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Risk ManagementRisk Management
Is it really important to consider risk ?
Risk ManagementRisk Management
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No construction project is risk free It cannot be ignored Risk can be managed, minimized, shared, transferred
, or accepted
Risk ManagementRisk Management
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DelaysPoorQuality
Costoverrun
ProjectConstraintsRisks
Risk ManagementRisk Management
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Risk ManagementRisk Management
A major step in project planning A complex process since the variables are dynamic
and dependent on variety of conditions such as: project size, project complexity, location, season of the year, …etc.
A Time and/or Cost contingency should be added to cover unforeseen occurrence
A major step in project planning A complex process since the variables are dynamic
and dependent on variety of conditions such as: project size, project complexity, location, season of the year, …etc.
A Time and/or Cost contingency should be added to cover unforeseen occurrence
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Why Risk Analysis?Why Risk Analysis?
Minimize management by crisis Minimize surprises and problems Increase probability of project success or
control Better handling of true costs and schedules by
properly estimating contingencies
Minimize management by crisis Minimize surprises and problems Increase probability of project success or
control Better handling of true costs and schedules by
properly estimating contingencies
Risk ManagementRisk Management
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Each time we smoke, we might get cancer.Smoking is a Hazard.Smoking is Hazardous.The likelihood we get
cancer is RISK.Each time you go up the
stairs we might fall.The stairs are a “Hazard”. The probability or
likelihood we would fall is the RISK.
HazardHazard
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Terms and DefinitionsTerms and Definitions
•Risk has to do withPROBABILITY
+IMPACT
We need to differentiate between Cause, Event & Impact.A box of chocolate with 15
pieces. All sugar-free except ONE.Cause: Having a non sugar-free
chocolate in the box Event: Selecting that particular
piece Impact: Gaining Weight!
Terms and DefinitionsTerms and DefinitionsRiskRisk
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Risk may be defined as: Any event which is likely to affect (adversely) the ability of
project to achieve the defined objectives
Undesirable extra cost or delay due to factors having uncertain future outcome
Risk can be characterized in terms of its Severity where:
Severity = Likelihood of Occurrence x Magnitude of the Impact
Risk may be defined as: Any event which is likely to affect (adversely) the ability of
project to achieve the defined objectives
Undesirable extra cost or delay due to factors having uncertain future outcome
Risk can be characterized in terms of its Severity where:
Severity = Likelihood of Occurrence x Magnitude of the Impact
Terms and DefinitionsTerms and DefinitionsRiskRisk
An outcome different from what you expected or estimated…Or… different from what you bid!
Risks that are not well-managed may lead to project failure
Risks are always in the future If it occur, it has an effect on at least one of the
project objectives (Scope, Schedule, Cost, Quality) Risk may has one or more causes and it has one or
more impacts.
Terms and DefinitionsTerms and DefinitionsRiskRisk
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Known Risks are those that have been identified and analyzed
Unknown Risks can not be managed, may be addressed by contingency plan
Terms and DefinitionsTerms and DefinitionsRisks: Known Vs. UnknownRisks: Known Vs. Unknown
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•Uncertain event or condition that, if occurs, has an effect (impact) on any of the project objectives (Time, Cost, Quality, Scope)
•Impact could be +ve or –ve
Cause
Event(Condition)
Impact
+Opportunity
-Threat
Terms and DefinitionsTerms and DefinitionsProject RiskProject Risk
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Cause Event Impact
Need to have a permit
Permit is delayed Schedule slippage
Buying in $ FOREX rate change
Budget slippage
Cable on floor Someone trips & falls
Schedule slippage
Buying in € FOREX rage change
Budget gain (savings)
No lessons learned Facing a new problem
Reinventing the wheel
Technology is new System becomes unstable
Customer dissatisfaction
Terms and DefinitionsTerms and DefinitionsProject RiskProject Risk
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Not likely to take a risk that is considered a high risk
Terms and DefinitionsTerms and DefinitionsRisk AverterRisk Averter
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Prefers an uncertain outcome and may be willing to pay a penalty to take a high risk
Terms and DefinitionsTerms and DefinitionsRisk TakerRisk Taker
