Project Management

MMZG 523
Risk Management

BITS Pilani
Pilani Campus

Sunil P R

BITS Pilani
Pilani Campus

Course Outline
MMZG 523

Outline
Course name:

Project Management

Course code:

MMZG 523

Number of modules:

Number of lectures:

SECOND SEMESTER 2014-2015

Textbook:

Project Management The Managerial Process

Clifford F. Grey, Erik W. Larson, Gautam V. Desai

Pedagogy:

Interactive

Work integration:

WILe exercises

Evaluation components: Assignment / Quiz, Mid-sem (C/B), Compre (O/B)

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BITS Pilani
Pilani Campus

MODULE 4 : PROJECT RISK MANAGEMENT

SESSION 14: RISK MANAGEMENT & CONTROL

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Learning Outcomes Session 14

PROJECT MANAGEMENT: PMI BEST PRACTICES

WHAT IS RISK & RISK MANAGEMENT

UNDERSTAND TYPES & SOURCES OF RISKS
ANALYSIS OF PROJECT LIFE CYCLE & RISK EVENT GRAPH

APPLICATION OF RISK MANAGEMENT PROCESS

RISK IDENTIFICATION
RISK ASSESSMENT
RISK RESPONSE DEVELOPMENT
RISK RESPONSE CONTROL

REFLECTING ON PRACTICE
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What is a Project?
A Project is a temporary endeavour undertaken to create a
unique product or service. (PMBOK Guide, Fifth Edition, 2012)
A Project
has a unique purpose
is temporary
is developed using progressive elaboration

requires resources, often from various areas

should have a primary customer or sponsor
The project sponsor usually provides the direction and funding

involves uncertainty

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Project Management
The application of knowledge, skills, tools and techniques to
project activities to meet project requirements (PMBOK Guide, IV Edition)
Stakeholders

Core Functions

Facilitating
Functions

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Risk Defined
In the context of projects, Risk is an uncertain event or
condition that, if it occurs, has a positive or negative
effect on project objectives.
A Risk has a cause and, if it occurs, a consequence.
Effect of uncertainty on objectives (ISO 31000(2009) /ISO Guide 73:2002)
The combination of the probability of an event and its
consequences
If the uncertain events occurs, it will impact the cost,
schedule, and quality of the project.
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The Balanced Project

Quality = Time + Cost
Scope
Integration

Cost

Stakeholder

Time

Human Resources
Communications
Procurement

Risk

Quality
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The Sources of Risks

SOURCES of RISKS
INTERNAL
Resources

EXTERNAL

Processes

Human errors
(incompetence,
inexperienced)
Inadequate human
resources
Inadequate internal
controls
Technology Risks
Operational Risks
Legal Risks

Political risk
Country Risk
Market Risk
Currency Risk
Interest Rate Risk
Credit or default Risk
Environmental Risk

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Risk Event Graph

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Risk Management
Risk Management is the process of Risk Identification
Assessment and prioritization of risks
Developing Response Strategies &
Monitoring & Controlling Changes
Its about coordinated and economical application of
resources to minimize, monitor, and control the
probability and/or impact of uncertain events or to
maximize the realization of opportunities.
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The Risk Management Process

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Step 1: Risk Identification

Organizations use risk breakdown structures (RBSs) in
conjunction with work breakdown structures (WBSs) to help
management teams identify and eventually analyze risks.
A risk profile is another useful tool. A risk profile is a list of
questions that address traditional areas of uncertainty on a
project. These questions are usually developed and refined from
previous, similar projects.

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The Risk Identification: RBS

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Case Study: Metro misses September 2015

deadline, delay costs BMRC Rs 2.3 crore/day
TNN | Jan 2, 2015, 05.30AM ISTBENGALURU: The confidence that chief minister Siddaramaiah displayed last
year while announcing that Namma Metro would be up and running on all its Phase I corridors by September
2015 was, after all, gas. Going by the progress of work, there is no sign Bengaluru's ambitious mass rapid transit
system will be completely operational any time this year.
Failure to adhere to the CM's promise is not just about convenient travel eluding Bengalureans, but also about
crores of rupees of taxpayers' money going down the drain due to cost escalation. The approved cost estimate of
the 42-km network was Rs 11,609 crore, and the target for getting the entire phase operational was December
2012. But project cost estimates, as in May 2014 and for September 2015 completion, stand at Rs 13,845 crore,
up Rs 2,236 crore. This means each day's delay has cost Rs 2.3 crore.
"There is no effort from the government to crack the whip on BMRC, whose bosses haven't made any extra
efforts to chase contractors and get work done. For the contractors, Metro work is a learning process. They make
mistakes and redo the work. Estimates have fallen short on the ground and added to the cost. Flawed contracts
with incomplete work details have pushed up bills," the sources explained.
The delay has meant that costs have shot up under all heads. When the project was conceived, the land cost was
estimated around Rs 500 crore, but now stands at Rs 2,100 crore. The cost of raw material has also shot up.
Steel, which cost BMRC Rs 40,000 a tonne till last year, is now Rs 55,000 a tonne. Similarly, copper, purchased by
the corporation at Rs 1 lakh per tonne, now costs Rs 3-4 lakh per tonne.
Missed deadlines: December 2012 > December 2013 > March 2015 > September 2015
Over three years down the line, the Metro is operational only on 2 streches. The two stretches on which the
Metro operates span only about 16km of the 42.3km that Phase I is slated to cater to. On an average, the two
stretches ferry 50,000 people daily against the targeted 10 lakh passengers.

