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Chapter 1 - Introduction (PRM)

Risk management assists project managers in three key ways: 1) setting priorities for the project, 2) allocating resources appropriately, and 3) implementing actions and processes to reduce risks and help ensure the project meets its objectives. All projects face risks related to uncertainties that could negatively or positively impact objectives. Proper risk management involves identifying potential risks, analyzing their likelihood and impact, and developing strategies to mitigate threats and leverage opportunities.

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20 views

Chapter 1 - Introduction (PRM)

Risk management assists project managers in three key ways: 1) setting priorities for the project, 2) allocating resources appropriately, and 3) implementing actions and processes to reduce risks and help ensure the project meets its objectives. All projects face risks related to uncertainties that could negatively or positively impact objectives. Proper risk management involves identifying potential risks, analyzing their likelihood and impact, and developing strategies to mitigate threats and leverage opportunities.

Uploaded by

Ermia Moge
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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INTRODUCTION

 Risk is an uncertainty that is characterized by its probability of


occurrence and its impact on project objectives.
 Uncertainty is about a future event that may or may not happen.

 All projects contain risk, arising from interactions between


OBJECTIVES ... ‘ What must happen UNCERTAINTY ... What
might happen

 Risks are uncertainties which, if they occur, would affect the project
objectives either negatively (threats) or positively (opportunities). Project
objectives include scope, schedule, cost, and quality.
Risk management assists project managers in
setting priorities, allocating resources and
implementing actions and processes that reduce
the risk of the project not achieving its objectives.

 All projects are exposed to risk, denial does not make


them go away, it just makes you unprepared for them
if they occur.
 According to Chapman and Ward (2002), uncertainty means ‘lack
of
certainty’ -not able to be accurately known or predicted.

 Projects may involve uncertainties but they do not matter


equally, indeed some do not matter at all while others
are literally vital.

 Risk’ is ‘uncertainty that matters’ but not every uncertainty is


a risk.
 It matters because it can affect one or more objectives.
 There are uncertainties that are irrelevant in terms of
objectives, and these should be excluded from the risk management
process (RMP)
 Uncertainty can involve Variability associated with various project estimates
such as quality, costs, and schedules ( difference between the estimated and
actual values)

 Uncertainty is also about Ambiguity associated with lack of


complete/perfect knowledge for various reasons such as lack of data, lack of
detail, lack of structure, and the unpredictable behavior of relevant project
players.

 sources of project uncertainty


1. variability associated with estimates via common practice risk
measurement
2. uncertainty about the basis of estimates
3. uncertainty about design and logistics
4. uncertainty about objectives and priorities
5. uncertainty about fundamental relationships between project parties.
The six Ws framework for the roots of
uncertainty
 Who- Who are involved?
• project initiators, later players and other interested parties
 Why- What do the parties want to achieve?
(Profit or other motives )
 What- what is it the parties are interested
in?
• Design (building, other physical product,
service, or process)
 Whichway- how is it to be done? ( Activities)
 Wherewithal- What resources are required
 When- When does it have to be done?
(Timetable)
 Organizational culture drives the approach to risk. Thus, organization
needs to build a culture of risk management in order to be
successful in managing project risk.

 Risk culture definition


The norms and traditions of behaviour of individuals and of groups
within an organization that determine the way in which they identify,
understand, discuss and act on the risks the organisation confronts and
the risks it takes. (IIF, 2009).

 Culture is how organization do things-“ risk is our way of doing


business”

 Building a risk-based culture involves integrating risk into the


project planning and control process.
 An organization's risk culture is formed by the ‘behavioral rules’ created
by both an organization's leadership and its staff in the process of
achieving its goals within a specific set of environmental
conditions.

 ‘Behavioral rules’ can be observed in the actions taken, the actions


not taken and interactions between organizational members, in relation
to managing risks.

 The Behavior of the group and its members is shaped by their


underlying Attitudes
 link corporate and project planning. Risk management program is
consistent with company strategy and planning.

 Provide training and development in risk planning and management.

 Document past project experiences and learn lessons from the


experiences (Learning organization).

 Functional managers address quality.

 Have a remuneration system which incorporates incentives for


management and staff to optimize risk and returns.
Seeing through
Johari window
 One of the major risks
in any project is the
tendency of its key
project decision makers
to overestimate what
they know and
underestimate what
they don’t know.

 Within the Johari


Window model,
interpersonal
communication can be
improved by enlarging
the area of Arena
(open area) through
self- disclosure and
feedback.
Different approaches are found to classifying what are often the same types
of risks. The main categories of risk can be classified as:

 Physical: loss of (or damage to) information, equipment or buildings as


a result of an accident, fire or natural disasters such as floods,
earthquake.

 Technical: Systems that do not work or do not work well enough to


deliver the anticipated benefits.
Labor: Key people unable to contribute to the project because
of, for example, illness and career change.

Political/Social: For example, withdrawal of support for the


project as a result of change of government, a policy change
by senior management, or protest from the community, the
media, service user or staff.

Liability: legal action or the treats of it because some aspects


of the project is considered to be illegal or because there may
be compensation claims if something goes wrong.

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