Project Risk Management – Module 1

Project Management Overview:

 Definition: Project management involves the application of knowledge, skills, tools, and
techniques to guide a temporary endeavor aimed at creating a unique product, service, or
result.
 Project Management Process:
o List of project suggestions.
o Identifying potential projects.
o Selecting a project.
o Publishing the project charter.
o Hiring a project manager.
o Creating the project management plan.
o Executing the project.

 Project Manager's Role and Responsibilities:

o Roles: Planner and Manager.
o Responsibilities include creating various plans (e.g., schedule, quality, procurement)
and overseeing project execution.

 Project Management Plan:

o Defines deliverables, quality, and technical requirements.
o Establishes the statement of work (SOW) or scope.
o Sets baseline schedules and budgets.
o Assesses resource capability, capacity, and project risks.

 Project Management Framework:

o Core Functions: Stakeholder, Scope, Time, Cost, Quality, HR, Risk, Procurement,
Communication Management.
o Facilitating Functions: Tools like Microsoft Project and spreadsheets are used for
different functions.

 Project Scope Management:

o Work Breakdown Structure (WBS):
 Hierarchical breakdown of project components and activities.
 Activities below the dashed line contribute to delivering WBS components.
o WBS Significance:
 Serves as the backbone of project planning.
 Outlines project boundaries and everything to be delivered.
 Anything outside the WBS is not part of the project.
 Cost Estimation:
o Resources (people, materials, equipment) needed for activities.
 o Activity durations and resource costs contribute to overall project cost.

Key Takeaways:
 Project management involves a structured process from project initiation to execution.
 The project manager plays a crucial role in planning and overseeing the project.
 The Project Management Plan encompasses various plans, setting the foundation for
project success.
 The Work Breakdown Structure (WBS) is pivotal, outlining project components and
activities.
 Effective cost estimation involves understanding resource requirements and activity
durations.

Project Risk Overview:

 Definition: Risk in a project context refers to uncertain events or conditions that, upon
occurrence, can have either positive or negative impacts on project objectives.
 Forms of Risk:
o Known knowns: Things we know we know (e.g., predictable events like the sunset).
o Known unknowns: Things we know we don't know (e.g., lottery winning numbers).
o Unknown unknowns: Things we don't know we don't know (e.g., unforeseen global
events).

 Risk Management Significance:

o Inherent in any project, managing risk is crucial for project success.
o Risks must be identified before the project starts, including both negative and positive
risks.
 Risk Management Process:
o Identify all known and potential risks.
o Devise strategies to eliminate or enhance risks.
o Develop plans for each identified risk event.
 Dimensions of Project Risk:
o Probability: Ranges from 0% to 100%, representing the likelihood of a risk event
occurring.
o Impact, Likelihood, or Consequence: Risks can have positive or negative effects.
 Goals of Project Risk Management:
o Minimize Potential Risks:
 Reduce the probability and consequences of adverse events.
 Example: Decrease the risk of a car accident by driving less or at a slower speed.
o Maximize Potential Opportunities:
 Increase the probability and consequences of positive events.
 Example: Wear a seat belt and ensure airbags work to mitigate the consequences
of a potential car accident.
Key Takeaways:
 Definition of Risk: Uncertain events impacting project objectives.
 Forms of Risk: Known knowns, known unknowns, and unknown unknowns.
 Risk Management Process: Identify, devise strategies, and create plans for known and
potential risks.
 Dimensions of Project Risk: Probability (0-100%) and impact/consequence (positive or
negative).
 Goals of Risk Management: Minimize adverse events and maximize positive
opportunities.

Individual Risks and Overall Project Risk:

 Project Risk Management Goals:
o Minimize potential risks.
o Maximize potential opportunities.
 Types of Risks:
o Individual Risks:
 Specific events or conditions affecting project objectives, elements, or tasks.
 Help in resource allocation and daily risk management efforts.
o Overall Project Risk:
 Encompasses the aggregate impact of all individual risks on the project.
 Considerations for Project Managers:
o Probability and Impact:
 Constant evaluation of the probability and impact of individual risks.
 Awareness of stakeholders' attitudes toward risks.
o Stakeholder Risk Attitudes:
 Stakeholders' risk tolerance is crucial.
 Influenced by project scale, public commitments, and sensitivity to environmental
and other factors.
 Stakeholder risk attitudes influence project objectives and preferences.
 Organization's Influence on Risk Perception:
o Culture Impact:
 Organization's culture strongly influences risk perception.
 Openness of the organization affects the application of risk management.
o Risk Response Effectiveness:
 Organization's attitude toward risk determines risk perception accuracy and
response effectiveness.
 Example: BP's 2010 oil rig explosion highlighted the importance of having a risk
plan in place.
Key Takeaways:
 Risk Management Goals: Minimize individual risks, maximize opportunities.
  Individual Risks: Specific events affecting project elements; guide resource allocation.
 Overall Project Risk: Aggregate impact of all individual risks.
 Stakeholder Risk Attitudes: Tolerance influences project objectives; affected by scale,
commitments, and sensitivity.
 Organization's Influence: Culture impacts risk perception and response effectiveness;
demonstrated by examples like the BP oil rig explosion.

Overview of Overall Project Risk:

 Definition:
o Overall project risk evaluates the risk of an entire project, considering the impact of
uncertainty on the project as a whole.
o It extends beyond the sum of individual risks, encompassing the project holistically
rather than focusing on specific elements or tasks.
 Comprehensive Impact:
o Represents the exposure of stakeholders to variations in project outcomes.
o More than the cumulative effect of individual risks; it assesses the broader
implications.
 Strategic Importance:
o Vital for strategic decision-making.
o Integral to program and portfolio management.
o Influences project governance where investments are approved or cancelled, and
priorities are established.

