Lecture # 12

ENGINEERING Project Risk &

PROJECT MANAGEMENT Procurement
Management

DR AFSHAN NASEEM

DEPARTMENT OF ENGINEERING MANAGEMENT

NUST COLLEGE OF E&ME
 PROJECT
RISK MANAGEMENT
What is Risk?
“A risk is an uncertain potential condition or
event that, if it occurs and is not mitigated, may
have negative or positive impact on the project
objectives.”
 Positive & Negative Risks

• Negative Risk: “Each day that a critical piece of

equipment is late in reaching the site, will throw
the start up schedule off by these days.”
• Positive Risk :“If we buy pumps for all our
facilities bundled together in one purchase order,
we can obtain a volume discount.”
• In general, we find that a positive risk is an
opportunity to be pursued, while a negative risk is
an issue to avoid or mitigate.
Risk Management
“Practices and procedures that enable managers
to identify, assess, categorize, monitor, control,
and mitigate risk before or while it is
transitioning to a problem.”
 Main Steps of Risk Management

• Risk Management Planning

• Risk identification (Qualitative & Quantitative)

• Risk Response Planning

• Risk Monitoring & Control
Risk Response

Risk
Eliminate Risk
Mitigate
Deflect

Accept Risk
Cost
Risk Response
• Eliminating Risk
• remove the cause
• alternative course of action
• this should occur during the design and planning
stage
• Mitigating Risk
• reduce the risk
• use proven technology
• simulate, model and develop prototypes
Risk Response
• Deflecting risk
• transfer the risk (in part or whole) to another
party
• Accepting risk
• Typically developed for
• Underestimating bill of materials
• unexpected procurement price changes
• change in project scope
• schedule delays
Identifying Risks

• Risk identification tools and techniques

include:
• Brainstorming
• The Delphi Technique
• Interviewing
• SWOT analysis
Brainstorming
• 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
Delphi Technique

• It 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
• Uses repeated rounds of questioning and written
responses and avoids the biasing effects possible in
oral methods, such as brainstorming
 Interviewing
• 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
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
Risk Register
• 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 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
Risk Register Contents

 An identification number for each risk event

 Rank for each risk event
 Name of each risk event
 Description of each risk event
 Category under which each risk event falls
 Root cause of each risk
 Risk Register Contents

 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
Risk Register
 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.
Example of Top Ten Risk Item Tracking
Sample Probability/Impact Matrix
 PROJECT
PROCUREMENT
MANAGEMENT
Why Procurement Management?

• Most all projects will need to acquire some

resources from outside
• Not understanding the different ways to contract
could result in unnecessary risk for the project
 How Do We Manage Procurement?

• Four processes
• Plan Procurements
• Conduct Procurements
• Administer Procurements
• Close Procurements

Plan Conduct Administer Close

Procurements Procurements Procurements Procurements
Procurement Documents

• Request for Proposal (RFP)

• Asks for the price and how/who will do the work
• Invitation for Bid (IFB)
• One simple price to do the work
• Request for Quotation (RFQ)
• Price per unit quote
Request For Proposal (RFP)

A request for proposal (RFP) is a document that an

organization posts to obtain bids from potential
vendors for a product or service.
RFP vs Tender Notice
• A tender is an offer to do work or supply goods at
a fixed price.
• An RFP is used when the purchaser is looking for
the best value solution to resolve a problem or to
deliver a good or service, but is not exactly sure
how to achieve it.
• A tender notice is used when the purchaser knows
exactly what good or service they want and is
looking for the best price to deliver it.
Discussion