1. Risk management

2. Definitions of risk General: standard deviation
Finance: volatility of return(s) and costs
Risk in project management (Lockyer – Gordon): An uncertain event or set of circumstances that, should it occur, will have an effect on the achievement of the project objectives (prevent it proceeding according to the plan). The effect may be detrimental or present an unforeseen opportunity.

3. Uncertainty vs. risk
Uncertainty: when neither the possible events nor their possibilities are known.
Risk: when both the possible events and their possibilities are known
Uncertainty is worse than risk
Reducing uncertainty reduces risk

4. Importance of risk management
In relatively a stable and simple environment:
Risks tend to be small
Risk management is a part of task management
In changing environment:
Significant uncertainty and thus risk
If there is uniqueness in the work, manageing risk is harder
Risk management is not an option but an essential part of management

5. Sources of risk
Timing
Technology
People
Finance
Managerial
Political

6. Risk from timing All project activities are concerned
Two categories of activities for risk minimisation:
Internally timed activities:
the task owner is responsible for carrying out the activity
duration estimation is done by the project team
sources of information are
past experience of similar work
knowledge/hunches of the project team: good communication is needed
external sources, secondary information
Externally timed activities

7. Externally timed activities
Where some outside body sets the duration
The responsibility is of the procurement executive
After the order is placed, the delivery dates should be secured:
Systematic monitoring
Delivery performance must be recorded in the project log

8. Risk from technology
The newer the technology, the greater the uncertainty and thus the risk
New application of a tested technology increase the risk, too

9. Risk from people Depends on people’s skill, experience and motivation
This type of risk an be reduced by:
Good communications
Clear definition of tasks
Good training: preparing the team

10. Risk from finance Financial stability at every party involved
Stability of suppliers should be investigated by the procurement executive

11. Managerial risk
Delegation: Does the project manager and other team members have the authority to effectively deal with every problem? (especially with cross-functional problems)
Intervening after delegation can be unnecessary and a source of conflict
Project manager has to authorized by the top management, others by the project manager.

12. Political risk Organisational politics of the parent organisation
International and national politics
Sometimes the distance increases the uncertainty

13. Steps of risk management
Risk identification
Creating a risk register
Assess and evaluate risks (and secondary risks)
Response to risk
Risk mitigation
Risk management plan

14. Risk identification For the whole project lifetime
Try to identify as many areas of uncertainty as possible (build up a risk register)
Develop uncertainty into risks (probability, impact)
A network plan can help the identification
Rank the risks in order of seriousness

15. Uncertainty can give rise to benefits as well as adverse effects.
Risk assessment
Two separate components:
Quantitatively assessment:
Statistical analysis (using past data to reveal the underlying model)
Subjective (human risk) assessment
Harder to assess and quantify
Two perception:
Project manager
Project sponsor
Uncertainty can give rise to benefits as well as adverse effects.

16. Fundamental questions of risk identification and analysis
What could go wrong?
Techniques:
Brainstorming
Experience of past projects
Project networks (sources of risks & float time for mitigation)
How likely it is (possibility)?
How will it affect the project (impact)?

17. Risk register List of identified risks
Explanation of the nature of each risk & the extent of damage or opportunity
Assessment:
Quantifying by assessing the probability
Sorting by the size of the problem: high, medium, low
Management methods or plans for each risk
Be aware of secondary risks: efforts to manage the primary problem can lead to a new one

18. Response to risk A part of the risk management plan
Must deal with every identified risks
Modify the project objectives
Use alternative technologies or methods
Use alternative project management
Increase managerial strength
Reduce interdependency
Increase resources
Increasing flexibility

19. Risk mitigation techniques
Risk transfer: to someone more capable (insurance is the simplest)
Risk deferral: moving risk in time
Risk reduction:
Probability
Impact
Risk acceptance: reserve or contingency plan
Risk avoidance: replace the risky activity

23. Reading
Textbook chapter 7