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Activity : Risk Identification

Identify the Risks?

1.
2.
3.
4.

.
.
.
.

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Step 2: Risk Assessment

Step 1 produces a list of potential risks. Not all of these
risks deserve attention.
Scenario analysis:
Probability of the event.
Impact of the event.

Risks need to be evaluated in terms of the likelihood

the event is going to occur, the impact or consequences
of its occurrence and the difficulty in detecting.
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Risk Assessment: Case

Project: Upgradation of Banking software & hardware

Provide more features

Higher stability & availability
Enhanced security controls
Project also involves some changes on client end software.

Risk Assessment
Form: Assess the
Impact, Likelihood
& Detection on a
scale of 5, 5 being
Highest & 1 Lowest.
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Risk Severity Matrix

Red zone: Major
Yellow zone: Moderate
Green zone: Minor

Failure Mode & Effect

Analysis:
Risk Value=
Impact x Probability x
Detection

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Step 3: Risk Response Development

Responses to risk can be classified as mitigating, avoiding,
transferring & retaining.
Mitigating Risk:
Reducing risk is usually the first alternative considered. There are
basically two strategies for mitigating risk:
reduce the likelihood that the event will occur and/
Or reduce the impact that the adverse event would have on
the project.
Avoiding Risk:
Risk avoidance is changing the project plan to eliminate the risk
or condition. Although it is impossible to eliminate all risk events,
some specific risks may be avoided before you launch the project.
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Step 3: Risk Response Development

Transferring Risk:
Passing risk to another party, but this transfer does not change
risk. Passing risk to another party almost always results in paying
a premium.
Fixed-price contracts are the classic example of transferring risk
from an owner to a contractor.
Retaining Risk:
In some cases a conscious decision is made to accept the risk of
an event occurring.
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.
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The Contingency Plan

A contingency plan is an alternative plan that will be used if a
possible foreseen risk event becomes a reality.
A key distinction between a risk response and a contingency
plan is that a response is part of the actual implementation plan
and action is taken before the risk can materialize, while a
contingency plan is not part of the initial implementation plan
and only goes into effect after the risk is recognized.

Contingency planning evaluates alternative remedies for possible

foreseen events before the risk event occurs and selects the best
plan among alternatives.
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Risk Response Matrix

Risk Response
Types

User Training
Build fallback/
redundancy

SLA
Contract

Response

Conting
ency

Response

Conting
ency

Response

Conting
ency

Avoid:
Eliminate

Conting
ency

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Risk Response Matrix

Response Types

Build fallback/
redundancy

SLA
Contract

Mitigate:
Reduce
Likelihood

Retain:
Reduce
Impact

Mitigate:
Reduce
Likelihood

Retain:
Reduce
Impact

Retain:
Reduce
Likelihood

Retain:
Reduce
Impact

Avoid:
Eliminate

Transfer
: Impact

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Step 4: Risk Response Control

A Risk register details all identified risks, including descriptions,
category, and probability of occurring, impact, responses,
contingency plans, owners, and current status.
Risk control involves executing the risk response strategy,
monitoring triggering events, initiating contingency plans, and
watching for new risks.
Establishing a change management system to deal with events
that require formal changes in the scope, budget, and/or
schedule of the project is an essential element of risk control.
A second key for controlling the cost of risks is documenting
responsibility. This can be problematic in projects involving
multiple organizations and contractors.
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Step 4: Change Control

Most changes easily fall into three categories:
Scope changes in the form of design or additions, big changes.
Implementation of Contingency plans, when risk events occur,
represent changes in baseline costs and schedules.
Improvement changes suggested by project team members.

Change management systems involve reporting, controlling,

and recording changes to the project baseline

Identify proposed changes.

List expected effects of proposed change(s) on schedule & budget.
Review, evaluate, and approve or disapprove changes formally.
Negotiate and resolve conflicts of change, conditions, and cost.
Communicate changes to parties affected.
Assign responsibility for implementing change.
Adjust master schedule and budget & Track all changes to be
implemented.
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Reflecting on your Practice

Reflect on some of the Uncertain/Risk events that you have come
across in your Project Management experience.
Relate these Uncertain/Risk events to the Project Life Cycle: What
was the cost to fix the risk events and how the cost varied
depending on the stage of the project.
Apply the RBS method for Identifying the Risks in your Project.
Use Risk Assessment Form and Risk Severity Matrix to analyze the
Impact, Probability and Detection.
Develop Risk Response Strategies and Contingency Plan by
classifying the Risks under the four risk categories i.e. 1) Mitigating 2) Avoiding 3) Transferring and 4) Retaining Risks.

Trace the Change Control Process for one of your project & write
down if there were any changes in Scope, Cost and Timelines. 28
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Question Session

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Work Breakdown Structure

Decomposition of project deliverables and activities into

smaller, more manageable parts.
The lowest level in WBS is a Work Package, point at which
the cost & schedule for the work can be reliably estimated.
The Work Breakdown Structure (WBS) helps you develop
estimates, assign personnel, track progress, and show the
scope of the project work.
To create a WBS:
o Ask, "What has to be done to accomplish X?"
o Continue to ask this question, breaking those tasks into the smallest
possible subtasks, until your answer represents a component or
task that cannot be subdivided further.
o Estimate how long it will take to complete each of these tasks and
how much each will cost in terms of dollars and person-hours.
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Impact Analysis

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The Risk Identification: Project Profile

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End of Lecture

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