Risk Management

Risk Wherever risk is shifted from one party to another, there

should be a counterbalancing change in price. A construction
contract is exactly that.
A risk is a
potential It can be Effect
event

Internal External Positive Negative

All projects are risky since they

are unique undertakings
Construction risk
• four categories of risks with negative impact in construction
• 'pure and particular risk’: includes damage to persons and property (such as
fire, storm, water, collapse, subsidence, vibration, etc.).
• 'fundamental risk’: includes external factors such as: damage due to war,
nuclear pollution, supersonic shock waves, government policy on taxes, labor,
safety or other laws; malicious damage; and industrial disputes.
• 'speculative risk’: include losses in time and money, which can be allocated in
advance as agreed by the parties to the contract
• losses of time and money: includes delays and disputes (possession of site,
late supply of information, inefficient execution of work, etc.); poor direction,
supervision or communication; delays in payment; and delay in resolving
disputes.
Risk exists at two levels within every project
• Individual project risk is an uncertain event or condition that, if it
occurs, has a positive or negative effect on one or more project
objectives.
• Overall project risk is the effect of uncertainty on the project as a
whole, arising from all sources of uncertainty including individual
risks, representing the exposure of stakeholders to the implications of
variations in project outcome, both positive and negative.
Key Process
• Plan Risk Management
• Identify Risks
• Perform Qualitative Risk Analysis
• Perform Quantitative Risk Analysis
• Plan Risk Responses
• Implement Risk Responses
• Monitor Risks
Developing a Risk Management Plan
• Plan Risk Management is the process
of defining how to conduct risk
management activities for a project.
• It ensures that the degree, type, and
visibility of risk management are
proportionate to both risks and the
importance of the project to the
organization and other stakeholders.
• The risk management plan is
developed once and updated as
necessary throughout the project
lifecycle.
Plan Risk Management Process – Outputs
• Risk strategy: Describes the general approach
• Methodology: Defines the specific approaches, tools, and data sources
•to perform risk management
• Roles and responsibilities: Defines the lead, support, and risk management
team members
• Funding: Identifies the funds needed to perform activities related to Project
Risk Management
• Timing: Defines when and how often the Project Risk Management
processes will be performed
• Risk categories: a means for grouping individual project risks
• Stakeholder risk appetite: The risk appetites of key stakeholders
• Definitions of risk probability and impacts: Definitions of risk
probability and impact levels
• Probability and impact matrix: Prioritization rules
• Reporting formats: Reporting formats define how the outcomes of
the Project Risk Management process will be documented, analyzed,
and communicated
• Tracking: Tracking documents how risk activities will be recorded
Risk
breakdown
Structure
Identify Risk Process
• Identify Risks is the process of identifying individual project risks as
well as sources of overall project risk, and documenting their
characteristics. Tools & Techniques
Project Management
Plan Expert Judgment
Inputs Risk Register
Agreements Data Gathering
Outputs
Project Document Data Analysis Risk Report
Procurement Interpersonal and team
documentation Skill
Project
Enterprise Prompt list Documents
Environmental Factors Meetings update
Organizational Process
Assets
Perform Qualitative Risk Management
• Perform Qualitative Risk Analysis is the process of prioritizing individual
project risks for further analysis or action by assessing their probability of
occurrence and impact as well as other characteristics.
Tools & Techniques
Project Expert Judgement
Management Plan Inputs Data Gathering
Outputs
Project Documents Data Analysis Project
Enterprise Interpersonal and team document
Environmental skill Updates
Factors
Risk Categorization
Organizational
Data Representation
Process Assets
Meetings
Perform Quantitive Risk Management
• Perform Quantitative Risk Analysis is the process of numerically analyzing the
combined effect of identified individual project risks and other sources of
uncertainty on overall project objectives.
Tools & Techniques
Expert Judgment
Project
Data Gathering
Management Plan Outputs
Inputs Interpersonal and team Project
Project documents
skill Document
Enterprise Updates
Representation of
Environmental
uncertainty
Factors
Data Analysis
Organizational
Process Assets
Prioritizing risks
• Risk Impact/Probability Matrix provides a useful framework that helps
the PM decide which risks need your attention. The Risk
Impact/Probability Matrix is based on the principle that a risk has two
primary dimensions:
• Probability – A risk is an event that "may" occur. The probability of it
occurring can range anywhere from just above 0 percent to just
below 100 percent. (Note: If it is100 percent, it would be a certainty,
not a risk. And if it is 0 percent, it wouldn't be a risk.)
• Impact – A risk, by its very nature, always has an impact. However,
the size of the impact varies.
Plan Risk Responses
• Plan Risk Responses is the process of developing options, selecting
strategies, and agreeing on actions to address overall project risk exposure,
as well as to treat individual project risks.
Tools & Techniques
Expert Judgment
Project
Management Plan Data Gathering Outputs
Inputs Change Request
Project Interpersonal and team skill
Documents
Enterprise Strategies and threats Project Document
Environmental Strategies and opportunities updates
Factor
Contingent Response Strategy Project Management
Organizational
Process asset Representation of uncertainty Plan Updates
Strategies for overall project risk
Data Analysis
Decision Making
Risk mitigation, avoidance, transfer, and acceptance
• The risk response strategy differs among the type of impact that the risk imposes to
the project objective.

Escalate Avoid Escalate Exploit

Transfer Mitigate Share Enhance

Accept Accept
Positive Risks Negative Risks