Chapter 5

Risk Assessment and Addressing

Y. Raydugin. Project Risk Management: Essential Methods for Project Teams and Decision Makers. John Wiley & Sons Inc., New York, 2013
 Assessment of Uncertainties
• Two degrees of freedom of uncertainty are usually assessed:
uncertainty of occurrence and impact uncertainty.
• First assessed is probability of occurrence (it is equal to
100% for general uncertainties).
• Second assessed is impact, which is usually a range.
• A general uncertainty is normally characterized by both
upside and downside impact.
• An uncertain event is either an upside or a downside one.
• A measuring tool is required to measure both probabilities
and impacts as deviations from project objectives.

Y. Raydugin. Project Risk Management: Essential Methods for Project

Teams and Decision Makers. John Wiley & Sons Inc., New York, 2013 2
Measuring Tool: Risk Assessment Matrix(RAM)
IMPACT ON PROJECT OBJECTIVES PROBABILITY
< 1% 1% – 20% 20% – 50% 50% – 90% >90%
S c he dule ,
C o s t, $ M Qua lity S a fe ty Enviro nm e nt R e puta tio n Ve ry Lo w Lo w M e dium High Ve ry High
Mo s
( 1) (2 ) (3 ) (4 ) (5 )
Internation
System al media
Ve ry Single or
requirements Massive coverage.
High >50 >6 multiple 5 10 15 20 25
(5 )
are not Effect Irreparable
fatalities
achieved stakeholder
impact
Serious Nati onal
Substanti al personal media
High effect on injury coverage.
20 – 50 3 –6 Major Effect 4 8 12 16 20
(4 ) performance resulti ng in Substanti al
objecti ves permanent stakeholder
disability impact
Injury to Regional
All design and personnel media
M e dium operating not Localized coverage.
5 – 20 1 –3 3 6 9 12 15
(3 ) margins resulti ng in Effect Moderate
eliminated permanent stakeholder
disability impact
Medical
Local media
Minor treatment
att ention.
Lo w decrease in of
0.5 – 5 0.5 – 1 Minor Effect Minor 2 4 6 8 10
(2 ) system personnel.
stakeholder
performance Lost ti me
impact
incident
Minor
Slight media
Slight impact on
Ve ry att ention.
degradation personnel.
Lo w < 0.5 < 0.5 Slight Effect Litt le 1 2 3 4 5
( 1)
of element First aid
stakeholder
performance only. No lost
impact
time
Y. Raydugin. Project Risk Management: Essential Methods for Project
Teams and Decision Makers. John Wiley & Sons Inc., New York, 2013 3
 Some Assessment Questions to Ask
 Is the uncertain event truly random?
 Do we assess probability of happening or probability of
discovery of a particular predetermined outcome?
 Are some project stakeholders behind this event and defining
the probability of its occurrence and impact?
 Are we coming across broiler black swan situations?
 What are the elements of novelty in this project?
 What steps should be undertaken to better understand this
uncertainty and reduce its randomness?
Assessment of likelihood based on frequency of
previously occurred events is rarely applicable or relevant.

Y. Raydugin. Project Risk Management: Essential Methods for Project

Teams and Decision Makers. John Wiley & Sons Inc., New York, 2013 4
 Uncertainty Addressing Strategies
Downside Uncertainties Upside Uncertainties

• Avoid (barrier 1) • Exploit (barrier 1)

• Mitigate–Prevent (barrier 1) • Enhance–Magnify (barrier 1)
• Mitigate–Recover (barrier 2) • Enhance–Amplify (barrier 2)
• Transfer (barrier 2) • Share (barrier 2)
• Accept (barrier 2) • Take (barrier 2)
Purpose of addressing: Purpose of addressing:
“domesticating monsters” to “polishing diamonds-in-the-
change them into “pets” rough” to get “fine diamonds”

Y. Raydugin. Project Risk Management: Essential Methods for Project

Teams and Decision Makers. John Wiley & Sons Inc., New York, 2013 5
 Purpose of Addressing (Examples)
Downside Uncertainties Upside Uncertainties
PROBABILITY PROBABILITY
< 1% 1% - 20% 20% - 50% 50% - 90% >90% < 1% 1% - 20% 20% - 50% 50% - 90% >90%
Ve ry Lo w Lo w M e dium High Ve ry High Ve ry Lo w Lo w M e dium High Ve ry High
( 1) (2 ) (3) (4 ) (5 ) ( 1) (2 ) (3 ) (4 ) (5 )

Ve ry High Ve ry High
5 10 15 20 25 5 10 15 20 25
(5 ) (5 )

I High
4 8 12 16 20
I High
4 8 12 16 20
(4 ) (4 )
M M
P P
A M e dium
3 6 9 12 15 A M e dium
3 6 9 12 15
(3 ) (3 )
C C
T T
Lo w Lo w
2 4 6 8 10 2 4 6 8 10
(2 ) (2 )

Ve ry Lo w Ve ry Lo w
1 2 3 4 5 1 2 3 4 5
( 1) ( 1)

In the case of general uncertainties, only the right-hand column

(probability  100%) is considered.
Y. Raydugin. Project Risk Management: Essential Methods for Project
Teams and Decision Makers. John Wiley & Sons Inc., New York, 2013 6
Sample Uncertainty Register

A standard project RAM should be used.

Y. Raydugin. Project Risk Management: Essential Methods for Project
Teams and Decision Makers. John Wiley & Sons Inc., New York, 2013 7
Sample PETRA Template

Y. Raydugin. Project Risk Management: Essential Methods for Project

Teams and Decision Makers. John Wiley & Sons Inc., New York, 2013 8
 Bias
• Subconscious–Perceptual: familiarity, proximity, manageability,
experience related to a particular uncertainty, anchoring
• Subconscious–Cognitive: misunderstandings or lack of knowledge about
risks and risk methods
• Conscious (Motivational): hidden agenda, double-dipping, exaggeration,
drama, comedy, window-dressing, hiding, etc.
• Organizational: quality of risk procedures and project risk management
system (RMS); experience and background of risk managers, directors,
VPs; qualification of risk specialists, project team members, decision
makers; time and budget spent for risk management; etc.
All types of bias are highly interrelated and feed each other.
Bias is a systematic error in the RMS, and should be
properly managed and calibrated.

Y. Raydugin. Project Risk Management: Essential Methods for Project

Teams and Decision Makers. John Wiley & Sons Inc., New York, 2013 9