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Tolerance to risk is proportional to the amount of money at stake(Financial markets, IRR, Interest, RFR)
Terms and DefinitionsTerms and DefinitionsRisk NeutralRisk Neutral
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Risk Management ProcessRisk Management Process Risk Management Process: The process for
identifying, analyzing, and responding to risk events to obtain the acceptable degree of risk elimination or control
Risk Analysis: The process of identifying risk factors and the quantification of those factors (estimating likelihood and magnitude of impacts)
Risk Mitigation: The process of developing a plan to respond or deal with risk on a project
Risk Management Process: The process for identifying, analyzing, and responding to risk events to obtain the acceptable degree of risk elimination or control
Risk Analysis: The process of identifying risk factors and the quantification of those factors (estimating likelihood and magnitude of impacts)
Risk Mitigation: The process of developing a plan to respond or deal with risk on a project
Terms and DefinitionsTerms and Definitions
A (10)
B (9)
D (10)
C (10)
Consider the following small project
The Impact of UncertaintyThe Impact of Uncertainty
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10
A (10)
B (9)
D (10)
C (10)
0
10
10
10
19
20
20 30
3020
20
2011
10
100
Total Project Duration = 30
Basic Assumption of CPM : Deterministic Estimating What is the impact if you are uncertain about the
durations?
The Impact of UncertaintyThe Impact of Uncertainty
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Consider small uncertainty in durations; durations = + or – one day from given or any other change
Activity Optimistic Most Likely PessimisticA 9 10 11B 8 9 10C 9 10 11D 9 10 11
The Impact of UncertaintyThe Impact of Uncertainty
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The Impact of UncertaintyThe Impact of Uncertainty
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The processes whose
objective is to
increase the
PROBABILITY
& IMPACTof positive events
and decrease the
probability and
impact of events
adverse to the project Monitor and Control Risks
Plan Risk Responses
Perform Quantitative Risk Analysis
Perform Qualitative Risk Analysis
Identify Risks
Plan Risk Management (What, when, how)
Risk Management ProcessRisk Management Process
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Risk Identification Determining which risks might affect the project
and determining their characteristicsQualitative Risk Analysis Prioritizing risks for further analysis by assessing
and combining their probability of occurrence & impact
.
Risk Identification Determining which risks might affect the project
and determining their characteristicsQualitative Risk Analysis Prioritizing risks for further analysis by assessing
and combining their probability of occurrence & impact
.
Risk Management ProcessRisk Management ProcessRisk Management ProcessRisk Management Process
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Quantitative Risk Analysis Numerically analyzing the effect of identified risks on
overall project objectivitiesRisk Response Planning Developing options and actions to enhance opportunities
and reduce threatsRisk Monitoring & Control Tracing identified risks, monitoring residual risks,
identifying new risks, executing risk response plans, and evaluating their effectiveness throughout the project life
Quantitative Risk Analysis Numerically analyzing the effect of identified risks on
overall project objectivitiesRisk Response Planning Developing options and actions to enhance opportunities
and reduce threatsRisk Monitoring & Control Tracing identified risks, monitoring residual risks,
identifying new risks, executing risk response plans, and evaluating their effectiveness throughout the project life
Risk Management ProcessRisk Management ProcessRisk Management ProcessRisk Management Process
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Risk Management ProcessRisk Management ProcessRisk Management ProcessRisk Management Process
Deciding how to conduct risk management activities for the project
Enhances chance of success to the other five risk processes
Ensure that proper risk management is in place as per the importance of a given project
Resources and budget are planned
We agree to how to deal with risks! Not according to personal preference
Start & complete early in PLANNING
Plan Risk ManagementPlan Risk Management
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Identify every possible event or issue that may cause harm to the project
Risk identification is not a one time event, but it is to be performed on a regular basis throughout the project
Risk factors can be stated in the form: “…… may happen during the execution of …. which may
impact ……”, or
“ If …… occurs, then an impact to ….. will be realized.” e.g. “If rock discovered during excavation then production rates will be low.”
