❖ What is RISK?
❖ Types of RISK
OUTLINE
❖ RISK Management
❖ RISK Management Process
RISK MANAGEMENT
A risk is an uncertain event or condition that might affect the
RISK project (objectives) if it occurs.
EVENT CONDITION
Risk can be an event, Risk can be a condition,
for instance: like
i. malfunctioning of a i. machinery parts are
machine. unavailable.
ii. a fire breaks out. ii. Change in technical
requirements
RISK MANAGEMENT RISK
You find out that that the price of the machinery parts are
lower than estimates which would then not be considered Positive Risk Negative Risk
a risk but an opportunity. Also referred as good risks.
POSITIVE
NEGATIVE
such as equipment malfunction or change in technical
requirements.
RISK MANAGEMENT
A risk that has an inherent chance for both positive
and negative consequences is know as business risk.
TYPES OF RISK
Business Risk
Pure Risk
A risk that will have always negative consequences.
This is also known as insurable risk.
If risk materializes, Project manager will face a situation to deal with.
RISK MANAGEMENT
A risk management is all about identifying, analyzing and responding to risk
factors.
RISK MANAGEMENT
The main objective of the risk management is to decrease the probability or
impact of negative events.
Risk management attempts to recognize and manage potential and
unforeseen trouble spots that may occur when the project is
implemented. Risk management identifies as many risk events as
possible (what can go wrong), minimizes their impact (what can be
done about the event before the project begins), manages responses to
those events that do materialize (contingency plans), and provides
contingency funds to cover risk events that actually materialize.
RISK MANAGEMENT PROCESS
RISK RESPONSE
CONTROL
RBS RSIK RESPONSE
Risk Profile DEVELOPMENT
RISK
ASSESSMENT
RISK
IDENTIFICATION
RISK MANAGEMENT PROCESS
RISK MANAGEMENT PROCESS
MONITORING &
INTIATING PLANNIG EXECUTING CLOSING
CONTROLLING
Plan Risk Implementing Monitor Risks
RISK MANAGEMENT
Management Risk Responses
Identify Risks
Perform Qualitative
Risk Analysis
Perform
Quantitative Risk
Analysis
Plan Risk Responses
RISK RESPONSE DEVELOPMENT
Mitigating Risk
TYPES OF RISK
Avoiding Risk
Transferring Risk
Retaining Risk
RISK RESPONSE DEVELOPMENT
i) ✓ reduce
reducethe
thelikelihood
likelihood that
that thethe event
event willwill occur
occur
TYPES OF RISK
✓ (MOST of the Managers)
ii) reduce the impact that the adverse event would
Mitigating Risk have on the project (COSTLY)
RISK RESPONSE DEVELOPMENT
✓ reduce the likelihood that the event will occur
TYPES OF RISK
✓ (MOST of the Managers)
PROTOTYPING TESTING
Mitigating Risk
Example
CODING and SENSORING for Inventory Management
reducing the probability of risks occurring are
scheduling outdoor work during the summer months.
Example 2: the fear that a vendor will be unable to supply customized components on time
may be attributable:
(1) poor vendor relationships, (2) design miscommunication, and (3) lack of motivation.
As a result of this analysis the project manager may decide to take his counterpart to lunch to
clear the air, invite the vendor to attend design meetings, and restructure the contract to
include incentives for on-time delivery.
TYPES OF RISK RISK RESPONSE DEVELOPMENT
ii) reduce the impact that the adverse event would
Mitigating Risk
have on the project (COSTLY)
Example
a bridge-building project illustrates risk reduction.
The major risk was that the continuous pouring process for each major section of the
bridge could not be interrupted. An assessment of possible risks centered on delivery of the
cement from the cement factory.
Trucks could be delayed, or the factory could break down.
RISK RESPONSE DEVELOPMENT
Risk avoidance is changing the project plan to
TYPES OF RISK
eliminate the risk or condition.
For example,
Avoiding Risk adopting proven technology instead of experimental
technology can eliminate technical failure.
Choosing a National (local) supplier as opposed to an
International (far away) supplier would virtually
eliminate the chance that political unrest would
disrupt the supply of critical materials.
See the WAP versus JAVA Snapshot from Practice to see how Ellipsus Systems avoided a
potentially critical technical risk.
RISK RESPONSE DEVELOPMENT
Passing risk to another party is common; this transfer
TYPES OF RISK
does not change risk.
For example,
Transferring Risk Fixed-price contracts are the classic example of
transferring risk from an owner to a contractor.
Another more obvious way to transfer risk is
insurance.
On large, international construction projects like petrochemical plants and oil refineries, host
countries are insisting on contracts that enforce Build-Own-Operate-Transfer (BOOT)
provisions. Here the prime project organization is expected not only to build the facility, but
also to take over ownership until its operation capacity has been proven and all the debugging
has occurred before final transfer of ownership to the client. In such cases, the host country
has transferred financial risk of ownership until the project has been completed and
capabilities proven.
RISK RESPONSE DEVELOPMENT
In some cases, a conscious decision is made to accept
TYPES OF RISK
the risk of an event occurring.
For example,
Retaining Risk Some risks are so large it is not feasible to consider
transferring or reducing the event (e.g., an
earthquake or flood). (LOW OCCURING)
In other cases, risks identified in the budget reserve
can simply be absorbed if they materialize.
The risk is retained by developing a contingency plan to implement if the risk materializes. In a
few cases a risk event can be ignored, and a cost overrun accepted should the risk event
occur.
RISK RESPONSE DEVELOPMENT
The more effort given to risk response before the project begins, the better
the chances are for minimizing project surprises. Knowing that the response
to a risk event will be retained, transferred, or mitigated greatly reduces
stress and uncertainty. Again, control is possible with this structured
approach.
