Project Risk Management Agenda

• Introduction to general risk

ENG M 680 Lecture 1
• Definition of risk and related
topics
Introduction to Risk and • Personal approach to risk
Risk Management • Types of risks
By • Risk factors
Sami Fahmy, Ph.D, P. Eng, PMP • Risk in a project environment
• Risk management processes
1 2

Course Objective Risk

• 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
3 4
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 all around us

• To live is to risk dying
RISK • To laugh is to risk appearing the
fool
is • To hope is to risk despair
• To love is to risk not being loved in
return
Everywhere

5 6

1
 Let us think about risk

Can Can One who risks nothing

We We
Does nothing
Elimina Avoid
te Risk? Has nothing
Risk?
and is nothing

7 8

3 Types of Personal Risk Why People take Risks

• Profit
• Physical risk • Rewards
• Excitement
• Emotional risk
• Benefits
• Financial risk • Stupidity

9 10

What is the biggest risk you Risk Guiding Principles

have ever taken?
• Learning and personal growth
• What was your greatest fear? requires taking risks
• How did you feel?
• Take only these risks, where you
• Were you discouraged or encouraged
can handle the loss
by others?
• What is the worst that could happen?
• Adjust risks that are too much to
gamble with
• What is the best that could happen?
• Accept that the price of risk is an
occasional failure
11 12

2
Hazard is Risk tolerance
• An situation or condition that • The amount of risk that is
is likely to cause a harm or a acceptable to the individual,
loss under certain organization or client
circumstance (Dangerous
condition)
• It may be different from the
• Hazard is a prerequisite to individuals working in that
risk organization
• Hazard is a condition not an
event
13 14

Issues, Problems, and Risks Crisis

• Issues : any thing that requires the
• An unplanned event or possible
project manager attention
situation which triggers a real or
perceived or possible threat to safety,
• Problem: A thing or an event that has health or to the environment or to to an
gone wrong and require action to organizational reputation
correct

• Risk : Potential problem or event that

may occur and if it occurs will cause
harm
15 16

Understanding Risk
• Risk happens as a result of a cause

Understanding • If it happens ( Probability)

Risk
• it will result in (an impact or effect)

• Examples

17 18

3
 Risk Spectrum Uncertainty, Opportunity, Risk

Complete Start of Completion

NO
Information project of the Project
Information

Favorable
Opportunity
Known Unknown
Unknown Known
Known Or
Unknown Unknown Uncertainty
Unfavorable
Total Total Risk
Uncertainty Certainty
19 20

Risk and Uncertainty Certainty

Risk • All information for making the right
• The outcome can be described within decision is available
established confidence limits
Uncertainty
• Uncommon state of nature characterized • The outcome is predictable with
by absence of any information related to reasonable certainty
the desired outcome

Complete absence of information

Nothing is known about the outcome
• You can not assign probabilities to
uncertainty
21 22

Risk Factors ( Aspects)

Risk event Risk is function of (Event,
• What might happen to the determent of the Probability, Impact)
project (The unwanted change)
Risk probability
• How likely the event is to occur?
Risk Event Status
Risk Impact
• Extend of loss that will happen or amount
RES = Risk Probability x Amount at
at stake Stake
• What is the cost?
• What are the possible gains?
23 24

4
Types of risk Types of Risk (Source)
• Internal risk
• Source
• Amount of information available • External risk
• Personal
• Insurability • Technical risk
• Ability to control the risk
• Constraints • Unforeseeable risk

25 26

Types of Risk (Information) Types of risk (Insurability)

Known/known risks • Business risk
• Everything about the situation is known
Chance for a profit or a loss

Not insurable

Known/Unknown risks
• Identified, assessed and quantified risks • Pure risk
Develop a contingency plan to cover
Only a chance for loss, no chance for profit

(Direct property loss / indirect property
loss)
Unknown/Unknown risks
• Not identified, impossible to predict
27 28

Know the Difference Risk and Decision Making

Internal risk External Risk • Risk should only be taken when the
The project team can Beyond the control of or potential benefits and the chances of
influence or control the influence of the winning exceed the remedial cost of an
• Staff assignment project team unsuccessful decision and the chance
• Cost estimates • Market shift of loosing by a satisfactory margin
• Inability to get parts • Government action
• Senior Management
actions

29 30

5
 Individual Exercise I-1 Risk Taking Tips
Think of one risk you have successfully taken or about to take.
Answer the following questions: • Never risk more than you can
• The risk I am about to take is:
afford to lose.
• Was that situation a risk or uncertain situation? And why
• How did you approach that risk? • Reduce the amount of risk as much
• What exactly was risky about the situation? What could go wrong?
as you can.
• Did you think about reducing the risk?
• What are the chances of that happening? • Practice makes perfect.
• Did you think about the consequences of this risk?
• Did you ask yourself, what is the worst that could happen? • Try new ways of doing things.
• If you do not take that risk, what would you lose? • Keep track of the risks you take.
• 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? • Failure is temporary. and pursue
• Can I break down the risk into small risks so you do not risk as much?
• Is the potential reward worth the risk?
same with them until all work is
31
satisfactorily completed. 32

When Should you take Risk?

• The potential benefits and chances
of winning far exceed the remedial Risk
cost or the chances of losing and the
Projects
• Factors that will affect your decision Environment
on taking risks

33 34

What is a Project Class discussion

• It is a temporary undertaking to create a
unique product or service.
70% to 90 %
 New technologies of the project’s problems
 Increases specialization
 Complex contractual relation
and challenges
 Increased political and social
involvement
are
 Federal and provincial rules and
regulations
predictable and preventable
 Globalization

35 36

6
 What is Project Management
• The application of knowledge, tools
and techniques to project activities
to ensure project success
• Project management is risk
management
37
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
38

How risky is your project ? Risk in Project Environment

• The project is very different from

previous ones Unce
$ rtaint
y and r
• The project scope is not well defined isk
• Some of the technical data is lacking
• Cost, schedule, and performance
ake
are not expressed in clear terms t st
nta
• The design did not consider the ou
Am
users
TIME

Concept Development Execute Finish

39 40

What is Risk Management? What is the Goal of Project

• It is the systematic process of
identifying, analyzing and responding to
project risks. It includes actions to
maximizing the positive events and
minimizing the negative ones.
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.

• The preparation for possible events in

advance rather than responding as they
happen.

41 42

7
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
43
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
44

Goal of Risk Management Risk Management Processes

1. Risk management planning
To forecast various sources of
risk to a project especially those 2. Risk identification
with the 3. Qualitative risk analysis
most serious impact and 4. Quantitative risk analysis
seek to reduce their 5. Risk response planning
consequences 6. Risk monitoring and control

45 46

Risk Management Planning Risk Identification

Deciding how to approach risk
management for a particular • What are the things that could go
project wrong?
• How • What are the possible causes for
• What things going wrong?
• Who • If it does go wrong, what could be
• When the consequences be?
• How much time
• How much money
47 48

8
Qualitative Risk Analysis Quantitative Risk Analysis
• Evaluating risks and risk interaction to
Performing analysis of risk and
assess the range of possible project
condition to prioritize the risk that outcomes
have major impact on the project.
• Measuring the probability and the
consequence of risk and estimating its
impact on the project objectives

49 50

Risk Response Development Risk Monitoring and Control

• Monitoring of residual risks and
Developing procedures and techniques new risk that may come up
to enhance opportunities and reduce during the project execution
threats to the project objectives
• Execute the risk reduction plan
and
• Evaluate the effectiveness of
the risk responses developed
during the project’ planning
51
stage 52