Assignment on Measures of Project Risk.

Course Title: Project Management, Course Code: 603

Dr. Mohammed Mizanur Rahman

Prepared for
Associate Professor,
Dept. of Accounting & Information
Systems,
Comilla University.

Md. Faisal Ahmed

Prepared By
Class ID: 21906004

MBA 9th Batch

Session: 2018-2019
Dept. of Accounting & Information
Systems

Comilla University.

Date of Submission: August 12, 2020

 Measures of Project Risk

Project Risk is anything that could potentially impact project’s timeline, performance or
budget. Risks are potentialities, and in a project management context, if they become realities,
they then become classified as “issues” that must be addressed.

Measuring project is crucial to achieve project objectives and goals based on this risk
management tools and techniques are implemented to manage risk.

When appraising a project under condition of uncertainty, three variables should be examined,
in particular, sales revenue, production, and investment costs. The most common reasons for
uncertainty are:

1. Inflation
2. Change in Technology
3. Wrong estimation of the rated capacity
4. Project life
Uncertainty analysis can be undertaken in three steps

Uncertainty Analyses

Breakeven Risk Analysis

Sensitivity
Analysis
Analysis

1.Scenario
Analysis

2.Simulation
Analysis

3.Decision
Tree Analysis
1. Breakeven Analysis: It seeks to determine the plant capacity level at which the variable
operating costs are fully recovered, and the difference between sales revenue and
variable operating costs is equal to the fixed cost. In other words, it determines the
points at which the firm break even, i.e. the sales revenue equals costs of productions
and sales.
2. Sensitivity Analysis: Sensitivity analysis helps to determine which individual project
risks or other sources of uncertainty have the most potential impact on project
outcomes. It correlates variations in project outcomes with variations in elements of the
quantitative risk analysis model. One typical display of sensitivity analysis is the
tornado diagram, which presents the calculated correlation coefficient for each element
of the quantitative risk analysis model that can influence the project outcome. This can
include individual project risks, project activities with high degrees of variability, or
specific sources of ambiguity. Items are ordered by descending strength of correlation,
giving the typical tornado appearance.
3. Risk Analysis: Risk analysis is the process that figures out how likely that a risk will
arise in a project. Its studies uncertainty and how it would impact the project in terms
of schedule, quality and costs if in fact it was to show up. Two ways to analyze risk is
quantitative and qualitative. But it’s important to know that risk analysis is not an exact
science, it’s more like an art.
3.1. ‘’What-if’’ scenario analysis: What-if scenario analysis is the process of
evaluating scenarios in order to predict their effect, positive or negative, on project
objectives. This is an analysis of the question, “What if the situation represented by
scenario X happens?” A schedule network analysis is performed using the schedule
to compute the different scenarios, such as delaying a major component delivery,
extending specific engineering durations, or introducing external factors, such as a
strike or a change in the permit process. The outcome of the what-if scenario
analysis can be used to assess the feasibility of the project schedule under different
conditions, and in preparing schedule reserves and response plans to address the
impact of unexpected situations.
3.2. Simulation Analysis is a method, wherein the infinite calculations are made to
obtain the possible outcomes and probabilities for any choice of action. The process
of simulation analysis compels the decision maker to consider all the
 interdependencies and uncertainties characterizing the project. Thus, the viability
of the project is determined on the basis of number of outcomes and the probabilities
realized through a series of actions performed during the simulation analysis.
3.3. Decision tree analysis: Decision trees are used to support selection of the best of
several alternative courses of action. Alternative paths through the project are
shown in the decision tree using branches representing different decisions or events,
each of which can have associated costs and related individual project risks
(including both threats and opportunities). The end-points of branches in the
decision tree represent the outcome from following that particular path, which can
be negative or positive.
Common terms used with Decision trees:

1. Root Node: It represents entire population or sample and this further gets divided into
two or more homogeneous sets.
2. Splitting: It is a process of dividing a node into two or more sub-nodes.
3. Decision Node: When a sub-node splits into further sub-nodes, then it is called decision
node.
4. Leaf/ Terminal Node: Nodes do not split is called Leaf or Terminal node.
5. Pruning: When we remove sub-nodes of a decision node, this process is called pruning.
You can say opposite process of splitting.
6. Branch / Sub-Tree: A sub section of entire tree is called branch or sub-tree.
7. Parent and Child Node: A node, which is divided into sub-nodes is called parent node
of sub-nodes whereas sub-nodes are the child of parent node.
Types of Decision Trees

Types of decision tree is based on the type of target variable we have. It can be of two
types:

Categorical Variable Decision Tree: Decision Tree which has categorical target variable
then it called as categorical variable decision tree. E.g.:- In above scenario of student
problem, where the target variable was “Student will play cricket or not” i.e. YES or NO.

Continuous Variable Decision Tree: Decision Tree has continuous target variable then it
is called as Continuous Variable Decision Tree.
Assumptions while creating Decision Tree

Some of the assumptions we make while using Decision tree:

➢ At the beginning, the whole training set is considered as the root.

➢ Feature values are preferred to be categorical. If the values are continuous then they are
discretized prior to building the model.

➢ Records are distributed recursively on the basis of attribute values.

➢ Order to placing attributes as root or internal node of the tree is done by using some
statistical approach.

References

A Guide to the PROJECT MANAGEMENT BODY OF KNOWLEDGE (6th Edition)

https://businessjargons.com/simulation-analysis.html

https://www.projectmanager.com/blog/risk-management-process-steps

https://projectriskcoach.com/identify-project-risks/

https://medium.com/greyatom/decision-trees-a-simple-way-to-visualize-a-decision-dc506a403aeb