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Project Risk Management Agenda

• Introduction to general risk

ENG M 680 Lecture 1
• Definition of risk and related
Introduction to Risk and • Personal approach to risk
Risk Management • Types of risks
By • Risk factors
Sami Fahmy, Ph.D, P. Eng, PMP • Risk in a project environment
• Risk management processes
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Course Objective Risk

• Learn how to manage risk more effectively A course of action or inaction taken
• Become familiar with risk and related under conditions of uncertainty which
definitions exposes the risk taker to possible
• Identify and understand techniques for loss, or gain to reach a desired
determining risk source outcome
• Identifying causes and effects of the risks
• Develop a frame of work that will help you
make decisions An undesirable situation or
• Learn more about your own willingness to circumstance that is likely to cause a
take risks harm or a loss
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Risk is all around us

• To live is to risk dying
RISK • To laugh is to risk appearing the
is • To hope is to risk despair
• To love is to risk not being loved in

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Let us think about risk

Can Can One who risks nothing

We We
Does nothing
Elimina Avoid
te Risk? Has nothing
and is nothing

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3 Types of Personal Risk Why People take Risks

• Profit
• Physical risk • Rewards
• Excitement
• Emotional risk
• Benefits
• Financial risk • Stupidity

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What is the biggest risk you Risk Guiding Principles

have ever taken?
• Learning and personal growth
• What was your greatest fear? requires taking risks
• How did you feel?
• Take only these risks, where you
• Were you discouraged or encouraged
can handle the loss
by others?
• What is the worst that could happen?
• Adjust risks that are too much to
gamble with
• What is the best that could happen?
• Accept that the price of risk is an
occasional failure
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Hazard is Risk tolerance
• An situation or condition that • The amount of risk that is
is likely to cause a harm or a acceptable to the individual,
loss under certain organization or client
circumstance (Dangerous
• It may be different from the
• Hazard is a prerequisite to individuals working in that
risk organization
• Hazard is a condition not an
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Issues, Problems, and Risks Crisis

• Issues : any thing that requires the
• An unplanned event or possible
project manager attention
situation which triggers a real or
perceived or possible threat to safety,
• Problem: A thing or an event that has health or to the environment or to to an
gone wrong and require action to organizational reputation

• Risk : Potential problem or event that

may occur and if it occurs will cause
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Understanding Risk
• Risk happens as a result of a cause

Understanding • If it happens ( Probability)

• it will result in (an impact or effect)

• Examples

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Risk Spectrum Uncertainty, Opportunity, Risk

Complete Start of Completion

Information project of the Project

Known Unknown
Unknown Known
Known Or
Unknown Unknown Uncertainty
Total Total Risk
Uncertainty Certainty
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Risk and Uncertainty Certainty

Risk • All information for making the right
• The outcome can be described within decision is available
established confidence limits
• Uncommon state of nature characterized • The outcome is predictable with
by absence of any information related to reasonable certainty
the desired outcome
 Complete absence of information
 Nothing is known about the outcome
• You can not assign probabilities to
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Risk Factors ( Aspects)

Risk event Risk is function of (Event,
• What might happen to the determent of the Probability, Impact)
project (The unwanted change)
Risk probability
• How likely the event is to occur?
Risk Event Status
Risk Impact
• Extend of loss that will happen or amount
RES = Risk Probability x Amount at
at stake Stake
• What is the cost?
• What are the possible gains?
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Types of risk Types of Risk (Source)
• Internal risk
• Source
• Amount of information available • External risk
• Personal
• Insurability • Technical risk
• Ability to control the risk
• Constraints • Unforeseeable risk

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Types of Risk (Information) Types of risk (Insurability)

Known/known risks • Business risk
• Everything about the situation is known  Chance for a profit or a loss
 Not insurable

Known/Unknown risks
• Identified, assessed and quantified risks • Pure risk
Develop a contingency plan to cover  Only a chance for loss, no chance for profit
 (Direct property loss / indirect property
Unknown/Unknown risks
• Not identified, impossible to predict
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Know the Difference Risk and Decision Making

