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Risk Management
07-01 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 7 Learning Objectives
After completing this chapter, students will be able to:
Define project risk.
Recognize four key stages in project risk management and the steps necessary to manage risk.
Understand five primary causes of project risk and four major approaches to risk identification.
Recognize four primary risk mitigation strategies.
Explain the Project Risk Analysis and Management (PRAM) process.
01-02
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Risk
Risk management - the artand scienceof identifying, analyzing, and respondingto risk factors throughout the life of a projectand in the best interest of its objectives.
Project risk – any possible event that can negatively affect the viability of a project
01-03 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Risk versus Amount at Stake:
Challenge in Risk Management
07-04 Figure 7.2
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Process of Risk Management
What is likely to happen?
What can be done?
What are the warning signs?
What are the likely outcomes?Project Risk = (Probability of Event)(Consequences of Event)
07-05 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Four Stages of Risk Management
1. Risk identification
2. Analysisof probability and consequences 3. Risk mitigationstrategies
4. Controland documentation
07-06
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Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Risk Clusters
Financial
Technical
Contractual/Legal
Commercial
Execution
Common Types
• Absenteeism
• Resignation
• Staff pulled away
• Time overruns
• Skills unavailable
• Ineffective Training
• Specs incomplete
• Change orders
07-07 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Risk Factor Identification
Brainstorming meetings
Expert opinion
Past history
Multiple (or team based) assessments
07-08
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Risk Impact Matrix
07-9
Project Risk Scoring
1. Identify factors and assess the probability (Pf) and consequences (Cf) of failure
2. Calculate overall probability & consequence
3. Calculate overall risk factor
3
m c d
f
P P P
P
4
c s r p
f
C C C C
C
( )( )
f f f f
RF P C P C
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 07-10
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Risk Mitigation Strategies
Accept
Minimize
Share
Transfer
Contingency Reserves
Task contingency
Managerial contingency
Mentoring
Cross training07-11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Control & Documentation
Help managers classify and codify risks, responses, and outcomes
Change management report system answers
What?
Who?
When?
Why?
How?
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FIGURE 7.6 Contingency Document for Adjustments to Project Plan 07-13
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Project Risk Analysis & Management
Extends risk management over project’s life cycle Key Features of PRAM
Risk management follows a life cycle
Risk management strategy changesover the project life cycle
Synthesized, coherentapproach
07-14
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Nine Phases of Risk Assessment
1. Define 2. Focus 3. Identify 4. Structure
5. Clarify ownership of risks 6. Estimate
7. Evaluate 8. Plan 9. Manage
07-15 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Summary
1. Define project risk.
2. Recognize four key stages in project risk management and the steps necessary to manage risk.
3. Understand five primary causes of project risk and four major approaches to risk identification.
4. Recognize four primary risk mitigation strategies.
5. Explain the Project Risk Analysis and Management (PRAM) process.
07-16
07-17 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
