risk management , concept of risk , sources of risk , concept of risk management , risk management’s benefits , the risk management process

1. Risk Management
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Concept of Risk
Uncertain or chance events that planning can
not overcome or control.

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Sources of Risk
 Project – Specific Risk: The earnings & cash flows of
the project may be lower than expected because of
an estimation error or due to some other factors
specific to the project.
 Competitive Risk: The earnings & cash flows of the
project may be affected by the unanticipated
actions of the competitors.
 Industry – Specific Risk: Unexpected technological
developments and regulatory changes that are
specific to the industry to which the project
belongs, will have an impact on the earnings &
cash flows of the project as well.

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 Market Risk: Unanticipated changes in
macroeconomic factors have impact on all
projects.
 International Risk: In case of a foreign project,
the earnings and cash flows may be different
than expected due to the exchange rate risk or
political risk.

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Concept of Risk Management
A proactive attempt to recognize and manage
internal events and external threats that affect
the likelihood of a project’s success.
i. What can go wrong (risk event).
ii. How to minimize the risk event’s impact
(consequences).
iii. What can be done before an event occurs
(anticipation).
iv. What to do when an event occurs (contingency
plans).

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Risk Management’s Benefits
 A proactive rather than reactive approach.
 Reduces surprises and negative consequences.
 Prepares the project manager to take
advantage of appropriate risks.
 Provides better control over the future.
 Improves chances of reaching project
performance objectives within budget and on
time.

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The Risk Management Process

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Step 1: Risk Identification
 Generate a list of possible risks through
brainstorming, problem identification and risk
profiling.
 Macro risks first, then specific events
Step 2: Risk assessment
 Scenario analysis
 Risk assessment matrix
 Failure Mode and Effects Analysis (FMEA)
 Probability analysis
 Decision trees, NPV, and PERT
 Semi- quantitative scenario analysis

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Step 3: Risk Response Development
 Mitigating Risk
 Reducing the likelihood an adverse event
will occur.
 Reducing impact of adverse event.
 Transferring Risk
 Paying a premium to pass the risk to another
party.
 Avoiding Risk
 Changing the project plan to eliminate the
risk or

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 condition.
 Sharing Risk
 Allocating risk to different parties
 Retaining Risk
 Making a conscious decision to accept the
risk.

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Step 4: Risk Response Control
 Risk control
Execution of the risk response strategy
Monitoring of triggering events
Initiating contingency plans
Watching for new risks

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 Establishing a Change Management System
Monitoring, tracking, and reporting risk
Fostering an open organization
environment
Repeating risk identification/assessment
exercises
Assigning and documenting responsibility
for managing risk