Risk Management

What is risk

 A risk is something that may or may not happen

 If risk occurs it can jeopardize the success of project

 Risk is associated with uncertainty but we do not

call all uncertain events as risks
 Risk refers to undesirable events or outcomes
Risk Management
Hazard:
 A hazard is a situation which poses a level of threat to life,
health, property or environment
 e.g a hotel lobby has loose electrical wires coming out of wall. this is
hazard of safety
 Most hazards are dormant or potential, with only a
theoretical risk of harm. However, once a hazard becomes
'active', it can create an emergency situation
Example
Hazard Likely problem Action plan /contingency
plan
Unusually bad traffic Could miss start of Listen to traffic reports on
congestion interview radio
Plan alternative routes
before starting out

Flat tyre Could miss start of Ensure spare tyre is usable

interview or be late and inflated

Car breakdown or Probably would No action plan

accident miss interview
entirely
Cont..
 Risk managers use a scoring method as a quantitative
measure for assessing each risk
 categorizing likelihood and impact as high medium and low
 Example
 Hazard: illness of team member
 Problem :cause late delivery of component
 Risk/Impact:
 can cause delay to other components

 if it is on Critical Path, can put the project completion date

at risk
Risk identification

 Common way: checklist to identify all

possible hazards and the factors that
influence them
 Hazard identification form submitted for each
activity
Hazard identification checklist
Hazard identification form
 Project Id
 Hazard Id
 Date
 Likelihood
 Likely (p>50%)
 Unlikely (p<50%)
 Timeframe
 Near
 Far
 Impact
 Critical
 Significant
 Insignificant
 Statement of Hazard
 Potential Affects
 Recommendation for dealing with hazard/Problem(optional)
Risk Exposure
 Risk exposure(risk value)= Risk likelihood*risk impact
 Risk likelihood=Probability of hazard occurring
 Risk Impact=The effect the resulting problem will have on project
and is expressed in monetary terms
 Risk Exposure
Id hazard likeliho impact Risk
od exposur R3 is important and
e can be classified as
R1 Changes to requirement 1 8 8 high risk concerns
specification
R2 and R4 have
R2 Specification takes longer 3 7 21 same scores and
than expected can be classified as
medium priority
R3 Significant staff sickness 5 7 35 risks
affecting critical path
activities
R1 and R5 has low
exposure values so
R4 Module coding takes longer 4 5 20
classified as low
than expected
risks

R5 Module testing 1 10 10
demonstrates errors or
deficiencies in design
Risk log

abc
Risk log
Risk assessment
Evaluating Impact of Risk on Project Schedule

 PERT (program evaluation and review technique)was made for highly

risky environments and used to evaluate effects of uncertainty
 It consists of three estimates
 Most likely time (the expected time taken by a task under normal

circumstances denoted as m)

 Optimistic time ( shortest expected time in which the task can be

completed denoted as a)

 Pessimistic time (the worst possible time, allowing for all

reasonable eventualities denoted as b)
 All the three combined to form a single expected duration
 Te=a+4m+b
6
 Activity standard deviation s=b-a
6
 To add two standard deviation we must add their squares and find square
root of sum of them


Example
Example
Cont..
Cont.…

SD for activity 3 depends on B and is therefore 0.33

Cont.…

For event 5 the two possible paths are B+E OR F

SD For path B+E=√ 0.33² +0.5² =0.6 SD for path F= 1.17
Therefore SD for event 5 is the greater of two i.e 1.17.