RISK MANAGEMENT

Daniel Reckerth
 Suppose that during the initial risk identification phase for a project, a
risk register is made containing the most important risks to the project.

Risk Register
ID Description Category Causes Consequences
1 Chip shortage Resources Global chip Temporary halt or
shortage slowdown in production
2 Assembly workers call in sick Personnel Seasonal flu Temporary decrease in
Covid 19 production
3 Transport trucks breakdown Delivery Weather conditions Order delay
Following a qualitative analysis, a probability and impact score is given to
each risk, calculating the exposure score.

ID Description Probability (1-10) Impact (1-10) Exposure

1 Chip shortage 6 9 54 Medium
2 Assembly workers call in sick 7 10 70 Critical
3 Transport trucks breakdown 4 6 24 Low
Second step implies a quantitative analysis, turning probabilities and impacts
in quantifiable budget impacts. Done via simulations such as Monte Carlo
analysis.

ID Description Probability (%) Impact ($) Exposure

1 Chip shortage 30% $40,000 $12,000
2 Assembly workers call in sick 50% $50,000 $25,000
3 Transport trucks breakdown 10% $15,000 $1500
Risk Response Plans for Critical Risk
1. Avoid
• Implies to eliminate the risk, i.e. to have assembly workers avoid getting sick which is improbable (after work)
• Change deliverables (products) date, extend the schedule
• Risk exposure = 40% * $70,000 = $28,000
2. Transfer
• Offload the impact of the risk to other party, i.e. hire another firm to handle assembly of the product
• Risk exposure = 30% * $70,000 = 21,000
3. Mitigation
• Reduce the probability or impact of the risk
• Vaccinate workers, provide testing, provide masks, provide sanitation measurements
• Risk exposure = 25% * $50,000 = $12,500
4. Accept
• The risk will be accepted, stakeholders acknowledge the risk
• Contingencies (time, budget) built in to allow for the consequences of the risk
• Risk exposure = 50% * $50,000 = $25,000