PROJECT RISK MANAGEMENT

Presented byNeenu BabuRoll no: 28S3 MBA

Introduction

• Project risk management is the Art and science of planning, organizing, securing and managing resources (Management) to manage the effects of uncertainties on objectives (Risk)of a temporary endeavor (project).

• Notion of project risk= f(likelihood, impact)• The likelihood is some problematic error will occur• The Impact of the event if it does occur

Process of risk management

• Risk identification• Risk assessment• Risk response planning

Risk identification Risk identification is the critical first step of

the risk management process. The objective of risk identification is the early and continuous identification of events that, if they occur, will have negative impacts on the project's ability to achieve performance or capability outcome goals.

Sources of risk

• Internal risk• External risk

Internal risk

• Risk originated inside the project

• Market risk

• Technical risk

Market risk• Risk of not fulfilling either market needs or the requirements

particular customersSources• Incompletely or inadequately defined market or customer

needs and requirements• Failure to identify changing needs and requirements• Failure to identify newly introduced products by competitors

Market risk can be reduced by thoroughly and accurately defining needs and requirements at the start of the project and continuously monitoring and updating requirements as needed throughout the project

Technical risk• It is the risk of not meeting time, cost, or performance

requirements due to technical problems with the end item or project activities

Factors effecting technical risk• Maturity• Complexity• Quality• concurrency

External risk• Risk that stem from sources outside the project• Sources• Market conditions• Competitors’ action• Government regulations• Interest rate• Decision made by senior management • Customer needs and behavior• Supplier relations• weather• Labor availability

Risk Identification techniques• Project risks are identified from analysis of he numerous

documents reviewed or prepared during project conception and definition.• Report from past project• List of user needs and requirements• Work package definitions• Cost estimates• Schedules• Schematic and models of end item

Risk assessmentDepends on three things• Risk likelihood• Risk impact• Risk consequences

Risk likelihood

• It is the probability that a hazard or risk factor will actually materialize

• Expressed as a numerical value between 1 and 0Or

• Qualitative rating such as high, medium or low

Risk impact• It is the impact of risk.• Risk impact of projects is specified in terms of time, cost and performance

measures• Risk impact can be expressed as qualitative rating such as high, medium

and low• Also can be expressed as a numerical measure between 0 and1• 0- not serious• 1- catastrophicExample• Insufficient number of skilled labor staff a project has the impact of

extending the schedule or preventing the project from meeting user requirements

Risk consequenceRisk consequence is the function of risk likelihood and

risk impact• Expressed as single numerical rating system• Value ranging between 1 and 0• Risk consequence= impact * likelihood

Risk priority• Project are subjected to numerous risk• Risk consequences of project have been computed • Give rank according to the risk • More attention given to project with highest risk • Project team members, managers, subcontractors and

consumers review them to ensure everyone’s awareness so that appropriate risk response can be planned

Risk response planning• Addresses the matter of how to deal with risk• Ways of dealing with risk• Transfer the risk• Avoid the risk• Reduce the risk• Preparing contingency plan• Accept risk

Transfer the risk• Risk can be transferred partly or fully from the

customers to the contractor or vice versaBy using

• Contractual incentives• Warranties• Penalties attached to the project performance, cost, or

scheduled measure

Avoid the riskRisk can be avoided by

• altering the original project concept• Changing contractors• Safety procedures

Reduce riskWays to reduce the risk• Employ the best technical team• Use mature, computer aided system engineering tools• Use parallel development on high risk task• Provide the technical team with adequate incentives for

success• Hire outside specialists for critical review and assessment of

work• Perform extensive test and evaluations• Minimize system complexity• Use design margins

Contingency planning • It can be post ad hoc remedial action to compensate

for the risk impact, an action taken in parallel to the original plan or a preventive action taken parallel to the original plan or a preventive action initiated by preliminary risk symptoms to mitigate the risk impact

Accept risk• Not all impacts are severe or fatal, and if the cost of

avoiding, reducing, or transferring the risk exceeds the benefit then do nothing

Risk management principles• Create a risk management plan• The risk profile for each risk should include likelihood, cost

and schedule impact and contingencies to be invoked• Risk officer• The budget and schedule should include a calculated risk

reserve, which is a buffer of money, time and other resources for dealing with risk as they materialize

• Risk must be continuously monitored• Establish communication channels• Specify procedures to ensure accurate, comprehensive project

documentation.

conclusionProject risk management maximizes the areas of project over which internal stake holders control the outcomes, and minimize the areas over which stake holders have absolutely no control. It involve identify the risk, assessing them, and planning the appropriate responses.

Reference

• John M Nicholas- project management for business and technology, principles and practice , 2nd edition prentice hall of India private limited , New Delhi- 110001, 2002