Risk Management Benefits

•A proactive rather than reactive approach.

•Reduces surprises and negative consequences.

•Prepares the project manager to take advantage
of appropriate risks.

•Provides better control over the future.

•Improves chances of reaching project performance objectives within budget and on time.

•Step 1: Risk Identification

–Generate a list of possible risks through brainstorming, problem identification and risk profiling.

•Macro risks first, then specific events

•Step 2: Risk Assessment

–Scenario analysis for event probability and impact

–Risk assessment matrix

–Failure Mode and Effects Analysis (FMEA)

–Probability analysis

•Decision trees, NPV, and PERT

–Semiquantitative scenario analysis

Failure Mode and Effects Analysis (FMEA)
Impact × Probability × Detection = Risk Value

•Step 3: Risk Response Development

–Mitigating Risk

•Reducing the likelihood an adverse event will occur.

•Reducing impact of adverse event.

–Avoiding Risk

•Changing the project plan to eliminate the risk or condition.

–Transferring Risk

•Paying a premium to pass the risk to another party.

•Requiring Build-Own-Operate-Transfer (BOOT) provisions.

–Retaining Risk

•Making a conscious decision to accept the risk.

•Contingency Plan

–An alternative plan that will be used if a possible foreseen risk event actually occurs.

–A plan of actions that will reduce or mitigate the negative impact (consequences) of a risk event.

•Risks of Not Having a Contingency Plan

–Having no plan may slow managerial response.

–Decisions made under pressure can be potentially dangerous and costly.

Opportunity Management Tactics

•Exploit

–Seeking to eliminate the uncertainty associated with an opportunity to ensure that it definitely happens.

•Share

–Allocating some or all of the ownership of an opportunity to another party who is best able to capture the opportunity for the benefit of the project.

•Enhance

–Taking action to increase the probability and/or the positive impact of an opportunity.

•Accept

–Being willing to take advantage of an opportunity if it occurs, but not taking action to pursue it.

•Contingency Funds

–Funds to cover project risks—identified and unknown.

•Size of funds reflects overall risk of a project

–Budget reserves

•Are linked to the identified risks of specific work packages.

–Management reserves

•Are large funds to be used to cover major unforeseen risks (e.g., change in project scope) of the total project.

•Time Buffers

–Amounts of time used to compensate for unplanned delays in the project schedule.

•Severe risk, merge, noncritical, and scarce resource activities

•Step 4: Risk Response Control

–Risk control

•Execution of the risk response strategy

•Monitoring of triggering events

•Initiating contingency plans

•Watching for new risks

–Establishing a Change Management System

•Monitoring, tracking, and reporting risk

•Fostering an open organization environment

•Repeating risk identification/assessment exercises

•Assigning and documenting responsibility for managing risk

•Sources of Change

–Project scope changes

–Implementation of contingency plans

–Improvement changes