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Project Risk Management
By
Sami Fahmy, Ph.D, P. Eng, PMP
ENG M 680 Lecture 1
Introduction to Risk and
Risk Management
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Agenda
•
Introduction to general risk
•
Definition of risk and related
topics
•
Personal approach to risk
•
Types of risks
•
Risk factors
•
Risk in a project environment
•
Risk management processes
3
Course Objective
• Learn how to manage risk more effectively • Become familiar with risk and related
definitions
• Identify and understand techniques for determining risk source
• Identifying causes and effects of the risks • Develop a frame of work that will help you
make decisions
• Learn more about your own willingness to take risks
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Risk
A course of action or inaction taken
under conditions of uncertainty which
exposes the risk taker to possible
loss, or gain to reach a desired
outcome
An undesirable situation or
circumstance that is likely to cause a
harm or a loss
RISK
is
Everywhere
Risk is all around us
•
To live is to risk dying
•
To laugh is to risk appearing the
fool
•
To hope is to risk despair
•
To love is to risk not being loved in
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Can
We
Elimina
te
Risk?
Can
We
Avoid
Risk?
8Let us think about risk
One who risks nothing
Does nothing
Has nothing
and is nothing
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3 Types of Personal Risk
• Physical risk• Emotional risk • Financial risk
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Why People take Risks
•
Profit
•
Rewards
•
Excitement
•
Benefits
•
Stupidity
What is the biggest risk you
have ever taken?
• What was your greatest fear? • How did you feel?
• Were you discouraged or encouraged by others?
• What is the worst that could happen? • What is the best that could happen?
Risk Guiding Principles
•
Learning and personal growth
requires taking risks
•
Take only these risks, where you
can handle the loss
•
Adjust risks that are too much to
gamble with
•
Accept that the price of risk is an
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Hazard is
•
An situation or condition that
is likely to cause a harm or a
loss under certain
circumstance (Dangerous
condition)
•
Hazard is a prerequisite to
risk
•
Hazard is a condition not an
event
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Risk tolerance
•
The amount of risk that is
acceptable to the individual,
organization or client
•
It may be different from the
individuals working in that
organization
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Issues, Problems, and Risks
• Issues : any thing that requires theproject manager attention
• Problem: A thing or an event that has gone wrong and require action to correct
• Risk : Potential problem or event that may occur and if it occurs will cause harm
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Crisis
• An unplanned event or possible situation which triggers a real or perceived or possible threat to safety, health or to the environment or to to an organizational reputation
Understanding
Risk
Understanding Risk
•
Risk happens as a result of a cause
•
If it happens ( Probability)
•
it will result in (an impact or effect)
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Risk Spectrum
Total Uncertainty Total Certainty NO Information Complete Information Unknown Unknown Known Known Known Unknown 20Uncertainty, Opportunity, Risk
Start of project Completion of the Project Unknown Or Uncertainty Unfavorable Risk Favorable Opportunity 21
Risk and Uncertainty
Risk
• The outcome can be described within established confidence limits
Uncertainty
• Uncommon state of nature characterized by absence of any information related to the desired outcome
Complete absence of information Nothing is known about the outcome
• You can not assign probabilities to uncertainty
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Certainty
• All information for making the right decision is available
• The outcome is predictable with reasonable certainty
Risk Factors ( Aspects)
Risk event
• What might happen to the determent of the project (The unwanted change)
Risk probability
• How likely the event is to occur?
Risk Impact
• Extend of loss that will happen or amount at stake
• What is the cost?
Risk is function of
(Event,
Probability, Impact)
Risk Event Status
RES = Risk Probability x Amount at
Stake
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Types of risk
• Source
• Amount of information available • Personal
• Insurability
• Ability to control the risk • Constraints
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Types of Risk (Source)
• Internal risk • External risk • Technical risk • Unforeseeable risk
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Types of Risk (Information)
Known/known risks
• Everything about the situation is known Known/Unknown risks
• Identified, assessed and quantified risks Develop a contingency plan to cover Unknown/Unknown risks
• Not identified, impossible to predict
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Types of risk (Insurability)
• Business risk
Chance for a profit or a loss
Not insurable • Pure risk
Only a chance for loss, no chance for profit
(Direct property loss / indirect property loss)
Know the Difference
Internal risk
The project team can influence or control
• Staff assignment
• Cost estimates
• Inability to get parts
External Risk
Beyond the control of or the influence of the project team
• Market shift
• Government action
• Senior Management actions
Risk and Decision Making
• Risk should only be taken when thepotential benefits and the chances of winning exceed the remedial cost of an unsuccessful decision and the chance of loosing by a satisfactory margin
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Individual Exercise I-1
Think of one risk you have successfully taken or about to take.Answer the following questions: • The risk I am about to take is:
• Was that situation a risk or uncertain situation? And why • How did you approach that risk?