Identify every possible event or issue that may cause harm to the project
Risk identification is not a one time event, but it is to be performed on a regular basis throughout the project
Risk factors can be stated in the form: “…… may happen during the execution of …. which may
impact ……”, or
“ If …… occurs, then an impact to ….. will be realized.” e.g. “If rock discovered during excavation then production rates will be low.”
Risks IdentificationRisks IdentificationRisk IdentificationRisk Identification
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A number of approaches can be used including: Documentation Review (a structured review of all project
documents) Information gathering techniques (Brainstorming, Delphi
technique, interviewing, Root-cause identification) Standard Checklists (based on historical information) Learning from previous projects Expert Interviews Diagramming Techniques (cause-and-effect diagram,
Flowcharts, Influence diagrams)
A number of approaches can be used including: Documentation Review (a structured review of all project
documents) Information gathering techniques (Brainstorming, Delphi
technique, interviewing, Root-cause identification) Standard Checklists (based on historical information) Learning from previous projects Expert Interviews Diagramming Techniques (cause-and-effect diagram,
Flowcharts, Influence diagrams)
Risk IdentificationRisk IdentificationTools and techniquesTools and techniques
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Risk IdentificationRisk IdentificationCheck ListsCheck Lists
Category ExamplesAdministrative Delay in possesses of site
Limited working hoursTroubles with public services
Logistical Shortage or late supply of resourcesSite remoteness problemsCommunications
Construction Ground problemsLimited work spaceEquipment breakdown
Physical Placing fill in dry seasonHigh tides, temperature, etc.River diversion in time of low flow.
Design IncompletenessDesign changesDesign errors
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Risk IdentificationRisk IdentificationCheck ListsCheck Lists
Category ExamplesFinancial Inflation
Exchange rate fluctuationAvailability of fundsDelay payments by client
Management Space congestionScheduling errorsEstimating based on standardsErrors in B.O.Q.
Contractual Contract typeLiability to othersCo-ordination of work
Political Change in local lawsImport restrictionsUse of local resources
Disasters Floods, fire, landslip, earthquakes, etc.
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List of identified risk List of potential responses Root causes of riskUpdate risk categories
List of identified risk List of potential responses Root causes of riskUpdate risk categories
Risk IdentificationRisk IdentificationOutputsOutputs
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Risk IdentificationRisk IdentificationOutputs: Risk RegisterOutputs: Risk Register
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Includes methods for prioritizing the identified risks for further action such as Quantitative Analysis or Risk response planning
Assess the priority of identified risks using their probability of occurrence and their corresponding impact on project objectives if they occur
Tools: Interviews or meetings
Includes methods for prioritizing the identified risks for further action such as Quantitative Analysis or Risk response planning
Assess the priority of identified risks using their probability of occurrence and their corresponding impact on project objectives if they occur
Tools: Interviews or meetings
Qualitative Risk AnalysisQualitative Risk AnalysisInputs and ToolsInputs and Tools
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Risk probability investigates the likelihood that a risk will occur, while risk impact investigates the effect on project objectives if the risk event occurs
Risks with obviously low ratings of probability & impact will not be rated, but will be included on a watch list for future monitoring
Risk probability investigates the likelihood that a risk will occur, while risk impact investigates the effect on project objectives if the risk event occurs
Risks with obviously low ratings of probability & impact will not be rated, but will be included on a watch list for future monitoring
Qualitative Risk AnalysisQualitative Risk AnalysisAssess Risk Probability and ImpactAssess Risk Probability and Impact
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Qualitative Risk AnalysisQualitative Risk AnalysisAssess Risk Probability and ImpactAssess Risk Probability and Impact
Evaluating Impact of a risk on Major project Objectives
Very High0.8
High0.4
Moderate 0.2
Low.1
Very low.05
Project objective
>20% cost increase
10-20% cost increase
5-10% cost increase
<5% cost increase
Insignificant Cost increase
Cost
overall Schedule slips
>20%
overall Schedule slippage 10-20%
overall Schedule slippage5-10%
Schedule slippage
