Topic 8: Risk Management

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Project Management: Achieving
Competitive Advantage
Fifth Edition, Global Edition

Chapter 7
Risk management

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Questions to Consider in Risk Management

• What is likely to happen (the probability and impact)?

• What can be done to minimize the probability or impact of
these events?
• What cues will signal the need for such action (i.e., what
clues should I actively look for)?
• What are the likely outcomes of these problems and my
anticipated reaction?

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Risk Management

Risk 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—an uncertain event or condition that, if it
occurs, has a positive or negative effect on one or more
project objectives such as scope, schedule, cost, or
quality.

Risk = Probability of Event  (Consequences of Event)

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Figure 7.2 Risk Versus Amount at Stake:
The Challenge in Risk Management

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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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What are the Risk Management Process Steps
https://www.youtube.com/watch?v=ijpqQUMRfd8

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Risk Clusters

• Financial • Execution
• Technical • Contractual or legal risk
• Commercial

Common Types of Risks

• Absenteeism • Skills unavailable
• Resignation • Ineffective training
• Staff pulled away • Specs incomplete
• Time overruns • Change orders

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Risk Factor Identification

• Brainstorming meetings
• Expert opinion
• Past history
• Multiple (or team-based) assessments

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Figure 7.4 Risk Breakdown Structure (RBS)

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Figure 7.5 Risk Impact Matrix

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Risk and How to use a Risk Matrix
https://www.youtube.com/watch?v=-E-jfcoR2W0

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Project Risk Scoring (1 of 2)

1. Use project team’s consensus to determine the score

for each Probability of Failure category: Maturity (Pm),
Complexity (Pc), and Dependency (Pd).
2. Calculate overall probability.

Pm  Pc  Pd
Pf 
3

3. Use project team’s consensus to determine the score

for each Consequence of Failure category: Cost (Cc),
Schedule (Cs), Reliability (Cr), and Performance (Cp).

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Project Risk Scoring (2 of 2)

4. Calculate Cf by adding the four categories and dividing

by 4:
Cc  Cs  Cr  Cp
Cf 
4
5. Calculate Overall Risk Factor for the project by using
the formula:
RF  Pf  Cf   Pf Cf 
Rule of Thumb:
Low Risk RF < 0.30
Medium Risk RF = 0.30 to 0.70
High Risk RF > 0.70
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 Project Risk Scoring worked example
The project team toiled long into the night to develop consequence of
failure scores and probability of failure scores as indicated below. What
is the overall risk factor for the project?
Rule of Thumb:
Maturity 0.7 Cost 0.4
Complexity 0.6 Schedule 0.6 Low Risk RF < 0.30
Dependency 0.8 Reliability 0.8 Medium Risk RF = 0.30 to 0.70
Performance 0.9
High Risk RF > 0.70

Pm  Pc  Pd 0.7 + 0.6 + 0.8

Pf  = = 0.7
3 3
Cc  Cs  Cr  Cp 0.4 + 0.6 + 0.8 + 0.9
Cf  = = 0.68
4 4

RF  Pf  Cf   Pf Cf  = 0.7 + 0.68 − 0.7 x 0.68 = 0.9

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The Crash of the De Havilland Comet
https://www.youtube.com/watch?v=_BZnn5OYcBc

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Risk Mitigation Strategies
• Accept • Insurance
• Minimize • Workaround
• Share • Other Mitigation Strategies
• Transfer – Mentoring
– Cross training
• Contingency Reserves
– Task contingency • Control and Documentation
– Managerial – Change management
contingency

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Control and Documentation

Helps managers classify and codify risks, responses,

and outcomes
Change management report system answers:
• What?
• Who?
• When?
• Why?
• How?

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Project Risk Analysis and Management
(PRAM)

PRAM presents a generic methodology that can be

applied to multiple project environments, and encompasses
the key components of project risk management.
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 Assessment
1. Define
2. Focus
3. Identify
4. Structure
5. Clarify ownership of risks
6. Estimate
7. Evaluate
8. Plan
9. Manage
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