PROJECT MANAGEMENT PHASES

PHASE II: (PLANNING THE PROJECT- 4 RISK MANAGEMENT)

PLANNING FOR PROJECT RISKS A RISK IS AN EVENT THAT MAY OCCUR AND WHICH COULD HAVE A POSITIVE OR NEGATIVE IMPACT ON THE PROJECT

- POSITIVE RISKS = OPPORTUNITIES- NEGATIVE RISKS = DANGERS OR THREATS THAT MAY JEOPARDIZE THE PROJECT GOALS

PROJECT RISK MANAGEMENT IS ABOUT CONDUCTING RISK MANAGEMENT PLANNING, IDENTIFICATION, ANALYSIS, RESPONSES AND CONTROL ON A PROJECT, WITH A VIEW TO INCREASE THE PROBABILITY AND IMPACTS OF POSITIVE EVENTS ON THE ONE HAND, AND DECREASE THE PROBABILITY AND IMPACT OF ADVERSE EVENTS ON THE OTHER

MANAGING RISK IS AN ESSENTIAL FEATURE OF OVERALL PROJECT PLANNING. IT IS IMPERATIVE TO ATTEMPT TO IDENTIFY TO THE MAXIMUM EXTENT POSSIBLE DURING THE PROJECT PLANNING PHASE THE RISKS WHICH MAY OCCUR AND THE COSTS WHICH MAY RESULT.

RISK EVENT GRAPHRISKCOSTPROJECT LIFE CYCLEHIGHLOWCHANCES OF RISKS OCCURINGCOST TO FIX RISK EVENT

THE RISK MANAGEMENT PROCESS

STEP 1: RISK IDENTIFICATIONAnalyze the project to identify sources of risk

STEP 2: RISK ASSESSMENTAssess risks in terms of (a) severity of impact (b) Likelihood of occurring, and (c) controllability STEP 3: RISK RESPONSE DEVELOPMENTDevelop a strategy to reduce possible damage, andDevelop contingency plansSTEP 4: RISK RESPONSE CONTROLImplement risk strategy, monitor and adjust plan for new risks, change managementNew RisksNew RisksNew RisksKnown RisksRisk AssessmentRisk Management Plan

SOME TYPES OF PROJECT RISKSPROJECT RISKS ARE PROJECT SPECIFIC AND CAN BE CLASSIFIED INTO VARIOUS TYPES, FOR EXAMPLE:

MACRO RISKS RISKS WHICH AFFECT THE PROJECT AS A WHOLE

MICRO RISKS RISKS WHICH EFFECT SPECIFIC PORTIONS OF A PROJECT, FOR INSTANCE, ONE OR MORE DELIVERABLES OR WORK PACKAGES

EXTERNAL RISKS RISKS WHICH ARE OUTSIDE THE CONTROL OF THE PROJECT MANAGER AND ORGANIZATION, FOR INSTANCE, THE ECONOMY AND MARKET PLACE, THE POLITICAL AND SOCIAL ENVIRONMENT

WBS IS AN IMPORTANT FRAMEWORK OF REFERENCE FOR IDENTIFYING RISKS.

POPULAR TECHNIQUES FOR IDENTIFYING PROJECT RISKSANALYZING THE PROJECT SCOPE AND CHARTER, PROJECT WBS, PROJECT SCHEDULE ETCRISK PROFILINGHISTORICAL RECORDSBRAINSTORMINGDELPHI TECHNIQUEINTERVIEWINGROOT CAUSE IDENTIFICATIONSTRENGTHS, WEAKNESSES, OPPORTUNITIES, THREATS (SWOT) ANALYSISRISK IDENTIFICATION CHECKLISTSCOMMERCIAL DATABASES AND INDUSTRY STUDIES

ANALYZING AND ASSESSING RISKSAFTER PROJECT RISKS HAVE BEEN IDENTIFIED, THEY MUST BE PRIORITIZED IN ORDER TO DETERMINE WHICH RISKS MAY HAVE A SIGNIFICANT ADVERSE IMPACT ON THE PROJECT, AND WHICH RISKS MAY NOT. PROJECT MANAGERS USE BASIC TYPES OF TECHNIQUES LIKE RISK ASSESSMENT FORMS, RISK SEVERITY MATRIX AND RISK VALUE ANALYSIS FOR THE PURPOSE. RISK ASSESSMENT FORM

