Project Management Lecture 10 Project Risk Management

Lecture 10- Project risk management Concept of risk    A risk is any uncertain event or condition that, if it occurs, can have a positive or negative impact on the project´s objectives, including its scope, schedule, cost or quality. Risk arises from various sources and can affect different aspects of the project. They are not always negative- some risks, known as opportunities, can potentially benefit the project. Risk categories     Internal risk: These are risks that originate from the organization itself/ or within the project. They are typically within the control of the project team and can be managed or mitigated more directly through good project management practices. External risks: These risks are from outside the organization or project team and are typically beyond direct control. They require proactive monitoring and contingency planning to manage their impact effectively. Extreme risk: These are high-impact, low-probability risks that, if they occur, can have catastrophic consequences on the project and the organization. Risk development    Risk development in project management refers to the process by which risks evolve or change throughout the lifecycle of a project. As a project progresses, risks can intensify, diminish, or transform based on various factors such as project stage, changes in the external environment, or project decisions. Effective risk development management is essential for keeping the project on track, as risks that are not managed an escalate and significantly impact project success. Interpretation risks Is the process of understanding and assessing the potential impact of the identified risks on a project´s goals, timeline, budget and quality.  This step is crucial for making informed decisions about which risks require immediate action, which can be monitored, and which can be accepted without significant impact.  Project managers have different perception of risks, and this may affect risk management process.  Factors affecting risk interpretation:  Personal experience and biases  Risk tolerance levels  Stakeholder priorities  Cultural differences  Interests  Access to information Risk management      Is the process of identifying, analyzing and responding to potential risks that could negatively impact a project´s objectives, timeline or resources. Effective risk management is essential to minimize uncertainties and enhance the likelihood of project success. Risk management represent proactive way of dealing with risks before they affect the project. Risk management is affected by several factors which can reduce effectiveness of risk response measures. Factors affecting risk management: lack of awareness, resistance to change, lack of resources, lack of tools and methods and lack of knowledge. Risk communication    Is the process of sharing information about risks, their potential impacts, and response strategies with all relevant stakeholders. This ensures that everyone involved in the project has a clear understanding of the risks, is aligned on how they´re being managed, and knows their roles in the mitigation process. Effective risk communication builds trust, promotes transparency, and enables better-informed decision making. Risk management method Stage 1: Planning stage: Define the purpose and objectives of the risk management process. Stage 2: Risk identification: Use the following methods for risk identification  Brainstorming  Interviews  Checklists  Expert group  Sharing experience  Fishbone diagram Stage 3: Risk analysis  Determine the probability of occurrence as well as the impact of the event  Probability is the likelihood of occurrence  Impact is the consequence if the risk occurs  Probability X impact = risk contribution  If the result is negative, then the risk has negative effects  If the result is positive, then the risk has positive effects Stage 4: Risk strategy  The following are the strategies for managing risks A) Risk avoidance o Risk avoidance is changing the project plan to eliminate the risk or condition. o Although it is impossible to eliminate all risk events, some specific risks may be avoided before you launch the project. For example, adopting proven technology instead of experimental technology can eliminate technical failure.  B) risk transfer o Passing risk to another party is common; this transfer does not change risk o Passing risk to another party almost always results in paying a premium for this exemption. For example Sub-contracting.  C) Accept risk o In some cases, a conscious decision is made to accept the risk of an event occurring. o Some risks are so large it is not feasible to consider transferring or reducing the event (earthquake or flood).  D) investigate: gather more information for informed decision  E) exploit: take advantage of the opportunity  F) share: joint venture with others Stage 5: Follow up and control  Keep documents of risks  Maintain risk register/ communicate effectively 