Project Risk Management

Yang Lin
Part I : Guidance for WSDOT Projects

Chapter 1: Project Risk Management Planning

Chapter 2: Risk Identification
Chapter 3: Qualitative Risk Analysis
Chapter 4: Quantitative Risk Analysis
Chapter 5: Risk Response
Chapter 6: Risk Monitoring and Control
Chapter 7: Project Risk Management Plan Template

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Chapter 1 Project Risk Management Planning

2
 PMI Framework: 9 Knowledge Areas

Time Cost
Scope

Integration
Procurement Quality

Risk People
Communication

Department of Engineering Management,Wuhan university 4

Chapter 1 Project Risk Management Planning

• Risk

The probability of losing something of

value.

Probability is the measure of the

likelihood that an event will occur.
Chapter 1 Project Risk Management Planning

• Project Risk
Any loss, damage, or undesirable event that may
impact the project to be accomplished on time, under
budget, and to required quality standard.

Project risk can be simply defined as any possible

event that can negatively affect the viability of a
project.
 Chapter 1 Project Risk Management Planning
• Project Risk Management
The art and science of identifying, analyzing, and
responding to risk factors throughout the life of the project
and in the best interest of its objectives.
Consider:
高度关注目标的对项目生命周期全过程中风险因素的识别、分析和应对的艺术和科学。考虑以下
因素：
• Risk event 风险事件
• Risk probability 风险可能性
• Amount at stake 风险的数量
• Personal risk tolerance level 风险承受度
Department of Engineering Management,Wuhan university 7
 Chapter 1 Project Risk Management Planning

Table ： Project Management Maturity by Industry Group and

Knowledge Area*
KEY: 1 = LOWEST MATURITY RATING 5 = HIGHEST MATURITY RATING
Engineering/ Telecommunications Information Hi-Tech
Knowledge Area Construction Systems Manufacturing

Scope 3.52 3.45 3.25 3.37

Time 3.55 3.41 3.03 3.50
Cost 3.74 3.22 3.20 3.97
Quality 2.91 3.22 2.88 3.26
Human 3.18 3.20 2.93 3.18
Resources
Communications 3.53 3.53 3.21 3.48
Risk 2.93 2.87 2.75 2.76
Procurement 3.33 3.01 2.91 3.33

*Ibbs, C. William and Young Hoon Kwak. “Assessing Project Management Maturity,”
Project Management Journal (March 2000). 8
 Chapter 1 Project Risk Management Planning
The Purpose of risk management

Obtain better project outcomes, in terms of

schedule, cost and operations performance.
Have a thorough understanding of those risks and
responses required for success.
The aim is to systematically utilize, control and
manage risk in project rather than eliminate it.

Department of Engineering Management,Wuhan university 9

Chapter 1 Project Risk Management Planning

No construction project is risk free. Risk can be

managed,minimized, shared, transferred,or accepted. It
cannot be ignored.
~ Sir Michael Latham, 1994
Chapter 1 Project Risk Management
Planning
Value of Risk Management
Project risk management delivers a number of
values to the project, including:
• Recognizes uncertainty and provides
forecasts of possible outcomes
• Produces better business outcomes through
more informed decision making
• Has a positive influence on creative
thinking and innovation
• Creates better project control—reduces
overhead and time, and enhances benefits
• Contributes to project success
Chapter 1 Project Risk Management Planning

With effective risk management as an

integral and required part of project
management, we can not only predict
possible future outcomes, we can take action
to shift the odds for project success in our
favor.
Chapter 1 Project Risk Management Planning

Exhibit 1-1 Balanced Risk Management (Risk

Tolerance)
Chapter 1 Project Risk Management Planning
Chapter 1 Project Risk Management
Planning
Project Risk Management Process

Risk management, as an integral part of

project management, occurs on a daily basis.
With proactive risk management, we look at
projects in a comprehensive manner andassess
and document risks and uncertainty.
Chapter 1 Project Risk Management
Planning
Project Risk Management Process
a. Risk Management Steps
Chapter 1 Project Risk Management Planning
 02 Risk Management Overview

RISK UNIVERSE
Strategic Risk Sources
Externally driven
Currency/foreign
exchange
Customer demand

