Risk Management in Projects

Definition of Project Risk

• Uncertain event or condition with potential positive (opportunity) or negative (threat) impact on project objectives.

What is Risk Management?

• Systematic and proactive approach.
• Aims to take control over project and reduce uncertainties.
• Continuous process throughout project lifecycle.

Uncertainty

• Lack of knowledge about an event that reduces confidence in conclusions.
• Example: Uncertain weather forecast predicting heavy rain in three weeks.

Opportunity vs. Threat

• Opportunity: Positive event that benefits project objectives.
• Threat: Negative event impacting project objectives.

Types of Risks

• Business Risk: Risk of gain or loss.
• Pure Risk: Risk of loss only (e.g., fire in building).

Identified Risk Dimensions

1. Probability (Uncertainty, Likelihood): Chance of risk occurring (e.g., 40%).
2. Impact (Effect, Consequences): Outcome of risk (e.g., financial loss, schedule delay).

Four Risk Factors

1. Probability: Likelihood of occurrence.
2. Impact: Effect if risk occurs.
3. Expected Timing: When risk might occur during project.
4. Frequency: How often risk might occur.

Risk Acceptance Levels (Risk Attitudes)

• Risk Appetite: High-level acceptable risk range.
• Risk Tolerance: Measurable acceptable risk amount.
• Risk Threshold: Specific point where risk becomes unacceptable.

Risk Levels in Projects

• Individual Project Risk: Specific event affecting project objectives.
• Overall Project Risk: Collective effect of uncertainties, including individual risks.

Importance of Risk Attitudes

• Influenced by organizational culture.
• Documented in the risk management plan.
• Managed proactively throughout risk management processes.

Project Risk Management Processes

• Ongoing updates and reviews based on project nature and environment.
• Frequency and depth depend on project's complexity and innovation.

Communication in Risk Management

• Essential for risk identification and analysis.
• Honest and open communication within project team and stakeholders.
• Risk management results should be tailored to stakeholder needs.
• Documented as part of the communication management plan.

Project Manager’s Role in Risk Management

1. Encouraging Senior Management support.
2. Developing and approving the risk management plan.
3. Facilitating communication about risks.
4. Approving risk response strategies.
5. Reporting risk status to stakeholders.
6. Monitoring and auditing risk responses.
7. Documenting Lessons Learned.

Roles and Responsibilities

• Clearly defined and communicated.
• Individuals held accountable for results.
• Documented in the risk management plan.