1. Chapter 12 Project Risk Management
Project Management
Chapter 12
Project Risk Management
Dr. Jana Jagodick Polytechnic of Namibia, 2012

2. Session will cover What is risk management?
Identify risks in a project
Assess the risks
Mitigate the risks - contingency planning
Project recovery
Dr. Jana Jagodick Polytechnic of Namibia, 2012

3. Terms
hazard: a rare or extreme event that adversely effects the successful completion of the project
vulnerability: the degree of loss to a given element that is at possible risk from the impact of a hazard
risk: the expected losses that a particular phenomenon might cause or the existence of significant uncertainty
probability: the degree to which the risk event is likely to occur
Dr. Jana Jagodick Polytechnic of Namibia, 2012

4. Terms……
frequency: the number of times a particular risk can impact on a project
severity: the impact of a risk on a project
risk mitigation: defining the necessary steps to counter threats
risk response: the development of measures to counteract risk in a project
Dr. Jana Jagodick Polytechnic of Namibia, 2012

5. Concept
Risk management attempts to minimise the impact of adverse events and to maximise the likelihood of positive outcomes, so that the project is successfully completed
Dr. Jana Jagodick Polytechnic of Namibia, 2012

6. Risk Management Dilemma
HIGH
chances of
risk occuring
Risk
cost to fix
the risk event
LOW
Project life cycle
Dr. Jana Jagodick Polytechnic of Namibia, 2012

7. Risk Management Dilemma
The chances of a risk event occurring e.g. error in cash flow, time or cost estimates being wrong are greatest in the concept and planning stages
BUT are much harder to anticipate!
Dr. Jana Jagodick Polytechnic of Namibia, 2012

8. 3 elements to risk management
risk assessment – identification & analysis of risk
risk mitigation – pre-emptive & contingency actions
risk response – plan for resolving critical risks
Dr. Jana Jagodick Polytechnic of Namibia, 2012

9. Risk Assessment
Identification, quantifying and evaluation of the probability of the occurrence of risk events and the impact of these events on a project
What are the possible consequences and how likely are they to occur?
Risk assessment is proactive and reactive!
Dr. Jana Jagodick Polytechnic of Namibia, 2012

10. Risk Identification Determining risks likely to affect a project
Internal risks – aspects that the project team can control or influence (staff assignment, cost estimates)
External risks – beyond the control of the project team (market shift, government legislation)
Positive and negative outcomes
Dr. Jana Jagodick Polytechnic of Namibia, 2012

11. Risk Assessment Likelihood x Severity x Frequency
Uses traffic lights to indicate biggest threats
Dr. Jana Jagodick Polytechnic of Namibia, 2012

12. Risk Assessment LIKELIHOOD IMPACT THREAT X inadequate funding
low
medium
high
inadequate funding X
lack of technical skills in client's business unit
natural disaster
Dr. Jana Jagodick Polytechnic of Namibia, 2012

13. Risk Mitigation V Reactive/ contingency Pre-emptive
Will reduce the chance that a threat will be realised or a risk will occur
(likelihood)
Will reduce the impact of the threat if it occurs (severity)
Dr. Jana Jagodick Polytechnic of Namibia, 2012

14. Contingency planning
Evaluates alternative strategies for possible foreseen events before they occur and selects the best alternative
Don’t confuse with contingency (buffer) that you build in to a cost estimate or time plan
Dr. Jana Jagodick Polytechnic of Namibia, 2012

15. your Project Management course?
Contingency Planning
Risk management planning for a known event
Preventative actions to reduce or mitigate the negative impact of the risk event
Evaluates alternative strategies for possible foreseen events before the risk events occur, and selects the best option
Must be communicated to all stakeholders in order to avoid ‘surprises’ and are activated by ‘a trigger event’.
Must be well documented
what will you
do if you fail
your Project Management course?
Dr. Jana Jagodick Polytechnic of Namibia, 2012

16. Who’s responsible for risk mgmt?
Many people in the project will have some responsibility for risk management. PM
risk manager
Steering committees
Project team members
Risk cannot be managed by one individual – it is a communal activity involving a range of people associated with the project
Dr. Jana Jagodick Polytechnic of Namibia, 2012

17. Who’s responsible for risk mgmt?
PM has overall responsibility like:
the development of a risk management plan
continual monitoring to identify new or increasing risks
monitoring of the effectiveness of the risk management plan
regular reports to sponsors and steering committees
For big projects the PM might appoint a risk manager, but the PM still maintains overall responsibility
Dr. Jana Jagodick Polytechnic of Namibia, 2012

18. Risk mitigation examples
Pre-emptive - In a project where you are encouraging people to walk and cycle to work, you might include a bicycle shed to ensure that people have somewhere safe to lock up their bikes
Contingency actions - for example, if your bike gets stolen, enlisting people to help you find it
Oil rig, where pre-emptive action is to ensure that no fire causing materials are used on the oil rig. Contingency actions would be to have a life raft at every station, for a quick getaway.
Dr. Jana Jagodick Polytechnic of Namibia, 2012

19. Risk management plan The risk management plan should cover:
a description of each risk
an assessment of the likelihood of it occurrence and its impact
a grading of each risk
the person(s) responsible for managing the risk
an outline of the proposed countermeasures
the estimated cost for each countermeasure and the collective costs
full details of assumptions and limitations
Dr. Jana Jagodick Polytechnic of Namibia, 2012

20. When things go wrong…..
What to do when things go wrong…….i.e. when a project is
out of control and failing
over budget
out of scope
AND YOU HAVEN’T PUT TOGETHER A CONTIGENCY PLAN......
How do you achieve the project objectives in the least amount of time without incurring huge cost?
Dr. Jana Jagodick Polytechnic of Namibia, 2012

21. Project recovery
Take a structured review of the project in its present state
Look at the deliverables and milestones with an eye towards getting the project back on track
Assess risk, crash the schedule or develop deliverables simultaneously
Project Recovery is determining where to target resources to get the project back on plan as quickly as possible and at least cost!
Dr. Jana Jagodick Polytechnic of Namibia, 2012

22. Deliverables for Project Recovery
Project recovery plan
Recovered project
Trained project team members and project sponsors/customers and stakeholders
Tools and techniques for future projects
Dr. Jana Jagodick Polytechnic of Namibia, 2012