risk managementosp.mans.edu.eg/elbeltagi/nste23 p risk.pdf · risk terms and definitions risk...

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Risk ManagementRisk Management

Is it really important to consider risk ?


27/03/2016 Emad Elbeltagi 2

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No construction project is risk free It cannot be ignored Risk can be managed, minimized, shared, transferred

, or accepted



DelaysPoorQuality

Costoverrun

ProjectConstraintsRisks



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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


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


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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


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


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.



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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


•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


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


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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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?



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



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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


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


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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


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


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


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


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


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


Qualitative Risk AnalysisQualitative Risk AnalysisRisk Severity, Prioritize RisksRisk Severity, Prioritize Risks

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Qualitative Risk AnalysisQualitative Risk AnalysisRisk Register UpdateRisk Register Update


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


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


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)


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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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)


Quantitative Risk AnalysisQuantitative Risk AnalysisSensitivity AnalysisSensitivity Analysis


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



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:


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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


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


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


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


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


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


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


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


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


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


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)


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


Plan Risk ResponsesPlan Risk ResponsesStrategies for ThreatsStrategies for Threats

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Plan Risk ResponsesPlan Risk ResponsesExampleExample


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


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


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


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


Risk Monitoring & ControlRisk Monitoring & ControlProject Risk response AuditProject Risk response Audit

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