Chapter 1: Risk Management Practices
Chapter 1:Risk Management Practices
Le Huynh Phuong Vy
Do Van Anh
Nguyen Thi Huyen Trang
Vu Thi Thuy Phuong
Vu Hoang Tuan
Group members
Why should business people consider risk management?
What are steps to manage risks?
Outline
Because every project involves some measure of risk.
Risk affects performance and result.
Businesses may try to either avoid risk of loss or to reduce its
negative consequences
Risks surrounding potential losses create significant economic
burdens for businesses and individuals.
1. Why should business people consider risk management?
Obviously, business must take some risks or there would be no
reason to be in business
Billions of dollars are spent each year to finance potential
losses
But when losses are not planned for in advance they may cost
even more
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Why Do We Manage Risk?
Project problems can be reduced as much as 90% by using risk
analysis
Positives:
More info available during planning
Improved probability of success/optimum project
Negatives:
Belief that all risks are accounted for
Project cut due to risk level
Firms manage risk with derivatives to reduce taxes, lower
bankruptcy costs, protect their personal wealth, avoid
underinvesting, take speculative positions, earn arbitrage profits,
and lower borrowing costs.
Financial risk management
Risk Management Planning
Risk Identification
Risk Qualification
Risk Quantification
Risk Response Planning
Risk Monitoring and Control
2. Risk management process
The process of deciding how to approach and conduct risk
management.
Level of risk management
Type of risk management
Visibility of risk management
Project risk infrastructure is established
Project-specific risk management plan is generated
Risk Management Planning
What is a Risk Management Plan?
Methodology Approach, tools, & data
Roles & Responsibilities
Budgeting Resources to be put into risk management
Timing When and how often
Risk Categories Risk Breakdown Structure (RBS)
Risk probabilities and impact
Reporting formats
Tracking
Risk Breakdown Structure
Lists categories and subcategories where risks may arise
The process of determining which risks might affect the project
and documenting those risk characteristics.
Performed as an iterative process, throughout the project life
cycle
Results in the development of the initial risk register
Risk Identification
Risk register :List of
Identified risks
Potential responses
Root causes
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Risk Identification Techniques
Brainstorming
Interviewing
Root cause identification
Strengths, weaknesses, opportunities, and threats (SWOT)
analysis
Risk identification checklists.
Assumption analysis.
Interviewing: questionnaires on project risks with responses
summarized for further analysis
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Risks are evaluated according to nonnumeric assessment
protocols
Process for assessing each risk event to estimate the likelihood
of risk occurrence, and the impact of the risk event in terms of
cost, schedule and performance.
Results in a prioritized list of identified risks, and a
decision to further analyze high priority risks.
Risk Qualification
Results of qualitative risk analysis will lead to further
quantitative analysis of high priority risks or the development of
responses for high priority risks.
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Methodologies
Probability and Impact Matrix
Based on Failure Modes and Effects Analysis (FMEA)
From 1950s analysis of military systems
Risk Matrix
Rate each risk on scales then plot on matrix
Develop mitigation technique for risks above tolerance
The most significant risks are evaluated according to their
numeric probability and impact.
The process of numerically analyzing the affect of identified
risks on project objectives.
Conducted using various quantitative techniques
Probability distributions
Expected value analysis
Decision tree analysis
Risk Quantification
Expected Monetary Value (EMV)
Building CostProbabilityOptimistic Outcome$150K0.2$30KLikely
Outcome$225K0.5$113KPessimistic Outcome$300K0.3$100KExpected
Value$243K
Decision Tree Analysis
Decision Definition
Decision Node
Chance Node
Net Path Value
Strategies to deal with or preclude risks are evaluated and
communicated.
Process of developing options, and determining actions to reduce
threats to the projects objectives.
Conducted based on results of risk analysis
Assigns risks
Applies resources and inserts activities into Risk Management
Plan.
Risk Response Planning
Results of risk analysis will determine the appropriate risk
response strategy.
Avoid
Transfer
Mitigate
Acceptance
Risk response strategy
Risk Avoidance
Eliminates the sources of any unacceptable risks.
Risk Transfer
Shifts the risk impact to another party.
Typically involves the use of various instruments such as
insurance, performance bonds, warranties, guarantees, and through
the use of specific contract types.
Risk Mitigation
Attempts to mitigate the risk by reducing the probability and/or
impact of the risk event.
Risk Acceptance
A conscious decision to actively acknowledge and accept the risk
without planning to mitigate it.
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Risk management and response plans are put into action
The systematic process of tracking and evaluating the
effectiveness of implemented risk response strategies.
Involves application of project management control
techniques
Performed throughout the project lifecycle.
Risk Monitoring and Control
Risk management is essential for every project.
Risk management should be a systematic process.
All projects should have some document risk management
activity
Summary
Thank you for
Your attention
