spokes
of a wheel.

Your high level risk categories such as Cost, Time and Scope fan out from the central core
like spokes on a wheel. And then the specific risks radiate out from each category node. For
example, under Time, risks might include: schedule overruns, tasks omitted from the
schedule, and the opportunity to compress the schedule, because risks can have positive as
well as negative effects.

Using a mind map, risks can be categorized and records kept in real time during face-to-face
or virtual sessions and displayed on screen, so that all participants see a running record of the
risks identified. As well as engaging your participants, it forms a tidy summary of the risks
identified

3.12 Analyze The Risk.

Once risks are identified you determine the likelihood and consequence of each risk. You
develop an understanding of the nature of the risk and its potential to affect project goals and
objectives. This information is also input to your Project Risk Register.

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3.13 Evaluate or Rank the Risk.

You evaluate or rank the risk by determining the risk magnitude, which is the combination of
likelihood and consequence. You make decisions about whether the risk is acceptable or
whether it is serious enough to warrant treatment. These risk rankings are also added to your
Project Risk Register.

3.14 Treat the Risk. 

This is also referred to as Risk Response Planning. During this step you assess your highest
ranked risks and set out a plan to treat or modify these risks to achieve acceptable risk levels.
How can you minimize the probability of the negative risks as well as enhancing the
opportunities. You create risk mitigation strategies, preventive plans and contingency plans in
this step. And you add the risk treatment measures for the highest ranking or most serious
risks to your Project Risk Register.

3.15 Monitor and Review the Risk. 

This is the step where you take your Project Risk Register and use it to monitor, track and
review risks.

When we identify risks, we also identify treatments that need to be part of that risk
management process. Those treatments need to be put into your work break down structure as
activities and they need to be resourced and have time put against those as well. On top of
that the residual that comes from the risk needs to be captured as contingency as part of the
project. In my experience, many projects say they need 10%/15%/20% contingency but they
haven’t allocated that against specific risks. Worse than that are the projects that find
themselves in a position where they are told, how much they have to spend and when the
project is to be delivered without even doing any of the planning. That makes it extremely
problematic with regard to the success of that project.

So, what we need to do in terms of our project planning, is to make sure we have captured the
risks against every one of those work breakdown structure activities, we need to make sure
that the treatments also go in as activities and are resourced, and we need to have our risk
budget so we can deal with issues that might occur during the project. If you don’t do this as
part of the planning process, and I’ve seen it happen, where we have had project risk
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assessments done after a request for tender has been sent out or after a contract has even been
signed and that is far too late in the process. If you haven’t done those fundamental things
before you actually go and get your budget and your duration set you are going to be severely
under done. That is why, in my opinion, most project fail. It is because they have failed to
think about risk management. A risk manager in a project doesn’t need to have too much
knowledge of project managing but a project manager cannot succeed unless they understand
the fundamental processes around project management. If you do have those fundamental
processes, then you will build those into your schedule and your budget and you are going to
succeed more times than you are going to fail. That’s all I’ve got for this session, as always,
let’s be careful out there (Paladin, 2017).

4.0 CONCLUSION
Risks can damage projects. They can also increase project costs by setting projects back. By
having risk management plans in place, project management teams can be prepared to deal
with risks if they occur and attempt to mitigate the risks before they can damage the project.

Organizations must realize that projects are risky undertakings that do not always end as
planned and tend to suffer unexpected outcomes such as delays and overruns. Organizations
should prepare for these unexpected outcomes by carrying out a systematic risk management
planning and implementation. Project risk management should become part of the culture in
project management activity and routine component in any project plan and review activity.

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5.0 REFERENCES
American, S. (Special Edition 2016). South American Journal of Management. South
American Journal of Management, 4.

Chapman, C. (1997). Project Risk Management.

Duggan, T. (2019, February 19). Why Is Risk Management Important to Project Success.

ERMPF, K. (2011). KAA Enterprise Risk Management Policy and Framework.

Jaafari, A. (2001). Management of risks, uncertainties and opportunities on projects.

International Journal o f Project Management, Vol.19, pp. 89-101.

Majeed, M. (2018, October 10th). Risk Management: an Important Part of Project

Management.

Paladin. (2017). THE IMPORTANCE OF RISK MANAGEMENT IN PROJECT

MANAGEMENT. Macmillan.

Shenhar. A.J., R. T. (2002). Risk management, project success, and technological

uncertainty. In R&D Management, Vol. 32 (pp. pp. 101-9).

Taarup‐Esbensen, J. (2018). Making Sense of Risk. A Sociological Perspective on the

Management of Risk, 29.

Tummala, B. a. (1999). Five phases of risk management processes.

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