Key Takeaways:
 Definition of Overall Project Risk:
o Examines the impact of uncertainty on the entire project.
o Considers the broader implications beyond individual risks.
 Comprehensive Impact:
o Represents stakeholder exposure to variations in project outcomes.
o Goes beyond the cumulative effect of individual risks.
 Strategic Importance:
o Crucial for strategic decision-making.
o Integral to program and portfolio management.
o Influences project governance decisions, including investment approvals,
cancellations, and priority settings.

Risk Management: Processes and Portfolio Overview:

 Risk Management Definition:
o Systematic process involving identification, analysis, and response to project risks.
 o Focus on finding potential problems, developing strategies to mitigate risks, and
monitoring project outcomes.
 Risk Management Processes:
o Risk Management Planning:
 Defines how risk management activities will be conducted.
 Initiated at the project start to prepare for potential risks.
o Risk Identification:
 Identifies potential risks and documents their key characteristics.
o Qualitative Risk Analysis:
 Conceptually analyzes the effects of identified risks on overall project objectives.
 Utilizes words for quick analysis.
o Quantitative Risk Analysis:
 Numerically analyzes the effects of identified risks on project objectives.
 Uses counting and measuring, may take longer.
o Risk Response Planning:
 Develops options to enhance opportunities and reduce threats to project
objectives.
 Outlines how risks will be managed if they occur.
o Risk Response Implementation:
 Implements risk response plans during the project execution phase.
o Monitoring Risk:
 Monitors residual risks, identifies new risks, and evaluates the effectiveness of
risk processes throughout the project.

 Portfolio Project Risk Management:

o Components:
 Knowledge of risk management basics, tools and techniques, project manager
competencies, stakeholder risk tolerance, organizational assets, and lessons
learned.
 All components are essential for effective risk planning.
o Outcome:
 Continuous improvement of the organization's risk management processes.
 Key Concepts in Portfolio Project Risk Management:
o Proactive Approach:
 Consistent proactive risk management throughout the project life cycle.
 Open and clear communication of risk management strategies for project
success.
o Importance of Stakeholder Input:
 Comprehensive stakeholder input for realistic risk assessment.
 Ensures understanding and credibility of Risk Management Processes.
o Communication Importance:
 Targeted communication meeting the needs of each stakeholder.
  Integration of risk results into the overall project communications strategy.

Key Takeaways:
 Risk Management Processes: Sequential steps from planning to monitoring.
 Portfolio Project Risk Management: Holistic approach involving various components for
effective risk planning.
 Proactive Approach: Consistent risk management throughout the project life cycle.
 Stakeholder Input: Comprehensive input for realistic risk assessment and process
credibility.
 Communication Importance: Targeted communication meeting stakeholder needs and
integrating risk results into the overall project communications strategy.

Interconnection Between Risk and Project Management:

 Graphical Illustration:
o First Graph:
 Shows risk and uncertainty decreasing as
project time increases.
 Cost of change increases as project time
progresses.
 Highlights the inverse relationship
between risk and project time.
o Second Graph:
 Represents the project life cycle in four
phases: Starting, Organizing and
Planning, Carrying Out the Work, and Closing the Project.
 Displays the variation in Cost and Staffing Level over time.
 Illustrates that Cost and Staffing Level starts low, increases during the Carrying Out the Work
phase, and decreases rapidly in the Closing the Project phase.
 Interconnection Explanation:
o Risk and uncertainty are high initially and decrease over the project life cycle.
o Project life cycle phases influence Cost and Staffing Level, with a notable increase during the
Carrying Out the Work phase.
o The interconnectedness between risk and project management is evident in the dynamic nature of
project elements over time.
Risk Management as an Iterative Process:
 Iterative Nature:
o Risk management is an iterative process, continuously applied from project initiation to closure.
o Acknowledges that circumstances change during project planning and execution.
o Emphasizes the evolving nature of information about risks and the emergence of new risks.
 Continuous Evaluation:
o Iterative risk management recognizes that risks may occur or not, and new risks may arise or be
discovered.
 o Stress on the need to repeat Project Risk
Management processes and
progressively elaborate plans
throughout the project's lifetime.
o Draws parallels with the cyclical
nature of seasons, emphasizing the
necessity of repeating project
management activities.

Success Factors for Project Risk Management:

 Critical Success Factors:
o Recognizing the Value of Risk Management:
 Emphasizes positive potential return on investment for all
stakeholders.
o Individual Commitment/Responsibility:
 Highlights that risk management is a shared responsibility for everyone involved.
o Open and Honest Communication:
 Emphasizes the significance of transparent communication to enhance project risk management
effectiveness.
o Organizational Commitment:
 Stresses the alignment of risk management with organizational goals and values for successful
implementation.
o Risk Effort Scaled to Project:
 Underlines the importance of tailoring risk management efforts to the project's value, risk level,
scale, and organizational constraints.
o Integration with Project Management:
 States that successful project risk management relies on correct execution of other project
management processes.
Key Takeaways:
 Graphical Illustration: Demonstrates the inverse relationship between risk, uncertainty, and project
time.
 Iterative Process: Acknowledges the dynamic nature of projects, evolving information, and the
continuous need for risk management throughout the project life cycle.
 Success Factors: Recognizing value, individual commitment, open communication, organizational
alignment, scaling risk efforts, and integration with project management contribute to successful
project risk management.