< 5%
Insignificant Schedule slippage
Time
Project end items is
effectively useless
Scope reduction unacceptable to
the client
Major areas of scope are
affected
Minor Areas of scope are
affected
Scope Decrease barely
Noticeable
Scope
Project end item is
effectively unusable
Quality reduction
enaccet5able to the client
Quality reduction requires
client approval
Only very demanding applications are affected
Quality degradation
barely noticeable
Quality
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Qualitative Risk AnalysisQualitative Risk AnalysisCreate Probability and Impact MatrixCreate Probability and Impact Matrix
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Qualitative Risk AnalysisQualitative Risk AnalysisProbability and Impact MatrixProbability and Impact Matrix
Impact
Probability
Very Low Low Moderate High Very High
Very High R1
High R8 R2 , R4
Medium R9 R10 , R3 R6
Low R5 , R7
Very Low
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Qualitative Risk AnalysisQualitative Risk AnalysisRisk Severity, Prioritize RisksRisk Severity, Prioritize Risks
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Qualitative Risk AnalysisQualitative Risk AnalysisRisk Register UpdateRisk Register Update
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Performed on risks that have been prioritized during the Qualitative Risk Analysis
Analyzes the effect of those risk events and assigns a numeric rating to those risks
Tools & Techniques: Monte Carlo Simulation and PERT Quantify the possible outcomes for the project & their probabilities
Identify project cost, schedule, quality and scope given the project risks
Performed on risks that have been prioritized during the Qualitative Risk Analysis
Analyzes the effect of those risk events and assigns a numeric rating to those risks
Tools & Techniques: Monte Carlo Simulation and PERT Quantify the possible outcomes for the project & their probabilities
Identify project cost, schedule, quality and scope given the project risks
Quantitative Risk AnalysisQuantitative Risk AnalysisTools and OutputsTools and Outputs
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Interviewing
Probability Distribution
Three point estimate
Interviewing
Probability Distribution
Three point estimate
Quantitative Risk AnalysisQuantitative Risk AnalysisData GatheringData Gathering
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Probability: likelihood of occurrence
Mean: average of the values of the event
Range: difference between upper and lower limit
Variance: Average of the squared deviations from the mean
Standard deviation: square root of the variance
Probability: likelihood of occurrence
Mean: average of the values of the event
Range: difference between upper and lower limit
Variance: Average of the squared deviations from the mean
Standard deviation: square root of the variance
Quantitative Risk AnalysisQuantitative Risk AnalysisProbability DistributionProbability Distribution
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Expected Monetary Value
Sensitivity Analysis
Decision Trees
Modeling and Simulation
Expected Monetary Value
Sensitivity Analysis
Decision Trees
Modeling and Simulation
Quantitative Risk AnalysisQuantitative Risk AnalysisQuantitative Risk Modeling TechniquesQuantitative Risk Modeling Techniques
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Expected Monetary Value = Probability x Consequence ($) Expected Monetary Value = Probability x Consequence ($)
Quantitative Risk AnalysisQuantitative Risk AnalysisExpected Monetary Values (EMV)Expected Monetary Values (EMV)
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Expected Monetary Value = Probability x Consequence ($) Expected Monetary Value = Probability x Consequence ($)
Quantitative Risk AnalysisQuantitative Risk AnalysisExpected Monetary Values (EMV)Expected Monetary Values (EMV)
PayoffProbabilityStatus
80,00015%Good Market
50,00045%Good Market
20,00025%Poor Market
-20,00015%Poor Market
Task/Action/Event Probability Consequence Expected Value
A 20% €100,000
B 10% SR 2,000,000
C 50% LE - 200,000
EMV (Good market) = 0.15*80,000 + 0.45*50,000
EMV (Overall) = 0.15*80,000 + 0.45*50,000 + 0.25*20,000 + 0.15* (-20,000)
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An effective tool help CHOOSING between different courses of action
Explore options & investigate possible outcomes associated with each
Help performing A BALANCED PICTURE of the risks and rewards associated with each possible course of action
Decision Nodes: squares
Chance Nodes: circle
End Nodes: triangles
An effective tool help CHOOSING between different courses of action
Explore options & investigate possible outcomes associated with each
Help performing A BALANCED PICTURE of the risks and rewards associated with each possible course of action
Decision Nodes: squares
Chance Nodes: circle
End Nodes: triangles
Quantitative Risk AnalysisQuantitative Risk AnalysisDecision TreesDecision Trees
