BUSINESS PLANNING AND PROJECT

MANAGEMENT

Faculty Name : Ms. Supriya Kamale

Unit No:4

Project Risk Management

The Importance of Project Risk Management

 Project risk management is the art and science of identifying, analyzing, and
responding to risk throughout the life of a project and in the best interests of
meeting project objectives.

 Risk management is often overlooked in projects, but it can help improve project
success by helping select good projects, determining project scope, and developing
realistic estimates.

 KPMG study found that 55 percent of runaway projects did no risk management at
all.

 Worldwide banking and insurance sectors have spent $78.6 billion on risk
information technologies and services in 2015, growing to $96.3 billion by 2018

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What is Risk?

 A dictionary definition of risk is “the possibility of loss or injury”

 Project risk involves understanding potential problems that might occur on the
project and how they might impede project success

 Risk management is like a form of insurance; it is an investment

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Negative Risk and Positive Risk

Negative risk involves understanding potential problems that might occur in the project
and how they might impede project success.

Positive risks are risks that result in good things happening; sometimes called
opportunities.

The goal of project risk management is to minimize potential negative risks while
maximizing potential positive risks.

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Types of Risks in Projects

a. Default Risk :
It means possibility of default in payment of interest or principal on time and in the
amount promised.

b. Business Risk :
This refers to the risk of a particular business failing and thereby loosing its
investment. Poor business performance may be caused by heightened competition,
emergence of new technologies etc.

c. Financial Risk :
This is a result of overdependence on borrowed funds. During recession due to lower
revenue, risk of non payment of fixed interest increases and exposes the company
to financial risk.

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Types of Risks in Projects

d. Purchasing power Risk :

The risk arising from decline in purchasing power on account of inflation is referred to
as inflation risk or purchasing power risk.

e. Interest Rate Risk :

Due to the changes in interest rates, expected return from financial instruments affects
as prices become volatile.

f. Political Risk :
The capital markets are sensitive to the political stability or instability. Markets get a
boost when liberalization measures are announced.

g. Market Risk :
This refer to the variability in the rates of return caused by the market up swings and
market down swings.

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Types of Risks in Projects

h. Liquidity Risk :
Liquidity risk arises from the inability to convert an investment quickly into cash.
Absence of active market for trading result in liquidity risk.

i. Systematic and unsystematic Risk :

Systematic risk is related to the general economy or the stock market as a whole and
hence cannot be eliminated by diversification. E.g. major changes in tax rates, increase
or decrease in inflation rates, change in economic policy, industrial recession,
international oil prices.

Unsystematic risk or specific risk is the margin of company and hence can be
eliminated by diversification. E.g. Strike in company, bankruptcy of a major supplier,
death / resignation of key officer, unexpected entry of new competitor.

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Risk Management Process

Risk management includes several actions:

1.Risk Planning:
Deciding how to approach and plan the risk management activities for the project.
This is the process of documenting an organized, comprehensive, interactive strategy
and methods for tracking risk issues.

2. Risk Assessment :
This involves analyzing critical technical process risks to increase the likelihood of
meeting cost, performance and schedule objectives.

3. Risk Identification:
Determining which risks are likely to affect a project and documenting the
characteristics of each risk.

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Risk Management Process

4. Risk handling:
This is the process that identifies, evaluates, selects, and implements options in order o
set risk at acceptable levels. This includes, the specifics on what should be done, when
it should be accomplished, who is responsible.
It include assumption, avoidance, control and transfer. The most desirable handling
option is selected.

5. Risk Monitoring:
Monitoring identified and residual risks, identifying new risks, carrying out risk
response plans, and evaluating the effectiveness of risk strategies throughout the life of
the project.

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Risk Identification

 Identifying risks is the process of understanding what potential events might hurt or
enhance a particular project.

 Another consideration is the likelihood of advanced discovery.

 Risk identification must continue through all project phases.

 Risk identification tools and techniques include:

 Brainstorming
 The Delphi Technique
 Interviewing
 SWOT analysis

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Risk Identification

Brainstorming:

Brainstorming is a technique by which a group attempts to generate ideas or find a

solution for a specific problem by amassing ideas spontaneously and without judgment.
An experienced facilitator should run the brainstorming session.

Be careful not to overuse or misuse brainstorming.

 Psychology literature shows that individuals produce a greater number of ideas
working alone than they do through brainstorming in small, face-to-face groups
 Group effects often inhibit idea generation.

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Risk Identification

Delphi Technique:

The Delphi Technique is used to derive a consensus among a panel of experts who
make predictions about future developments.

Provides independent and anonymous input regarding future events.

Each expert receives a composite feedback of the entire panel’s answers and is asked to
make new predictions based upon the feedback.

Uses repeated rounds of questioning and written responses and avoids the biasing
effects possible in oral methods, such as brainstorming.

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Risk Identification

Interviewing:

Interviewing is a fact-finding technique for collecting information in face-to-face,

phone, e-mail, or instant-messaging discussions.

Interviewing people with similar project experience is an important tool for identifying
potential risks.

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Risk Identification

SWOT Analysis:

SWOT analysis (strengths, weaknesses, opportunities, and threats) can also be used
during risk identification

Helps identify the broad negative and positive risks that apply to a project

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Risk Register

The main output of the risk identification process is a list of identified risks and other
information needed to begin creating a risk register:

A risk register is:

A document that contains the results of various risk management processes and
that is often displayed in a table or spreadsheet format
A tool for documenting potential risk events and related information

Risk events refer to specific, uncertain events that may occur to the detriment or
enhancement of the project.

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Risk Register contents

 An identification number for each risk event

 A rank for each risk event
 The name of each risk event
 A description of each risk event
 The category under which each risk event falls
 The root cause of each risk
 Triggers for each risk; triggers are indicators or symptoms of actual risk events
 Potential responses to each risk
 The risk owner or person who will own or take responsibility for each risk
 The probability and impact of each risk occurring.
 The status of each risk

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 Sample Risk Register

• No.: R44
• Rank: 1
• Risk: New customer
• Description: We have never done a project for this organization before and don’t know
too much about them. One of our company’s strengths is building good customer
relationships, which often leads to further projects with that customer. We might have
trouble working with this customer because they are new to us.
• Category: People risk
• Etc.

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Advice for Young Professionals

 Young project professionals are sometimes more willing to take risks with unique or
untested approaches:

 Take the time to find out what other, more experienced people might feel about
the circumstances of a project before making up your mind about potential
risks.

 Then, taking other views into account, you can determine how best to plan
for the impacts that might occur while balancing the rewards of a potential
payoff from a unique or untested approach

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Results of Good Project Risk Management

• Unlike crisis management, good project risk management often goes unnoticed

• Well-run projects appear to be almost effortless, but a lot of work goes into running a
project well

• Project managers should strive to make their jobs look easy to reflect the results of
well-run projects

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Thank You