Internal risk External Risk • Risk should only be taken when the
The project team can Beyond the control of or potential benefits and the chances of
influence or control the influence of the winning exceed the remedial cost of an
• Staff assignment project team unsuccessful decision and the chance
• Cost estimates • Market shift of loosing by a satisfactory margin
• Inability to get parts • Government action
• Senior Management

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Individual Exercise I-1 Risk Taking Tips
Think of one risk you have successfully taken or about to take.
Answer the following questions: • Never risk more than you can
• The risk I am about to take is:
afford to lose.
• Was that situation a risk or uncertain situation? And why
• How did you approach that risk? • Reduce the amount of risk as much
• What exactly was risky about the situation? What could go wrong?
as you can.
• Did you think about reducing the risk?
• What are the chances of that happening? • Practice makes perfect.
• Did you think about the consequences of this risk?
• Did you ask yourself, what is the worst that could happen? • Try new ways of doing things.
• If you do not take that risk, what would you lose? • Keep track of the risks you take.
• Why should I take the risk If I take the risk what will I gain? What can
be done if the desired results are not achieved? • Failure is temporary. and pursue
• Can I break down the risk into small risks so you do not risk as much?
• Is the potential reward worth the risk?
same with them until all work is
satisfactorily completed. 32

When Should you take Risk?

• The potential benefits and chances
of winning far exceed the remedial Risk
cost or the chances of losing and the
• Factors that will affect your decision Environment
on taking risks

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What is a Project Class discussion

• It is a temporary undertaking to create a
unique product or service.
70% to 90 %
 New technologies of the project’s problems
 Increases specialization
 Complex contractual relation
and challenges
 Increased political and social
 Federal and provincial rules and
predictable and preventable

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What is Project Management Common Sources of Risk
• Change in the requirements
• The application of knowledge, tools
and techniques to project activities
• Design errors, omissions
to ensure project success • Misunderstandings among project
• Project management is risk team
management • Poorly defined or understood roles
• Insufficiently skilled staff
• False assumptions
• Subcontractor performance
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How risky is your project ? Risk in Project Environment

• The project is very different from

previous ones Unce
$ rtaint
y and r
• The project scope is not well defined isk
• Some of the technical data is lacking
• Cost, schedule, and performance
are not expressed in clear terms t st
• The design did not consider the ou

Concept Development Execute Finish

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What is Risk Management? What is the Goal of Project

Risk Management?
• It is the systematic process of
identifying, analyzing and responding to
To forecast the various sources of risk
project risks. It includes actions to to a project, especially those with the most
maximizing the positive events and
serious impact, and seek to reduce their
minimizing the negative ones. Consequences or probabilities.

• The preparation for possible events in

advance rather than responding as they

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Why Risk Management is Risk Management Guidelines
• It offers significant improvement to the
final project • Applies to all projects
• Projects have better chances of success • It should be done throughout the
• It improves the project schedule and life cycle of the project
• It is the responsibility of the Project
• Stakeholders and team members will Manager
better understand the nature of the
project • It is the ultimate responsibility of the
• It helps to define the strengths and the sponsor
weaknesses of the project
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Goal of Risk Management Risk Management Processes

1. Risk management planning
To forecast various sources of
risk to a project especially those 2. Risk identification
with the 3. Qualitative risk analysis
most serious impact and 4. Quantitative risk analysis
seek to reduce their 5. Risk response planning
consequences 6. Risk monitoring and control

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Risk Management Planning Risk Identification

Deciding how to approach risk
management for a particular • What are the things that could go
project wrong?
• How • What are the possible causes for
• What things going wrong?
• Who • If it does go wrong, what could be
• When the consequences be?
• How much time
• How much money
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Qualitative Risk Analysis Quantitative Risk Analysis
• Evaluating risks and risk interaction to
Performing analysis of risk and
assess the range of possible project
condition to prioritize the risk that outcomes
have major impact on the project.
• Measuring the probability and the
consequence of risk and estimating its
impact on the project objectives

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Risk Response Development Risk Monitoring and Control

• Monitoring of residual risks and
Developing procedures and techniques new risk that may come up
to enhance opportunities and reduce during the project execution
threats to the project objectives
• Execute the risk reduction plan
• Evaluate the effectiveness of
the risk responses developed
during the project’ planning
stage 52