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Quantitative Risk AnalysisQuantitative Risk AnalysisDecision TreesDecision Trees
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Quantitative Risk AnalysisQuantitative Risk AnalysisDecision TreesDecision Trees
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Tornado Diagram
Examines the extent to which the uncertainty of each project element affects the objective being examined WHEN all other elements are held fixed (invariable)
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Quantitative Risk AnalysisQuantitative Risk AnalysisSensitivity AnalysisSensitivity Analysis
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The program evaluation and review technique (PERT) was developed by the late 1950’s
Scheduling the project with activities that have uncertainty in their duration estimates
the PERT technique recognizes the probabilistic, rather than deterministic nature
PERT technique incorporates three durations for each activity into its methodology
The program evaluation and review technique (PERT) was developed by the late 1950’s
Scheduling the project with activities that have uncertainty in their duration estimates
the PERT technique recognizes the probabilistic, rather than deterministic nature
PERT technique incorporates three durations for each activity into its methodology
Quantitative Risk AnalysisQuantitative Risk AnalysisPERTPERT
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Optimistic duration (a): estimated time (comparatively short) of executing the activity under very favorable working conditions
Pessimistic duration (b): estimated time (comparatively long) of executing the activity under very unfavorable working conditions
Most Likely duration (m): estimated time of executing the activity that is closest to the actual duration
Optimistic duration (a): estimated time (comparatively short) of executing the activity under very favorable working conditions
Pessimistic duration (b): estimated time (comparatively long) of executing the activity under very unfavorable working conditions
Most Likely duration (m): estimated time of executing the activity that is closest to the actual duration
Quantitative Risk AnalysisQuantitative Risk AnalysisPERTPERT
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With the three estimates of time for each activity, CPM analysis will be unable to determine project duration. Therefore, a single average duration for each activity is needed called expected duration:
With the three estimates of time for each activity, CPM analysis will be unable to determine project duration. Therefore, a single average duration for each activity is needed called expected duration:
Quantitative Risk AnalysisQuantitative Risk AnalysisPERTPERT
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Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: Analysis StepsPERT: Analysis StepsStep 1: Individual Activity Durations
• a = Optimistic duration = Minimum duration
• m = Most Frequent duration (most likely)
• b = Pessimistic duration = Maximum duration
• te = activity expected duration = (a + 4 m + b) / 6
• v = activity duration variance = [(b - a) / 6]2
Step 2: CPM Calculations
Using the activities’ te durations, CPM calculations are performed to determine the project duration (TE), activity floats and critical activities
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Quantitative Risk AnalysisQuantitative Risk AnalysisPERT Approach: Analysis StepsPERT Approach: Analysis StepsStep 3: Distribution of Project Duration
Since the probability is 0.5 that each activity will finish at its tedurations, there is a probability of 0.5 for the entire project being finished at time TE. The resulting project duration may be assumed normally distributed
The normal distribution of project duration is defined by its mean () and standard deviation () values, determined as follows:
TE = TE = te of critical activities; T = Square root ( v) of critical activities
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Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: Analysis StepsPERT: Analysis Steps
Step 4: Analysis of Project Completion Probabilities
Using the project normal distribution, it is possible to find the probability values associated with specific project duration
By scaling the project distribution to the standard normal distribution, we can obtain probabilities from standard probability tables and make conclusions, as follows:
Z = (Desired Completion Date - TE) / T
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Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: ExamplePERT: Example
Pessimistic Time (b)
Most Prob. Time (m)
Optimistic Time (a)
PredecessorsActivity
852-------A1296AB876AC741B,CD888AE17145D,EF21123CG963F,GH1185HI
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Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: ExamplePERT: Example
