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Management
Session: 2008/09
Compiled By:
Mohammed Ahmed
INTRODUCTION
1
In the real world, project decisions are made with incomplete information about uncertainties
throughout the life cycle of a project. Uncertainties are a fundamental part of project which
can either derail a project or turned into opportunities. These uncertainties results in risks
(Burke, 2006).
RISK IN PROJECTS
According to Olsson (2002), risk is the uncertainty of the future which cannot be predicted.
They are potential events that pose a threat or opportunity to projects that may result in goals
not being achieved as set out in a project plan (Heldman, 2005). PMBOK (2004) defines
project risk as an uncertain condition that when allowed to occur would have a negative or
positive outcome on project objective. Risks are an integral part of project management from
the inception of the profession (Olsson, 2007). Risks have the probability of occurring or not
occurring and their uncertainties can best be judge based on the knowledge and experience of
the project manager (Newell and Grashina, 2004). Project risk management as defined in
PMBOK (2004) involves the practices concerned with conducting risk management planning,
identification, analysis and reporting, monitoring and controlling projects.
RISK EVALUATION
According to Lansdowne (1999), risks are evaluated using a five-point scale to understand
the level of impact when allowed to occur in projects.
2. Serious risk would cause major cost or schedule increase which may prevent
secondary requirements to be achieved.
3. Moderate risk would cause moderate cost or schedule increase, though it will still
allow important requirements to be realised.
2
CLASSES OF RISK
CAUSES OF RISK
Project risk analysis from root cause analysis (fishbone) diagram helps the project leader to
fully understand the causes, nature and the extent of risks (Kendrick, 2003). Briner et al
(2001) suggested that for a project manager to avoid being caught in a web of difficulties, the
need to anticipate and analyse the potential impact of risk is important.
• Poor communication
Risk Planning: Developing and documenting the strategies necessary to handle risks when
they occur.
Risk Assessment: The method of identifying and analysing areas that would help the project
meet the cost, schedule and performance objective even when risk occur.
Risk Handling: It helps to evaluate and select one or more strategies to help put the project
risk under negligible level.
Risk Monitoring: This involves tracking and evaluating the performance of the processes
employed in managing the project risks.
Delphi method
TYPES OF RISKS
Risk Management
Risk Identification
Inflation
• Cost risks: The inability to complete a project within the estimated budget
• Quality risks: It is the failure of a project meeting the agreed technical and quality
objective specified by the customer or client
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• Schedule risks: Unable to meet the deadline proposed for project closure and
handover.
Project manager and practitioners use tools from quality and reliability engineering to
identify, score, rank and measure project risk for effective management (Lock, 2003, Wood
and Ellis, 2003). These tools include:
Sensitivity analysis
Avoid every causes of risk: This is achieved by not undertaking the activity that gives rise to
unmanageable risk (Zhi, 1994) or changing the project plans to eliminate the risk completely.
Prevent or mitigate the impact of risk: This involves the use of tested techniques and
standards to reduce the impact of risks. The project team develops prototypes and models to
simulate real life situations (Burke, 2006)
Share the risk between stakeholders: The risk is shared amongst the parties involved in the
project either through insurance or other methods to reduce the financial impact on the
project manager
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Transfer the risk to a third party for a fee: Risks can be transferred to an outside vendor with
adequate competence to deal with as it may delay project completion (Cervone, 2006) for a
fee that would not overrun the budget excessively.
In-process audit: This is a continuous review and monitoring of every stage of a project as
progress is made to ensure that the objectives will be met. It is an assessment of the validity
of the risks management plans (Nokes and Kelly, 2003)
CONCLUSION
REFERENCE
Ahmed, A., Kayis, B. and Amornsawadwatana, S., 2007, A review of techniques for risk
management in projects, Benchmarking: An International Journal Vol. 14 No. 1, pp. 22-36
Briner, W., Hastings, C. and Geddes, M., 2001, Project leadership, 2nd Edn.
6
Burke, R., 2006, Project management, planning and control techniques 5th Edn.
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management, OCLC Systems & Services: International digital library perspectives Vol. 22
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association
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mitigation progress”, Proceedings of the 30th Annual Project Management Institute,
Philadelphia, PA, October 10-16
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Book
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