PROJECT RISK MANAGEMENT

An evaluation of potential risks can show at an

early stage whether or not a proposal is worth
pursuing.

Definition of Risk:
It is the uncertainty inherent in plans and the
possibility of something happening, that can
affect the prospects of achieving business or
project goals

1
Reasons for Risk:

 Technical Problems
 Human activities
 Change in objectives of the project
 Competition.
 Lack of Support.
 Financial Problems
 Processing Problems
 etc… etc…

2
 For a success of a project it is
necessary that any potential risk that
is threatening or likely to affect a
project must be managed in a way
that may become least harmful to
the project.

For this purpose Risk management

provides a tool to manage risks.

3
RISK MANAGEMENT

Definition:
It is a tool which is directed to minimize
risk or uncertainty and improve the
probability of success by identifying,
analyzing, quantifying, and mitigating the
risks.

4
Stages in Risk Management

1. Risk Identification

2. Risk Quantification

3. Risk Mitigation

5
1. Risk Identification

 What are the key factors for Project Risks.

 How these factors emerge
 What would make it to go wrong

For Example:
 Unexpected changes from stakeholders
 Technological problems
 Staffing changes
 Financial problems

6
2. Risk Quantification
Assessment of…..
A. How likely the event is to occur with
how much magnitude
Improbable Highly Likely
B. Extent of the effect of the event
 Critical: Total Failure of one or more parts
of the project.
 Major: increased cost in one or more
areas.
 Minor: Cause inconvenience but not set
the project back.
7
2. Risk Quantification
Assessment of…..
C. How much the events or problems might
be hidden that may affect the project.

 Problems or events emerge because their

progress were not visible.
 How easy it would be to conceal the fact that
things were going wrong with part of the project.

For Example:
 Interaction between the team members
 Communication gap
 Politics among the project members

8
 2. Risk Quantification
Risk Quantification Techniques:
i. Expected Monetary Value Analysis: Expected monetary
value (EMV) analysis is a statistical concept that calculates
the average outcome when the future includes scenarios that
may or may not happen (i.e., analysis under uncertainty).
• The EMV of opportunities are generally expressed as positive
values, while those of threats are expressed as negative
values.
• A common use of this type of analysis is a decision tree
analysis

9
10
 2. Risk Quantification
Risk Quantification Techniques:
ii. Sensitivity Analysis- A quantitative risk analysis and modeling
technique used, it helps to determine which risks have the most
potential impact on the project.
– One typical display of sensitivity analysis is the tornado diagram, which
is useful for comparing relative importance and impact of variables that
have a high degree of uncertainty to those that are more stable

11
 2. Risk Quantification
Risk Quantification Techniques:
iii. Modeling and simulation: A project simulation uses a
model that translates the specified detailed uncertainties of
the project into their potential impact on project objectives.
• Simulations are typically performed using the Monte Carlo
technique.

12
2. Risk Quantification
Risk Quantification Techniques:
iv. Cause and effect diagrams

13
2. Risk Quantification

Risk Quantification Techniques:

v. Failure Mode and Effect Analysis- Potential failure

and its effect on outcomes as a total risks
Total risk= Likelihood x Severity x Difficulty in detection

14
 3. RISK MITIGATION
Employment of the procedures required to
ensure that….
 The likelihood of occurring the event is reduced
OR
 The effects are managed or mitigated (reduced) in
someway.
For Example:
The risk of a critical activity running late can be
reduced by making sure that the necessary
resources required are available.
 CONTINGENCY PLANNING

15