Variance [(b-a)/6]2
Standard Deviation [(b-a)/6]
Expected time Te =
Activity
115A119B
1/91/37C114D008E4213F9312G116H118I
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Quantitative Risk AnalysisQuantitative Risk AnalysisPERT Approach: ExamplePERT Approach: Example
0 5
0 5 5A
5 14
5 9 14B
5 12
7 7 14C
5 13
10 8 18E
14 18
14 4 18D
12 24
19 12 31G
18 31
18 13 31F
31 37
31 6 37H
37 45
37 8 45I
Ơ Total = Ơ2A + Ơ2
B + Ơ2D + Ơ2
F + Ơ2H + Ơ2
I
Ơ Total = (1)2 + (1)2 + (1)2 + (2)2 + (1)2 + (1)2
= 9 = 3
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Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: Normal Distribution CurvePERT: Normal Distribution Curve
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Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: Normal Distribution TablePERT: Normal Distribution Table
SD Area % from the center SD Area % from the center
0.1σ0.20.30.40.50.60.70.80.91.01.11.21.31.41.5
4.07.9
11.815.519.222.625.828.831.634.136.438.540.341.943.3
1.61.71.81.92.02.12.22.32.42.52.62.72.82.93.0
44.545.546.447.147.748.248.648.949.249.449.549.649.749.9849.99
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Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: ExamplePERT: Example What is the probability of completing the project in 50 days? And
what is the probability of completing the project in 4 days less than the expected duration
Prob. (T = 50) = 50 +45.25 (from Table) = 95.25%
Prob. (T = 50) = 50 - 40.82 (from Table) = 9.18%
T - Te
Ơ TZ1 =
50 _ 45
3= 1.67=
T - Te
Ơ TZ2 =
41 _ 45
3= = - 1.33
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Quantitative Risk AnalysisQuantitative Risk AnalysisPERT: ExamplePERT: Example What will be the total duration if you want to be 97.5%
confident that the project will not exceed it?
From tableZ = 1.96
Duration = 1.96 (ơ) + 45 = 51 days
Thus means that, a 6 days (contingency) has been added to be 97.5% confident that the project will not exceed the duration
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Simulation is an analytical method meant to imitate a real – life problem / system especially when other analyses are too mathematically complex or too difficult to reproduce
Monte Carlo simulation is a form of simulation that randomly generates values for uncertain variables over and over to simulate a model
Simulation is an analytical method meant to imitate a real – life problem / system especially when other analyses are too mathematically complex or too difficult to reproduce
Monte Carlo simulation is a form of simulation that randomly generates values for uncertain variables over and over to simulate a model
Quantitative Risk AnalysisQuantitative Risk AnalysisMonte Carlo SimulationMonte Carlo Simulation
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1. Determine the duration (or cost, …) distribution of each activity. It is possible to use discrete values or to use the simplified assumption of a triangular distribution
1. Determine the duration (or cost, …) distribution of each activity. It is possible to use discrete values or to use the simplified assumption of a triangular distribution
Quantitative Risk AnalysisQuantitative Risk AnalysisMonte Carlo Simulation: Step by StepMonte Carlo Simulation: Step by Step
Triangular Distribution
a
m
b ActivityDuration
ActivityDuration
Discrete Distribution
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2. Generate one project scenario by randomly generating one possible duration (or cost) for each activity in the project (based on its distribution). Perform CPM calculations (or cost) for this scenario and determine the project duration (or cost);
3. Repeat step 2 for the number of desired simulations (scenarios) and then tabulate the results
4. Project Duration Distribution: Calculate the mean () and () values for the resulting project durations (total cost)
5. Using the () and () values, determine the probability of the project being completed on or before any given date, or within any estimated total cost
2. Generate one project scenario by randomly generating one possible duration (or cost) for each activity in the project (based on its distribution). Perform CPM calculations (or cost) for this scenario and determine the project duration (or cost);
3. Repeat step 2 for the number of desired simulations (scenarios) and then tabulate the results
4. Project Duration Distribution: Calculate the mean () and () values for the resulting project durations (total cost)
5. Using the () and () values, determine the probability of the project being completed on or before any given date, or within any estimated total cost
Quantitative Risk AnalysisQuantitative Risk AnalysisMonte Carlo Simulation: Step by StepMonte Carlo Simulation: Step by Step
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Quantitative Risk AnalysisQuantitative Risk AnalysisMonte Carlo SimulationMonte Carlo Simulation