Financial Risk Sources Customer/

industry
Interest rates
changes
Internally driven
Credit
Intellectual capital Competitive
Counterparties Pressure
Research &
Commodity Liquidity and development Mergers &
prices cash flow Acquisitions

Contracts Process Controls

General Public Information systems Regulations
Employees
Consumers Accounting/controls
Properties Supply chain
Products and
Natural events Services Talent Acquisition
Talent
Mangement
Hazard Risk Sources Operational Risk Sources
Board
Vendors and
Composition
Suppliers

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Chapter 1 Project Risk Management Planning
b. Relationship Between Risk and Objectives
Chapter 1 Project Risk Management Planning
1-4 Smart Effort = Less Risk
1-4.1 Taking Action
The power of risk management is fully realized
when a Project Manager takes action to respond to
identified risks based on the risk analysis, with
effort being directed toward those risks that rank
the highest in terms of significant impact to project
objectives.
Chapter 1 Project Risk Management Planning
1-4.1.1 Inputs
The project scope, schedule, and estimate package
should include the most current versions of the following
• Project Summary
items:
• Detailed Scope of Work (commensurate
with the level of development)
• Project Cost Estimate (with Basis of
Estimate completed)
• Project Schedule
o PE cost estimate
o Overall project schedule
o ROW cost estimate
o Detailed construction
o Construction cost estimate
schedule (commensurate to
• Previous Risk Analyses (if applicable)
level of development)
• Project Management Plan
• QA/QC Status
• Additional Information (as
necessary)
Chapter 1 Project Risk Management Planning
1-4.1.2 Techniques and Tools
We provide a number of techniques and tools to
assist in project risk management.These tools and
techniques provide scalability and flexibility so that
project teams can match the tool with the specific
needs of their projects.
• Project Management Online Guide (PMOG)
 Project Management Plan (fundamental for all
projects)
 The PMOG provides a risk matrix for smaller,
simpler projects
 Risk planning, risk assessment, and risk
management are integral elements of project
management
• Risk Management Plan spreadsheet template
(found on SAEO website)
Chapter 1 Project Risk Management Planning
1-4.1.3 Output
The required data is:
1. Project scheduling data for the following
milestone dates:
• Project definition completion date
• Date for the beginning of preliminary engineering
• Completion date for the environmental document
• Start date for the acquisition of right of way
• Date of right of way certification
• Project advertisement date
• Date project is operationally complete
Chapter 1 Project Risk Management Planning
2. Estimated project cost data :

• Date of estimate basis

• Design cost estimate
• Right of way cost
estimate
• Construction cost
3. Midpoint for construction phases using the
estimate
project award date and the operationally
complete date.
Chapter 1 Project Risk Management Planning

1-5 Project Risk Management Planning

Great project risk management requires good

planning. Begin with proven project management
practices:
review organizational policies and guidance;
initiate and align the project team;
follow the steps provided in the Project
Management Online Guide.
Risk management must commence early in project
development and proceed as the project evolves
Chapter 1 Project Risk Management Planning

• Identify, assess/analyze, and respond to major

risks.
• Continually monitor project risks and response
actions.
• Conduct an appropriate number and level of risk
assessments to update the Risk Management Plan
andConsider
evolvingthe
riskresources
profile forneeded
the project.
for project risk
management and build them into the project
development budget and schedule.
Chapter 1 Project Risk Management Planning

Risk management activities, including events

such as Cost Risk Assessment (CRA), Cost Estimate
Validation Process (CEVP®), Value Engineering –
Risk Assessment (VERA), or other meetings, need
to be part of the project work plan and built into
the project schedule and budget ：
 Chapter 1 Project Risk Management Planning

General Comparison of a Few Typical Characteristics of CRA and

CEVP
Chapter 1 Project Risk Management Planning
The form illustrates how project information
develops and evolves over time. With rising project
knowledge comes an understanding that contending
with some elements of the project will require
significant additional resources.
These elements could involve: scope; environmental
mitigation and permitting; rising cost of right of way
as corridors develop in advance of the project;
utilities; seismic issues; and other elements.
In the past, traditional estimating practices tended
to produce “the number” for a project; but the single
number masks the critical uncertainty inherent in a
Chapter 1 Project Risk Management Planning
Exhibit 1-5 Evolution of Project Knowledge Through Project
Development

components of Uncertainty
Chapter 1 Project Risk Management Planning
Executive Order (EO) instructs employees to actively
manage their projects. EO establishes, as policy,
organization is to proactively assess and respond to any
risks that may affect the achievement of the
department’s strategic performance based objectives
and their intended outcomes. It further goes on to
direct employees to support the department’s efforts to
identify, share, and manage risk across all organizations
and functions.
Risk reviews are an integral part of budget
development, with the intent that the department
makes informed decisions about risk tolerance.
 Chapter 1 Project Risk Management Planning
We can think of risk management

as two pillars. They are:

