(06) Managing Risk

Question 1

What is Project Risk?

Answer 1

Project risk is an uncertain event or condition that, if it occurs, has positive or negative effects on a project objective.

Question 2

What does Project Risk consist of?

Answer 2

Cause and, if it occurs, a consequence.

Question 3

What are the forms of project risk to different people?

Answer 3

• Different people and varies according to viewpoints and experience.
  - Engineers, designers and contractors view risk from the technological
  perspective
  - Lenders and developers tend to view it from the economic and
  financial side
  - Health professionals, environmentalists, chemical engineers take a safety and environmental perspective.

Question 4

What are the risk categories?

Answer 4

• Technical Risks.
  
  • Schedule Risks.
  • Costs Risks.
  • Funding Risks.

Question 5

What is a Technical Risk?

Answer 5

If chosen technology fails.

Question 6

What are Schedule Risks?

Answer 6

• Use of slack increases the risk of a late project finish.
• Imposed duration dates – i.e., absolute project finish date.
• Compression of project schedules due to a shortened project duration date.

Question 7

What are Costs Risks?

Answer 7

• Costs increase when problems take longer to solve than expected.
• A rise in input costs if the duration of a project is increased.

Question 8

What are Funding Risks?

Answer 8

Changes in the supply of funds for the project can dramatically affect the successful completion of a project.

Question 9

What are the most common project risks?

Answer 9

• Cost risk.
• Schedule risk.
• Performance risk.

Question 10

What is cost risk?

Answer 10

Typically escalation of project costs due to poor cost estimating accuracy and scope creep.

Question 11

What is schedule risk?

Answer 11

• The risk that activities will take longer than expected.
• Slippages in schedule typically increase costs and, also, delay the receipt of project benefits, with a possible loss of competitive advantage.

Question 12

What is performance risk?

Answer 12

The risk that the project will fail to produce results consistent with project specifications.

Question 13

What are other further risk types?

Answer 13

• Governance risk.
  
  • Strategic risks.
  • Operational risk.
  • Market risks.
  • Legal risks.
  • Risks associated with external hazards.

Question 14

What are governance risks?

Answer 14

Relates to board and management performance with regard to ethics, community stewardship, and company reputation.

Question 15

What are strategic risks?

Answer 15

Result from errors in strategy, such as choosing a technology that can’t be made to work.

Question 16

What are operational risks?

Answer 16

Includes risks from poor implementation and process problems such as procurement, production, and distribution.

Question 17

What are market risks?

Answer 17

Include competition, foreign exchange, and interest rate risk, as well as liquidity and credit risks.

Question 18

What are legal risks?

Answer 18

Arise from legal and regulatory obligations, including contract risks and litigation brought against the organisation.

Question 19

What are risks associated with external hazards?

Answer 19

Including storms, floods, and earthquakes; vandalism, sabotage, and terrorism; labor strikes; and civil unrest.

Question 20

What is Risk Management?

Answer 20

A proactive attempt to recognise and manage internal events and external threats that affect the likelihood of a project’s success.

Question 21

What are the benefits (of risk management)?

Answer 21

• A proactive approach.
  
  • Reduces surprises and negative consequences.
  • Provides better control over the future.
  • Improves chances of reaching project performance objectives within budget and on time.

Question 22

What are the steps of Risk Management Process?

Answer 22

1. Risk identification.
2. Risk assessment.
3. Risk response development.
4. Risk response control.

Question 23

What occurs during Risk identification?

Answer 23

• Analyse the project to identify sources of risk.

- Generate a list of possible risks through brainstorming, problem identification and risk profiling:

Question 24

What factors can be considered when generating a list of possible risks through brainstorming, problem identification and risk profiling?

Answer 24

• Macro risks first, then specific risks.
• Focus on risks that could cause negative consequences.
• Use the WBS to check the risk events.
• Common Techniques.
• Personal experience.
• Group processes.
• Brainstorming.
• Nominal Group Technique.
• Delphi Technique.
• Structured interviews.
• Project information.
• Checklist/prompt list.
• Risk Breakdown Structure.

Question 25

What occurs during Risk assessment?

Answer 25

- Assess risks in terms of severity of impact, likelihood of occurring and controllability. - Identify the most important risks. - Scenario analysis. - Techniques. - Risk assessment matrix. - Probability analysis: Decision trees. - Semi quantitative scenario analysis.

Question 26

What are the stages in developing a strategy to reduce possible damage?

Answer 26

1. Mitigating risk. 2. Transferring risk. 3. Avoiding risk. 4. Sharing risk. 5. Retaining risk.

Question 27

What is Mitigating risk?

Answer 27

Reducing the likelihood and/or impact of adverse event.

Question 28

What is Transferring risk?

Answer 28

Paying a premium to pass the risk to another party.

Question 29

What is Avoiding risk?

Answer 29

Changing the project plan to eliminate the risk or condition.

Question 30

What is Sharing risk?

Answer 30

Allocating risk to different parties.

Question 31

What is Retaining risk?

Answer 31

Making a conscious decision to accept the risk.

Question 32

What is Risk response development?

Answer 32

- Develop a strategy to reduce possible damage. | - Develop contingency plans.

Question 33

What is a contingency plan?

Answer 33

A set of predefined actions that will reduce or mitigate the consequences of a risk event.

Question 34

What happens if we don't have a contingency plan?

Answer 34

- Slow response. - Dangerous and costly decisions made under pressure. - Additional plans. - Fallback plans. - Contingency plans of last resort. - Contingency reserves. - Funds to mitigate cost or schedule overruns.

Question 35

What is Risk response control?

Answer 35

- Implement risk response strategy. - Initiate contingency plans. - Monitor and adjust plan for new risks and triggering events. - Watching for new risks. - Establishing a change management control process. - The Change Control Process.

Question 36

What occurs in the Change Control Process?

Answer 36

- Identify proposed changes. - List expected effects of proposed changes on schedule and budget. - Review, evaluate and approve or disapprove of changes formally - Negotiate and resolve conflicts of change, condition and cost. - Communicate changes to parties affected. - Assign responsibility for implementing change. - Adjust master schedule and budget. - Track all changes that are to be implemented.