EMM 5630

Risk in Project Management

 Societal needs

• Risk analysis is becoming very important tools for

modern industrial societies.
• The abundance of information in these industrial
societies does not necessarily gives certainty.
• In fact, these abundance of information can
sometimes leads to errors in decision making, and
hence to undesirable outcomes. Therefore, risk
analysis is needed.
 Introduction
• Today the tools we use are complex, and
breakdowns can be catastrophic .
• We must be constantly aware of the likelihood of
malfunctions and errors.
• Without some form of risk management, engineers
could never have designed that great bridges that
span the widest rivers, electric power utilities would
not exist, polio would still maiming children, no
airplanes would fly, and space travel would be just a
dream.
 Introduction (cont’d)
What is Risk?
• The definition of risk is the “Possibility of Loss”
• When we observe risk we observe uncertainty about
the possible outcome
• Even if we are uncertain about the exact outcome,
we can often think of a range of possibilities that
might occur
• Risk arises from some of the uncertain outcomes
being less favourable than others
 Introduction (cont’d)
What is Risk?
• The likelihood that a specified undesired event will
occur due to the realisation of a hazard by, or during
work activities or by the products and services
created by work activities.
 Introduction (cont’d)
Risk And Future Best
Outcome
Outcomes

?
Current Position

Worst
Outcome
Time Future Position
 Introduction (cont’d)
• Risk is a measure of the potential loss occurring
due to natural or human activities.
• Potential losses are the adverse consequences of
such activities in form of loss of human life, adverse
health effects, loss of property, and damage to the
natural environment.
• Risk analysis is the process of characterizing,
managing, and informing others about existence,
nature, magnitude, prevalence, contributing factors,
and uncertainties of the potential losses.
 Introduction (cont’d)
• In engineering system, the loss may be external to
the system, caused by the system to one or more
recipients (e.g., human, organization, economic
assets, and environment).
• Also, the loss may be internal to the system,
causing damage only to the system itself. For
example, in a nuclear plant, the loss can be
damage to the plant due to partial melting of the
reactor core or damage due to release of
radioactivity into the environment by the power
plant.
 Introduction (cont’d)
• From an engineering point of view, the risk or
potential loss is associated with exposure of the
recipients to hazard and its consequences.
• Consequences to be considered include injury or
loss of life, reconstruction costs, loss of economic
activity, environmental losses, etc.
• In engineering system, risk analysis is performed to
measure the amount of potential losses and more
importantly the elements of the systems of the
system that contribute most to such losses.
 Introduction (cont’d)
Risk analysis should be performed using system
framework that need to account for:
-Uncertainties in modelling (system architecture),
-Behaviour (physical laws),
-Prediction models,
-Interaction among a system’s components, and
-Impacts on the system and its surrounding
environment.
 Uncertainty and Risk
• “risk” as uncertainty about a consequence
• Preliminary questions
– What sort of risks are there and who bears them
in project management?
– What practical ways do people use to cope with
these risks?
– Why is it that some people are willing to take on
risks that others shun?
 Some Risks
• Weather changes
• Different productivity
• (Sub)contractors are
– Unreliable
– Lack capacity to do work
– Lack availability to do work
– Unscrupulous
– Financially unstable
• Late materials delivery
• Lawsuits
• Labor difficulties
• Unexpected manufacturing
costs
• Failure to find sufficient
tenants
• Community opposition
• Infighting & acrimonious
relationships
• Unrealistically low bid
• Late-stage design changes
• Unexpected subsurface
conditions
– Soil type
– Groundwater
– Unexpected Obstacles
• Settlement of adjacent
structures
• High lifecycle costs
• Permitting problems
• …
Decision making
 Introduction (cont’d)
• Usually, engineers do not make the decision about
risk acceptance of systems.
• Decisions are made by risk managers, policy
makers, and politicians who are influenced bt the
prevailing economic environment, press, public
opinion, interest groups and so on.
• This aspect also underlines the importance of risk
communication between the various parties and
stakeholders involved.
 Definition of Hazards
• Traditionally, hazardous activities were designed
and operated by references to codes, standards
and hardware requirements.
• Hazard is the potential to cause harm.
• A hazard is an act or phenomena posing potential
harm to some person or thing (i.e., is source of
harm) and its potential consequences.
• Examples: Harm including ill health and injury,
damage to property, plant, products or the
environment, production losses or increased
liabilities, uncontrolled fire, water and strong wind.
 Definition of Risk
• Risk is a measure of the
o Potential loss occurred due to natural or human activities.
o Potential losses are the adverse consequences of such
activities in form of loss of human life, adverse health
effect, loss of property, and damage to the natural
environment

• From an engineering point of view, the risk

or potential loss is associated with
exposure of the recipients to hazards, and
can be expressed as combination of the
probability or frequency
 Risk Analysis - Example 5

• Risk analysis can be used to

analyze potential failures in
managing an organization.
• Organizational failures can
lead to significant adverse
consequences.
• Executives and managers of
organizations are responsible
for designing the hierarchical
structure of their
organization.
Vertical series-parallel connection of
organizational structural structures
Risk Analysis - Example 5 (cont’d)
 THE END

Thank You