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BSB20315-7
Lecture 10
Risk and Opportunities
Management
Learning Outcomes
• Definitions of risk:
– The possibility of suffering harm or loss
[PMI BoK 2004]
– Uncertainty inherent in plans and the possibility of
something happening (i.e. a contingency) that can
affect the prospects of achieving business or
project goals
[BS 6097 (2000) Part 3: Guide to the Management of
Business Related Project Risk]
2. Sensitivity analysis
• Use expected, optimistic and pessimistic value of inputs
(e.g. costs)
– Shows effect on the outcome of a change in the variable
– Shows where management attention and control is needed
• Example
– Prices on materials and labour likely to fluctuate
– Contract price is fixed in advance
– Need to see effect of fluctuations on profit
– Costs of materials say £0.6m
– Costs of direct labour say £0.2m
– Contribution to say 175 percent of direct labour
– Revenues: fixed at £1.2m
– Profit = revenue – material costs – (labour + overheads)
Module Code and Module Title Title of Slides
Quantitative approaches
(Qualitative and quantitative approaches)(Continued)
• Example
– Revenue stream to be generated: in the range of
£.75m to £1.15m
• Equally likely to be any value
– Materials costs: £.25m most likely
• could be considerably more, unlikely to be less
– Labour costs: £.55m
• Could be more, could be less
– Profit
• Normally = revenue–materials–labour = £.15
• Uncertainties suggest otherwise
Module Code and Module Title Title of Slides
Quantitative approaches
(Qualitative and quantitative approaches)(Continued)
Figure 10.4 Network showing optimistic, most probable and pessimistic times