Project Risk Management

Introduction to Risk Management

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Outline

• What is Risk?• What is Project Risk?• Causes of Risk• Risk Attitude• Risk Optimization• Need for Risk Management• Risk Management Process• Project Risk Management• Role of Project Manager

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What is Risk?

• The ISO 31000 (2009) / ISO Guide 73:2002 definition of risk is the 'effect of uncertainty on objectives'. In this definition, uncertainties include events (which may or may not happen and uncertainties caused by ambiguity or a lack of information.• It includes both positive and negative impacts on the

objectives.• Risks with negative consequences are called threats• Risks with positive consequences are called

opportunities (Yes, risk can be good!)

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What is Project Risk?

According to the 5th Edition of the PMBOK® Guide, project risk is “an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost, or quality.”

Project Management Triangle

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Project Risk

• Uncertain events: Unknown at point in time, in future when materialized will have positive or negative impact on the project objectives:

• A risk may have one or more causes and if it occurs may have one or more impacts.

• Some Examples of risks:• Environment availability takes longer than planned (-)• Environment non availability (-)• Non delivery of design specifications as per schedule (-)• High quality design specifications (+)• Stakeholders acceptance of process change (+)

• Project Risk is generally characterized by Probability and Impact measures: The probability of risk being materialized(High, Medium, Low) and Impact of risk on project objectives if it gets materialized(High, Medium, Low)

• Once the risk occurs, it is no longer a Risk, it is turned into an “Issue”

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Causes of Risk

• Cause• May be a requirement, a constraint, assumption or a condition • Results into possibility of positive or negative outcome

• Examples of causes:• Requirement of environment availability • Environment breaks down • Limited resources availability • Skilled resource become available• A requirement, such as legal requirement imp0sed by laws or regulations• An assumption, such as the conditions in the market• A constraint, such as number of personnel available to work on any given phase of

the project• A condition, such as the maturity of the organization’s project management practices

• Either uncertain event occurring will have impact on project cost, schedule, scope, quality or performance

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Risk Attitude

Uncertainty

Organization

objectives

Risks

• Risk Appetite: Degree of uncertainty an organization is willing to take in anticipation of a reward• Risk Tolerance: The degree or

volume of risk an organization will withstand• Risk Threshold: Refers to the level of

uncertainty or level of impact, the threshold below which an organization will accept the risk. Above this threshold, the organization will not tolerate the risk.

Consistent Approach

Open & Honest

Risk TakingRisk Avoidance

Risk Responses

Risk Attitude

Risk Tolerance –Specific Example

Risk Attitude – Key Questions

• What risks will the organization accept? (e.g., environment vs. quality compromises)• What risks will the organization will take on new

initiatives? (e.g., new product lines)• What risks will the organization will accept on

competing objectives? (e.g., gross profit vs. market share)• What capital buffer is the organization ready to invest?

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• Consider both pros and cons of risk taking• When threats and

opportunities are better understood, risk taking is optimized and managers, in turn, will make more informed business decisions• Improved decision making

enables an organization to quickly meet emerging marketplace challenges

Risk Optimization

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• Risks exists the moment the project is conceived• There needs to be a proactive approach for risk management

consistently throughout the project for the project to be successful• Risks must be actively identified and effectively managed at all

levels of the organization during entire life of the project• Lack of proactive focus on Risk Management

• Increase the impact of risks that are realized • Potentially lead to project failure

• Reactive response to risks result into• The projects paying heavy penalty in terms of cost, schedule, quality or

scope• Increased rate of project failures

Need for Risk Management

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Assess

Plan

Implement

IdentifyCommunicate

Communication

Risk Management Process

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Project Risk Management

• Risk Management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events and/or to maximize the realization of opportunities.• Project Risk Management is an important aspect of project

management.• Risk management is one of the ten knowledge areas defined in PMBOK.• Project risk can be defined as an unforeseen event or activity that can

impact the project's progress, result or outcome in a positive or negative way.

• Project Risk Management includes the processes of conducting risk management planning, identification, analysis, response planning, and controlling risk in a project.

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Initiation Closure

Planning

Execution

Monitoring & Control

Project Start Project End

• Plan Risk Management : Define how to conduct risk management in the project

• Identify Risk Management: Determine risks that affect the project and document their characteristics

• Perform Qualitative Risk Analysis: Prioritize the risks for further analysis or action by assessing their probability of occurrence and impact

• Perform Quantitative Risk Analysis: Numerically analyze the effect of risks on overall project objectives.

• Plan Risk Responses: Develop options and action plan to enhance opportunities and reduce threats to project objectives

• Monitor & Control Risks: Implement risk response plans, track identified risks, monitor residual risks, identify new risks & evaluate risk process effectiveness

Project Risk Management

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• Risk Management is iterative process carried out throughout the life of the project.• Existing risks need to be assessed

and any new risks need to be identified periodically.

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Plan Identify

AnalyzePlan Risk

Response

Monitor &

ControlCreate Risk Management Plan• Risk Tolerance

Threshold• Tools & techniques to

be used• Risk Categorization &

Severity• Roles & Responsibilities

of Stakeholders• Outline of contingency

budget• Review & Escalation

plan

Identify risks• Document risks in

Risk Register• Likely cause & Effect

Qualitative Analysis• Prioritize project

risks for assessment based on probability and impact

Quantitative Analysis• Assign numeric

rankings to risks and highlight for further management

• Continuous monitoring of existing risks for • Any triggers for their

occurrence• Taking proactive measures

for handling them• Assessment for change in

scores – and hence any update required for risk responses

• Identification of any new risks • Closure of risks which are past or

which have not occurred

Develop options for enhancing opportunities & reducing threatsIncorporate in project plan

Project Stakeholders:Senior ManagementCustomerProject team Employees

Effective Risk Management

Role of Project Manager

External Entities:SMEsOther PMsExternal knowledge centers

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• https://youtu.be/WHGoCybrX1k• https://youtu.be/bTbonpb6hZE

On lighter note…