Risk Management in

Construction
CEM 807
Lecture 4
Introduction
• As per PMBOK Risk Management knowledge area:

• Perform Qualitative Risk Analysis is the process of prioritizing individual project risks
for further analysis or action by assessing their probability of occurrence and impact as
well as other characteristics.

• The key benefit of this process is that it focuses efforts on high-priority risks. This
process is performed throughout the project.

• The relative priorities of individual project risks for “Planning Risk Response” is
determined and a risk owner is identified for each risk who will take responsibility for
planning an appropriate risk response and ensuring that it is implemented.
Introduction
Introduction
Qualitative Risk Analysis
Qualitative Risk Analysis
Qualitative Risk Analysis
Qualitative Risk Analysis
• The project team may consider other characteristics of risk (in
addition to probability and impact) when prioritizing individual
project risks for further analysis and action.

• These characteristics may include but are not limited to: (next slide)

• The consideration of some of these characteristics can provide a more

robust prioritization of risks than is possible by only assessing
probability and impact.
Qualitative Risk Analysis
Consequences (Impact) of Risks
• Consequences are rated in terms of the potential impact on the criteria, often on five-
point descriptive scales linked to the criteria identified in the context step.

• Where a risk has several consequences on different parts of the scale, the highest
consequence is used to generate the rating. This generates a conservative view of the
overall consequences of the risk.

• The limits established for each risk on the scale are contextual (notice the impact of risk
attitude) – involves corporate/executive management.

• Consequence scales established are influenced by organization’s objectives and criteria

for success hence they should be reviewed for each project.
Consequences (Impact) of Risks
• For a small/simple project
Likelihood (Probability) of Risks
Likelihood (Probability) of Risks
Likelihood (Probability) of Risks
• For a small/simple project
Initial Risk Priorities
• A simple matrix is used to combine the likelihood and consequence
ratings to generate initial priorities for the risks.

• The outcome of this stage of the risk analysis is an initial view of the
significance of the identified risks.

• In some circumstances, particularly with simple scoring schemes, risks

can be honestly assigned too high or too low a significance on the first
pass. The next stage is designed to review this assignment and adjust it
where necessary.
Initial Risk Priorities
• A probability and impact matrix is a grid for mapping the probability of each
risk occurrence and its impact on project objectives if that risk occurs.

• Risks can be divided into priority groups and prioritized for further analysis and
planning of risk responses based on their probability and impacts.

• An organization can assess a risk separately for each objective (e.g., cost, time,
and scope) by having a separate probability and impact matrix for each.
Alternatively, it may develop ways to determine one overall priority level for
each risk, either by combining assessments for different objectives, or by
taking the highest priority level regardless of which objective is affected.
Initial Risk Priorities
Initial Risk Priorities
Initial Risk Priorities
• From
PMBOK
Risk Evaluation
• Risk evaluation is about deciding whether risks are tolerable or not to the project,
taking into account:

• The evaluation step compares risk priorities from the initial analysis against all the
other risks and the organization’s known priorities and requirements. Any risks that
have been accorded too high or too low a rating are adjusted, with a record of the
adjustment being retained for tracking purposes. The outcome is a list of risks with
agreed priority ratings.
Risk Evaluation
• Adjustments to the initial priorities may be made for several reasons.
Inherent Risks
• As an extension of the evaluation process, the inherent risk level for
each risk may be considered
• The inherent level of risk is the level that would exist if the controls
did not work as intended, or if there were a credible failure of
controls.
The Risk Register
• The risk register for a project provides a repository for current
information about the risks and the treatment actions relating to
them.
• It is a living database that is updated as the project progresses, and
risks change.
The Risk Register
Hierarchical Charts
• Where risks have been categorized using more than two parameters,
the probability and impact matrix cannot be used and other graphical
representations are required.
• For example, a bubble chart displays three dimensions of data, where
each risk is plotted as a disk (bubble), and the three parameters are
represented by the x-axis value, the y-axis value, and the bubble size.
• An example bubble chart is shown in Figure 11-10, with detectability
and proximity plotted on the x and y axes, and impact value
represented by bubble size.
Hierarchical Charts
Some Important Points
• The priority of identified individual project risks is assessed using their probability of
occurrence, the corresponding impact on project objectives if the risks occur, and other factors.

• Such assessments are subjective as they are based on perceptions of risk by the project team
and other stakeholders.

• Effective assessment therefore requires explicit identification and management of the risk
attitudes of key participants in this process.

• Risk perception introduces bias into the assessment of identified risks, so attention should be
paid to identifying bias and correcting for it.

• An evaluation of the quality of the available information on individual project risks also helps to
clarify the assessment of each risk’s importance to the project.