“IDENTIFY and ANALYZE” the risks,

then, “RESPOND, MONITOR, and

CONTROL” project
Unless risk.
we incorporate the
second pillar, we are not
realizing the full value of risk
management. When preparing
the Project Management Plan
and work activities for our
project, we must include both
Chapter 1 Project Risk Management Planning

1-6 How to Plan for Project Risk Management

Do you plan to manage risk for your project? YES!

Then include risk management in your Project
Management Plan.
1. Determine the level of risk assessment for your
project (Exhibit 1-6).
2. Incorporate risk management activities into the
project schedule (Exhibit 1-7).
3. Make riskthe
4. Establish management
expectationan agenda
that item
risk will be for regularly
managed,
scheduled
documented,project meetings.
and reported.
Chapter 1 Project Risk Management Planning
Exhibit 1-6 Determine the Level of Risk
Assessment
 Chapter 1 Project Risk Management Planning
Exhibit 1-7 Include Risk Management Milestones in the
Project Schedule

*Does not require a formal

Chapter 1 Project Risk Management Planning
1-6.1 Tips for Risk Management Planning

• Risk assessment should begin early, but there

must be enough known about the project to
understand what is being assessed. This will be to
varying levels of detail depending on the point in
project development at which the risk assessment
is conducted (planning, scoping, design/PS&E);
hence, schedule risk assessments at appropriate
times.
Chapter 1 Project Risk Management Planning

• Allow time in the schedule for prep activities;

this includes review
and QA/QC of project schedules and cost
estimates at appropriate times (Exhibits 1-8 and
1-9).
• Allow a budget for risk assessment, risk
management, and risk response activities.

• Report on the status of project risk in regularly

scheduled project meetings.
Chapter 1 Project Risk Management Planning
Exhibit 1-8 Simplified Workshop Timeline
Chapter 1 Project Risk Management Planning
Exhibit 1-9 Risk Management Schedule: With
Workshop and Postworkshop Activities
Chapter 1 Project Risk Management Planning

• Know the organization’s tolerance for risk. Are

Project Managers (and upper management) risk
averse or risk seeking? How much risk is the
organization willing to accept? Knowing the
answers to these questions will help with risk
management and contribute to the decision-
making process when determining risk response
actions.
• Contact the Strategic Analysis and Estimating
Office (SAEO) and discuss the possibility of
combining the risk assessment workshop with a
Chapter 1 Project Risk Management Planning
Typical prep activities Typical post activities
include: include:
Prep meeting
Perform action items
Prepare agenda
Review materials Prepare Monte Carlo models

Advance elicitation Prepare draft and final reports

Process task orders Conduct risk treatment follow-up
Negotiate contracts meeting
Identify cost-risk team Prepare preliminary presentation
Confirm & invite participants
Review and process consultant
Schedule activities (pre- and
invoices
post-)
Determine type of risk
Chapter 1 Project Risk Management Planning

Causes of delay to the start or Causes of delaying the

analysis finsih
Poorly defined scope of work
Delays in decision-making
Poorly prepared cost estimate
Unresolved isses at end of
Poorly prepared schedule
meeting
estimate
Requested
Note: Once theinformation not
risk assessment
No current project management meeting is over, it is over. Allow
Note: If the project team cannot
the process provided
to come to a
clearly describe
plan the project to conclusion so the report can be
be evaluated, with a well-
delivered. Endless permutations
defined problem statement, and
and combinations of hypothetical
provide a cost and schedule
scenarios that will not contribute
estimate, the risk assessment
to the decisionmaking process do
meeting should be postponed.
not add value to the process.
Evaluate the results, then develop
Chapter 1 Project Risk Management Planning
Chapter 1 Project Risk Management Planning
Chapter 1 Project Risk Management Planning