PROJECT RISK MANAGEMENT

Risk is an uncertain condition or event

that, if it occurs, has a negative effect on
project objectives

Risk management is an attempt to

recognize and manage potential and
unforeseen trouble spots that may occur
when the project is implemented

Risk Event Graph

Risk

Cost

High

Chances of
risk occurring

Cost to fix risk

event

Low
Project Life Cycle

Risk Management Process

Step 1 Risk Identification
Analyze the project to identify sources of risk

Step 2 Risk Assessment

Assess risk in terms of
severity of impact
Likelihood of occurring
controllability

Step 3 Risk response development

Develop a strategy to reduce possible

damage
Develop contingency plans

Step 4 Risk response control

Implement risk strategy

Monitor and adjust plans for new
risks
Change management

RISK IDENTIFICATION
Generate a list of all possible risks that could affect the process
Normally done by brainstorming technique
One common mistake is focus on consequences and not on
events

RISK PROFILE
A list of questions that address traditional areas of uncertainty on a
project

RISK ASSESSMENT

The process of sifting through the risks eliminating inconsequential or

redundant ones and stratifying worthy ones in terms of importance and
need for attention

Scenario analysis
Assess each risk in terms of
The undesirable event
All the outcomes of events occurrence
Magnitude of events impact
Probability of event happening
Time, event might occur in the project
Interaction with other parts of project

FMEA
RPN = Impact x Probability x Detection
Each risk is rated on three parameters on a scale of 1 to 5

Risk
Event

likelihoo
d

impact

Detectio
n
difficult
y

when

RPN

Risk Severity Matrix

Minor risk

likelihood

Moderate risk

Major risk

impact

RISK RESPONSE DEVELOPMENT

Decision on the type of response appropriate for identified and
assessed risk

Mitigating
Avoiding
Transferring
Sharing
Retaining

CONTINGENCY PLANNING

A contingency plan is an alternate plan that will be used if a possible

foreseen risk event becomes a reality

It represents actions that will reduce or mitigate the negative impacts of

risk event

Contingency plans are required for

Technical risks
Schedule risks
Cost risks
Funding risks

 Technical risks can cause the project to shut down

High risk technical areas should be identified and

experimentation done to resolve the risk at an early
stage

SCHEDULE RISKS
Managing schedule risk generally requires tradeoff with cost

Schedule risk may be actually increased because of wrong

decisions

Use of slack
Imposed duration dates
Compression of project schedules

COST RISKS
Cost risks are significant and have heavy consequences
Created in schedule estimate and technical estimate errors

Increased by management decisions also

Time cost dependency

Cash flow decisions
Price protection risks

FUNDING RISKS

Severe budget cuts or lack of adequate funding can have a

devastating impact on the project

CONTINGENCY FUNDS
Contingency funds are established to cover project risks identified
and unknown
Size and amount of contingency reserves depends upon uncertainty
inherent in the project

Types of contingency reserve funds

Budget reserves
Management reserves

BUDGET RESERVES

Budget reserves are identified for specific work packages or

segments of a project found in the baseline budget or work
breakdown structure

If the risks dont materialize, the funds are returned to the

management reserve
So budget reserves decrease as the project progresses

MANAGEMENT RESERVES

Needed to cover major unforeseen risks

Applied to whole project
The risks covered are those not anticipated
Independent of budget reserves

RISK RESPONSE CONTROL

Risk response control includes

Executing the risk response strategy
Monitoring triggering events
Initiating contingency plans
Watching for new risks

CHANGE CONTROL MANAGEMENT

Changes fall in three categories

Scope change initiated by customer
Change in baseline costs and schedules due to implementation
of contingency plans
Improvement changes suggested by project team members

PROCESS OF CHANGE CONTROL

Identify proposed changes
Identify impact of proposed change on cost and schedules
Review and evaluate and approve / disapprove change
Negotiate to resolve conflict of change
Communicate changes to parties affected
Assign responsibility for implementing change
Adjust master schedule and budgets
Track changes that are to be implemented

Change
originates

Change request
submitted

Review change
request

Approve
d?

Update Plan

Distribut
e for
action