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Risk register update
Probabilistic Analysis
Probability of achieving objectives
Prioritized list of quantified risks
Trends in quantitative risk analysis results
Risk register update
Probabilistic Analysis
Probability of achieving objectives
Prioritized list of quantified risks
Trends in quantitative risk analysis results
Quantitative Risk AnalysisQuantitative Risk AnalysisOutputsOutputs
Increase the opportunity of success by reducing the probability and / or consequences of high probability risks
Identify and address the most critical risk categories and cost
/ schedule elements
Provide a way – forward plan for mitigating risks that includes actions items, responsibilities and dates
To translate risk information into decisions and mitigating action plans
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Plan Risk ResponsesPlan Risk ResponsesObjectivesObjectives
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Risk responses can be made at two stages: First Stage: Develop responses to avoid, reduce, or
transfer risk (before risk analysis) Second stage: dealing with residual risks, one of the
two following approaches can be adopted: Residual risks can be transferred through
contractual arrangements and/or insurance policies
Cover retained risk impact by time and/or cost contingency
Risk responses can be made at two stages: First Stage: Develop responses to avoid, reduce, or
transfer risk (before risk analysis) Second stage: dealing with residual risks, one of the
two following approaches can be adopted: Residual risks can be transferred through
contractual arrangements and/or insurance policies
Cover retained risk impact by time and/or cost contingency
Plan Risk ResponsesPlan Risk ResponsesRespond StrategiesRespond Strategies
Plan Risk ResponsesPlan Risk Responses
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Negative risk strategies
Avoid
Transfer
Mitigate
accept
positive risk strategies
Exploit
Share
Enhance
Accept
Respond StrategiesRespond Strategies
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Plan Risk ResponsesPlan Risk Responses
Identified Risk
Avoidance (prevention)
Mitigation (corrective actions)
Transference (shift
responsibility)
Accept (accept consequences) C
onsi
der
each
res
pons
e /
miti
gatio
n
stra
tegy
Remove the cause Consider alternative solutions
Abort the project
Consider alternative solutionsExamine in detail and obtain more information
Take management or design action
InsuranceSelection of contracts
Warranties or guaranteessharing
Contingency management
Respond StrategiesRespond Strategies
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Changing the project plan to eliminate the risk or to protect the project objectives from its impacts
Take an alternate approach to delivering the project
Use alternative technology
Reduce/Change Scope OR Change way of meeting the requirements
Abort the project
Changing the project plan to eliminate the risk or to protect the project objectives from its impacts
Take an alternate approach to delivering the project
Use alternative technology
Reduce/Change Scope OR Change way of meeting the requirements
Abort the project
Plan Risk ResponsesPlan Risk ResponsesAvoidanceAvoidance
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Modifying the probability and/or consequence of an adverse risk event to an acceptable threshold
Modify the project plan in such a way as to reduce the probability of the threat or its impact (or both)
Modify the technology to reduce probability or impact Consider alternative solutions Translate risk information into decisions and mitigating
action plans Implementing new courses of action to reduce the
problem or changing the current conditions so that the probability of the risk occurring is reduced
Modifying the probability and/or consequence of an adverse risk event to an acceptable threshold
Modify the project plan in such a way as to reduce the probability of the threat or its impact (or both)
Modify the technology to reduce probability or impact Consider alternative solutions Translate risk information into decisions and mitigating
action plans Implementing new courses of action to reduce the
problem or changing the current conditions so that the probability of the risk occurring is reduced
Plan Risk ResponsesPlan Risk ResponsesMitigation (Reduction)Mitigation (Reduction)
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Shifting the impact of a risk event to another party together with the ownership of the risk
The risk can not be eliminated, just transfer it Modify the contract or agreement with contracting
parties Purchase risk insurance Share the risk as in a joint venture partnership Typically is used in connection with financial risk
exposure and most often involves payment of a risk premium to the party assuming the risk
Shifting the impact of a risk event to another party together with the ownership of the risk