RISK SEVERITY MATRIX 5432112345LIKELIHOODIMPACTRED ZONE(MAJOR RISK)YELLOW ZONE(MODERATE RISK)GREEN ZONE(MINOR RISK)IMPACT X PROBABILITY X DETECTION = RISK VALUE

RESPONDING TO RISKS 1. RISK MITIGATION RISK MITIGATION CAN BE DONE BY TWO METHODS 1. REDUCE THE LIKLIHOOD THAT THE EVENT WILL OCCUR. i.e. BEFORE INSTALLATION, A TEAM TESTS NEW SYSTEM ON AN ISOLATED NETWORK. 2. REDUCE THE IMPACT THAT THE ADVERSE EVENTS WOULD HAVE ON THE PROJECT. i.e. HAVE A NUMBER OF SUPPLIERS DISTRIBUTED ON DIFFERENT LOCATIONS.

2. RISK AVOIDANCE AVOIDING THE RISK IS CHANGING THE PROJECT PLAN TO ELIMINATE RISK OR CONDITIONS. i.e. ADOPTING PROVEN TECHNOLOGY INSTEAD OF NEW TECHNOLOGY.

3. RISK TRANSFERENCE THIS ENTAILS SHIFTING THE ADVERSE IMPACT OF A RISK, AND THE RESPONSIBILITY FOR DEALING WITH IT, TO A THIRD PARTY (THIS TRANSFER HOWEVER DO NOT CHANGE RISK). EXAMPLES INCLUDE INSURANCE CONTRACTS AND GUARANTEES.

4. RISK SHARING THIS ENTAILS SHARING PROJECT RISKS AMONGST DIFFERENT PARTIES. EXAMPLES INCLUDE FORMATION OF CONSORTIUMS TO SHARE RESEARCH AND DEVELOPMENT RISK IN LARGE ENGINEERING CONSTRUCTION PROJECTS.

5. RISK RETENTION IN SOME CASES A CONSCIOUS DECISION IS MADE TO ACCEPT THE RISK OF AN EVENT OCCURING. IN SUCH CASES PROJECT OWNER ASSUMES THE RISK i.e. FLOODS, EARTHQUAKES e.t.c.

CONTINGENCY PLANNINGA CONTINGENCY PLAN IS AN ALTERNATIVE PLAN THAT WILL BE USED IF A POSSIBLE FORSEEN RISK BECOMES A REALITYTHE CNTINGENCY PLAN WILL REDUCE THE NEGATIVE IMPACT OF A RISK EVENTCONTINGENCY PLAN ASKS THE QUESTIONS OF WHAT, WHERE, WHEN AND HOW MUCH ACTION WILL TAKE PLACEABSENCE OF IT CAN DELAY A MANAGEMENT ACTION WHICH MIGHT RESULT IN PANICCONTINGENCY PLAN SHOULD BE COMMUNICATED TO AND ENDORSED BY ALL PROJECT STAKEHOLDERS IN ADVANCE AND SHOULD ALSO INCLUDE AN ESTIMATION OF THE COSTCONTINGENCY FUNDS-EXTRA RESERVES ARE USED FOR THIS PARTICULAR PURPOSE

RISK RESPONSE MATRIX

RISK RESPONSE CONTROLIT MEANS EXECUTING THE RISK RESPONSE STRATEGY, MONITORING TRIGGERING EVENTS, INITIATING CONTINGENCY PLANS AND WATCHING FOR NEW RISKS

SOME ORGANIZATIONS MAINTAIN A RISK REGISTER IN WHICH ANYTHING PERTAINING TO CHANGE AND RISK IS RECORDED

CHANGE MANAGEMENT SYSTEM IS ESTABLISHED WHICH RECORDS EVERY CHANGE MINUTELY