• What exactly was risky about the situation? What could go wrong? • Did you think about reducing the risk?
• What are the chances of that happening? • Did you think about the consequences of this risk? • Did you ask yourself, what is the worst that could happen? • If you do not take that risk, what would you lose?
• Why should I take the risk If I take the risk what will I gain? What can be done if the desired results are not achieved?
• Can I break down the risk into small risks so you do not risk as much? • Is the potential reward worth the risk?
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Risk Taking Tips
•
Never risk more than you can
afford to lose.
•
Reduce the amount of risk as much
as you can.
•
Practice makes perfect.
•
Try new ways of doing things.
•
Keep track of the risks you take.
•
Failure is temporary. and pursue
same with them until all work is
satisfactorily completed.
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When Should you take Risk?
•
The potential benefits and chances
of winning far exceed the remedial
cost or the chances of losing
•
Factors that will affect your decision
on taking risks
34Risk
and the
Projects
Environment
What is a Project
• It is a temporary undertaking to create a unique product or service.
New technologies Increases specialization Complex contractual relation Increased political and social
involvement
Federal and provincial rules and
regulations Globalization
Class discussion
70% to 90 %
of the project’s problems
and challenges
are
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What is Project Management
• The application of knowledge, toolsand techniques to project activities to ensure project success
• Project management is risk management
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Common Sources of Risk
•
Change in the requirements
•
Design errors, omissions
•
Misunderstandings among project
team
•
Poorly defined or understood roles
•
Insufficiently skilled staff
•
False assumptions
•
Subcontractor performance
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How risky is your project ?
• The project is very different fromprevious ones
• The project scope is not well defined • Some of the technical data is lacking • Cost, schedule, and performance
are not expressed in clear terms • The design did not consider the
users
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Risk in Project Environment
Concept Development Execute Finish Uncertain ty and risk Amou nt at sta ke T I M E
$
What is Risk Management?
• It is the systematic process ofidentifying, analyzing and responding to project risks. It includes actions to maximizing the positive events and minimizing the negative ones.
• The preparation for possible events in advance rather than responding as they happen.
What is the Goal of Project
Risk Management?
To forecast the various sources of risk to a project, especially those with the most serious impact, and seek to reduce their Consequences or probabilities.
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Why Risk Management is
important?
• It offers significant improvement to the final project
• Projects have better chances of success • It improves the project schedule and
cost
• Stakeholders and team members will better understand the nature of the project
• It helps to define the strengths and the weaknesses of the project
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Risk Management Guidelines
•
Applies to all projects
•
It should be done throughout the
life cycle of the project
•
It is the responsibility of the Project
Manager
•
It is the ultimate responsibility of the
sponsor
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Goal of Risk Management
To forecast various sources of
risk to a project especially those
with the
most serious impact and
seek to reduce their
consequences
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Risk Management Processes
1.
Risk management planning
2.
Risk identification
3.
Qualitative risk analysis
4.
Quantitative risk analysis
5.
Risk response planning
6.
Risk monitoring and control
Risk Management Planning
Deciding how to approach risk
management for a particular
project
•
How
•
What
•
Who
•
When
•
How much time
Risk Identification
•
What are the things that could go
wrong?
•
What are the possible causes for
things going wrong?
•
If it does go wrong, what could be
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Qualitative Risk Analysis
Performing analysis of risk and
condition to prioritize the risk that
have major impact on the project.
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Quantitative Risk Analysis
• Evaluating risks and risk interaction to assess the range of possible project outcomes
• Measuring the probability and the consequence of risk and estimating its impact on the project objectives
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Risk Response Development
Developing procedures and techniques to enhance opportunities and reduce threats to the project objectives
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