Project Risk Analysis and Management: L3

Risk Analysis and Management General Risk Most things in life involve a degree of Risk Opportunity has an element of Risk Basically it is a potential consequence of a decision outcome being different from what was hoped for by a decision maker In practice risk is product of two independent variables with effect on the magnitude:

Risk Analysis and Management General Risk Risk Magnitude = Risk Likelihood X Risk Impact Risk Magnitude = f ( Event, Likelihood, Impact) Risks in Projects Risks Affect projects and an awareness of risk and how to manage it is an important project management skill

Risk Analysis and Management What is Project Risk Analysis and Management? Project risk analysis and management is a process which enables the analysis and management of risk associated with the Project. If undertaken properly can increase the likelihood of successful completion of a project on cost, time and prescribed quality

Risk Analysis and Management What is Project Risk Control (Analysis) and Management System? Project Risk Management System Comprises a number of different elements that work together to maintain one or more risks at a level that is acceptable to the organisation. Project Risk Control ( Analysis) System This is a collective term for a number of different activities that allow risk to be identified (This is a perquisite to a risk management system)

Risk Analysis & Management Process The first step is to recognise that risk exists as a consequence of uncertainty. Every project carries risks and uncertainties of various types among them being: the management and financial authority structure not yet established. the technology not yet proven. resources may not be available as required etc

Risk Analysis & Management Process The uncertainties produce an exposure to risk which may cause failure to: Keep within budget Achieve the required completion date Achieve the required performance objective /Quality specified The Project Risk Analysis and Management is a process designed to remove or reduce the risks which threaten the achievement of project objectives.

Risk Analysis & Management Process For simplicity sake, the process is divided into two stages namely: Risk Analysis / Control Risk Management Risk Analysis is further sub divided into: Qualitative Analysis Quantitative Analysis

Risk Analysis & Management Process Qualitative Risk Analysis 1.0 Identification of the Risk Associated to the project. This process allows the main risk factors to be identified by use of the following methods: Interviewing key members of project team Organising brainstorming meetings [Old Adage ‘ Two heads better that one’] Delphi Techniques ( In Cycle and Open) Nominal Group Technique ( Experts in different Rooms) SWOT Analysis

Qualitative Risk Analysis Cause and Effect Analysis Risk Factor Checklists (These are risk assessment forms, measuring an items on the likelihood of impact or magnitude) Risk Drivers Map ( This is simply a schematic representation of various drivers that determine a particular outcome) Reviewing past corporate experience if appraisal records are kept 2.0 Group risks in high/low probability of occurrence and major/minor impact on project

Risk Analysis & Management Process Quantitative Risk Analysis The following techniques are used: Sensitivity Analysis – determines the effect on the whole project of changing one of its risk valuables such as delays in design or the cost of material. It is performed for more than one risk. Probabilistic Analysis – Specifies a probability for each risk and then considers the effect of risks in combination. Uses sampling techniques referred to as “Monte Carlo Simulation“.

Qualitative Risk Analysis...Cont’d Influence Diagrams – Provide a means of constructing models of the issues in a project which are subject to risks. Decision Tree – A graphical method of structuring models. Shows the present possible courses of action and all future possible outcomes.

Risk Analysis & Management Process Risk Management Uses information collected during risk analysis phase to make decisions on how to improve the probability of the project achieving its Cost, Time & Quality objectives. Two types of responses to risk are: Immediate and contingency responses

Risk Mitigation / Risk Response Responses to risk can do one or a combination of five things: Remove – Risks can be eliminated from the project Eliminate – Risks can be decreased by taking certain actions immediately Avoid – Risks can be mitigated by taking contingency actions should they occur Transfer – Risk can be passed on to other parties Acceptance – The benefits that can be gained from taking the risk should be balanced against the penalties.

Risk Mitigation / Risk Response Having identified risk in the project, analyzed and classified all risks, the next step is to identify a risk response in the mitigation process. Responses to risk can be one or a combination of five things: Eliminate It (Risks Eradication) Risk of not dying in the plane crash is simply not to fly. Reduce It as much as possible (Risk Reduction) Risk of dying of car crash, not avoidable but you reduce the risk by wearing the seat belt, speed limit and avoid drunk driving etc

Risk Mitigation / Risk Response Transfer it to someone else. Ensure the it Negotiate it out / Avoid : Identify the risk at an early stage during the design and negotiate it out. MCAZ Lumumba Road. Risk Retention /Acceptance : Live with it and keep an eye on it ( No matter how safe the car is there is an element of retained risk. (Risk Residual)

Risk Mitigation Risk Management can Involve the following: Identifying preventive measures to avoid a risk to reduce its effect Establishing contingency plans to deal with risks if they should occur Initiating further investigations to reduce uncertainty through better information Considering risk transfer to insurers Setting contingencies in cost estimates, float in programs and tolerances or space in performance specifications. Considering risk allocation in contracts

Importance of Risk Analysis and Management There could be many other reasons why this is used but the main reason is that it provides significant benefits far in excess of the cost of performing it.

Benefits of Risk Analysis and Management Process An increased understanding of the project An increased understanding of the risks in a project and their possible impact An understanding of how risks in a project can lead to the use of a more suitable type of contract An independent view of the project risks which can help to justify decisions for more effective and efficient management of risks A contribution to the build up of statistical information of historical risks that can assist in better modelling of future projects Assistance in the distinction between good luck and good management and bad luck and bad management

Other Users of Risk Analysis Process An organisation and its senior management Clients, both internal and external Project Managers Refer to the Actual Risk Analysis on the Student portal ++++++++++++