Risk Management

 What is risk ?
 An uncertain event or condition which if it
occurs can have a negative or positive effect.
 Project risk – any possible event that can
negatively affect the viability of a project

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 Financial
 Technical
 Contractual/Legal
 Commercial
 Execution

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Initiation phase
Problem not well defined
Proper feasibility study not done
Unclear objectives

Planning phase
Scope not well defined
Lack of management support
Hasty planning
Responsibilities not well defined

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Execution phase
Unskilled labour
Material not available
Strikes
Unfavorable weather
Scope creep
Lack of control

Closure phase
Legal
Regulatory approvals
Poor quality 7-5
Risk vs Amount at Stake

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According to the PMBOK, risk management in
projects has the following steps.
Plan risk management
Risk identification
Risk Assessment
Risk Mitigation/risk response
Risk Control
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Inputs
Scope of project
WBS
Constraints
Assumptions
Network diagram
Resource requirement
Historical information

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Techniques
Brainstorming
Expert opinion
Review of past history/check list
Analysis of assumptions and constraints
Cause and effect diagrams

Risk register can be used to document

identified risks and potential responses

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PROBABILITY IMPACT Consequences
MATRIX Low High
Low
Likelihood
High

Calculate Probability x Impact

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2. Convert all risks to monetary terms

3. Failure Mode and Effect Analysis (FMEA)

MODE LIKELIHOOD SEVERITY ABILITY TO RISK
OF (L) (S) DETECT PRIORITY
FAILURE FAILURE NUMBER
(D) (L X S X D)

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 4. Impact on major objectives

LOW RISK MODERATE HIGH RISK V. HIGH

RISK RISK
COST Minimal 5-10% 10-20% >20%
increase
SCHEDULE Minimal 5-10% 10-20% >20%
slippage
QUALITY Very Deviation Not Project
limited acceptable acceptable terminated
deviation to client to client
SCOPE Minimal Scope Not Project
effect changes acceptable terminated
acceptable to client
to client
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Probabilities are used to account for
uncertainty
Used to determine Expected Monetary Values

Large return
p success
Uncertain outcome R Loss
represented by circle
st failure
in v
e 1-p L<0
Do Small return
in n o
ve t
Decision st
represented savings
r
by box
• Expected return on investment:
– If investment is made E(I) = pR + (1 - p)L
– If investment not made E(N) = r
• Decision:
– Invest if pR + (1 - p)L > r
– Don’t invest if r > pR + (1 - p)L
• Decision Trees evaluated right to left
Risk scoring (for software projects)
1. Identify factors and assess the probability (P f )
and consequences (Cf) of failure
2. Calculate overall probability & consequence
Pf = a.Pmhw + b. Pmsw+ c. Pchw + d. Pcsw+ e. Pd
Cf = f. Ct + g. Cc + h. Cs

3. Calculate overall risk factor

RF  Pf  C f  ( Pf )(C f )
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 Avoid risk
 Accept risk
 Minimize risk
 Share risk
 Transfer risk

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Risk control can include the following.
Risk re-assessment
Risk audit
Performance measurement (schedule vs
actual)
Reserves analysis

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