The risk can not be eliminated, just transfer it Modify the contract or agreement with contracting
parties Purchase risk insurance Share the risk as in a joint venture partnership Typically is used in connection with financial risk
exposure and most often involves payment of a risk premium to the party assuming the risk
Plan Risk ResponsesPlan Risk ResponsesTransferenceTransference
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Recognize the risk, but do not take any action because the impact or probability is small or translate risk information into decisions and mitigating action plans
Active Acceptance – Accept the risk, but include a contingency or contingency plan to execute, should the risk occur
Passive Acceptance – Accept the risk, and plan no action. Deal with the risks as they occurRetained risks: contingency (time and/or cost)
Recognize the risk, but do not take any action because the impact or probability is small or translate risk information into decisions and mitigating action plans
Active Acceptance – Accept the risk, but include a contingency or contingency plan to execute, should the risk occur
Passive Acceptance – Accept the risk, and plan no action. Deal with the risks as they occurRetained risks: contingency (time and/or cost)
Plan Risk ResponsesPlan Risk ResponsesAcceptanceAcceptance
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Plan Risk ResponsesPlan Risk ResponsesStrategies for ThreatsStrategies for Threats
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Plan Risk ResponsesPlan Risk ResponsesExampleExample
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Risk exploitation Eliminate any uncertainty to make the opportunity happen Hire best expert, get most advance technologies, acquire
another firm, etc. Risk sharing
Partnering up with another party in an effort to give your team the best chance of seizing the opportunity,
Joint ventures are common example of risk sharing Risk enhancement
Increase the probability that an opportunity will occur Focusing on trigger condition of the opportunity and try to
optimize their chances for occurrence
Risk exploitation Eliminate any uncertainty to make the opportunity happen Hire best expert, get most advance technologies, acquire
another firm, etc. Risk sharing
Partnering up with another party in an effort to give your team the best chance of seizing the opportunity,
Joint ventures are common example of risk sharing Risk enhancement
Increase the probability that an opportunity will occur Focusing on trigger condition of the opportunity and try to
optimize their chances for occurrence
Plan Risk ResponsesPlan Risk ResponsesPositive RisksPositive Risks
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Plan Risk ResponsesPlan Risk ResponsesStrategies for OpportunitiesStrategies for Opportunities
Risk register (updates) Identified Risk Risk owner Results from qualitative and quantitative risk analysis processes Agreed response Specific action to implement the chosen response strategy Residual and secondary risk Budget and time of responses Contingency plan and triggers
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Plan Risk ResponsesPlan Risk ResponsesOutputsOutputs
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Risk related contractual agreements: Insurance, partnerships and risk sharing parties will generate language that specifies each party’s responsibility for different risk
Residual Risk: risks that remain after avoidance, transfer or mitigation responses have been taken. This also includes minor risks that have been accepted
Secondary Risk: risks that arise as a direct result of implementing a risk response
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Plan Risk ResponsesPlan Risk ResponsesOutputsOutputs
Is the process of responding to identified and unforeseen risk. It involves tracking identified risk, identifying new risks, implementing risk response plans, and monitoring their effectiveness
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Risk Monitoring & ControlRisk Monitoring & ControlProcessProcess
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An examination of the effectiveness of risk response plans and the performance of the risk owner
May be conducted by a third party, the project’s risk officer, or other qualified personnel
Project Risk Response Audit Process Gather relevant project data regarding work results including risk database Review the risk response plans and implementation of the plans Prepare a report of the findings and distribute to the project team and key
stakeholders Unplanned responses to emerging risks that were previously unidentified
or unexpected
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Risk Monitoring & ControlRisk Monitoring & ControlProject Risk response AuditProject Risk response Audit
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