Project Risk Management

Guidelines
 Presented To:
Dr. Hamdy Elwany

Prepared By
Nashwa Samih M. Nageeb
Hazem Mohamed El-Gohary
Sherook Mohsen El-dafrawy
Mohamed Eid Mohamed Etman
 About Our Group

 We are a group of friends are Preparing a Master of Business

Administration on Arab Academy. We established our group to share the
knowledge between us and anyone looking forward to more information in
the field of project management and business administration, mindful of our
group is dissemination of business and management science to fill the gap
between the needs of the Egyptian market and the availability of personnel
and Cadres in this area.

Savvy Group
 Project Risk Management Process Flow Diagram
Project
Enterprise Risk Management Develop Project
Environmental Communications Management
Planning Management Plan
Factors Databases Plan 4.3 (3.2.2.1)
11.1 (3.2.2.15)
Policies, Procedures, Risk Management
Organizational and Guidelines Plan Approved Change Requests
Process Approved Corrective Actions
Lessons Learned
Assets Approved Preventive Actions
Knowledge Base

Risk Identification Approved Change Requests

Scope Definition Project Scope Risk Register
Statement
11.2 (3.2.3.16)
5.2 (3.2.2.3)

Qualitative Risk
Risk Management Analysis
Develop Project
Plan 11.3 (3.2.3.17)
Management Plan
Schedule
4.3 (3.2.2.1)
Management Plan Quantitative Risk
Analysis Risk Register (Updates)
Performance Performance
Reporting 11.4 (3.2.3.18)
Reporting
10.3 (3.2.4.9)
Risk Response Recommended Preventive Actions
Work Recommended Corrective Actions
Direct & Manage Planning Requested Changes
Performance
Project Execution 11.5 (3.2.3.19) Risk Register (Updates)
Information
4.4 (3.2.3.1)
Project
Integrated
Risk Register
Risk Monitoring Management Change Control
Organizational
Close Project And Controlling Plan (Updates) 4.6 (3.2.4.2)
Process Assets
6.3 (3.2.2.7) 11.6 (3.2.4.11)
(Updates)
INTRODUCTION TO PROJECT RISK MANAGEMENT

Risk is exposure to the

consequences of uncertainty.
In a project context, it is the
chance of something
happening that will have an
impact upon objectives. It
includes the possibility of loss
or gain, or variation from a
desired or planned outcome,
as a consequence of the
uncertainty associated with
following a particular course
of action.
When we need to use Project Risk
Management?

 Risk exposure may arise from the possibility of economic,

financial or social loss or gain, physical damage or injury, or
delay.

 Risk management processes are designed to assist

planners and managers in identifying significant risks and
developing measures to address them and their
consequences.
Risk management can be applied usefully at all stages of a
project and/or procurement.
THE PROJECT RISK MANAGEMENT APPROACH
THE PROJECT RISK MANAGEMENT APPROACH
The objective of risk management is to identify and manage significant risks. It involves
several key phases, with feedback through a monitoring and review process.
 Establish the context
This provides the basis for integrating risk management and project management
activities.
 Identify the risks
Risk identification determines what might happen that could affect the objectives
of the project, and how those things might happen , also the risk identification
process must be comprehensive.
 Analyze and evaluate the risks
Its purpose is to develop agreed priorities for the identified risks.
 Treat the risks
The purpose is to determine what will be done in response to the risks that have been
identified.
 Monitor and review
Continuous monitoring and review of risks ensures new risks are detected and
managed.
 Communicate and consult
Communication and consultation with project stakeholders may be a critical
factor in undertaking good risk management and achieving project outcomes
What are we trying to achieve?
 Establish the context
Concerned with developing a structure for the risk identification, to ensure that all
significant risks are captured, it is necessary to know the objectives of the organization and
the project.

 Stakeholder identification and analysis

All projects and procurements involve at least two stakeholders: the procuring entity (the
buyer) and the supplier of goods or services (the seller).
In most projects, though, there is a wider set of stakeholders as well, whose desired
outcomes must be considered when planning a project

Stakeholder analysis provides decision-makers with a documented profile of stakeholders

so as to better understand their needs and concerns.
 Criteria
The requirements of the organization and the key stakeholders are used to derive a
set of criteria for the project.

 Key elements
Are a set of topics to be considered one by one during risk identification. Each topic
is some what narrower than the project as a whole, allowing those performing the
identification to focus their thoughts and go into more depth than they would if they
tried to deal with the whole project at once.

The key elements may be based on different aspects of the project, depending on the
objectives and key issues of concern to the organization and the other stakeholders
What might happen?
Risk Identification

 Risk identification determines what might happen that could affect the objectives of
the project, and how those things might happen.

 There are many tools and techniques for identifying the risks associated with projects.
These include
 Brainstorming
The aim of the brainstorming session is to cover all potential risks, without making
judgments about their importance in the initial stages.

A facilitator must be appointed and the brainstorming team selected and briefed on
the purpose of the exercise and the outcomes desired.

The selection of participants for a brainstorming workshop is very important. They

should be chosen to include expertise from a cross section of disciplines and
stakeholders that covers all areas of interest in the project.
 Experience with similar projects

Where available, the risk assessments from previous projects may be an ideal guide.
However, information from previous projects does have limitations, similar in nature
to those associated with checklists discussed below. Including people with wide
experience in similar activities in the brainstorming session is often beneficial

 Checklists

Are quick to use, and they provide useful guides for areas in which the organization
has a depth of experience, particularly for projects that are standard or routine in
nature .But checklist can be a major handicap for non-standard or unique projects.
 Other identification techniques
 Documenting risks
Each element and each risk should be numbered, to facilitate storage and retrieval of
information.

 Sources of information
As a general rule, all available data sources should be used when assessing high-
priority elements and risks, and evaluating ways of managing them. Information
sources may include:
• Historical records
• Project experience
• Industry best practice and user experience
• Relevant published literature and research reports
 Project conditions
Are those aspects of risks, responses or
controls that are specified only loosely,
involve high consequences with low
probability of occurrence, or have
implications which are beyond the
responsibility of those interested in the
analysis.

 Responsibility for risks

Management responsibility for dealing
with each specified risk and ensuring
effective treatment plans are developed
and implemented should be assigned
and recorded.
 QUALITATIVE RISK ASSESSMENT
•Consequences 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.

The highest consequence is used to

generate the rating.
 Likelihoods
Likelihoods are rated in terms of annual occurrence on a five-point descriptive scale,
showing the likelihoods of specific risks arising and leading to the assessed levels of
consequences

 Initial risk priorities

A simple matrix is used to combine the likelihood and consequence ratings to
generate initial priorities for the risks.

 Risk evaluation
Risk evaluation is about deciding whether risks are tolerable or not to the project,
taking into account:

• the controls already in place or included in project plans.

• the likely effectiveness of those controls.
• the cost impact of managing the risks or leaving them untreated.
• benefits and opportunities presented by the risks; and The evaluation step
compares risk priorities from the initial analysis against all the other risks and the
organization’s known priorities and requirements.
 Tolerance for Risk

 There is no single textbook answer on how to manage

risk. The project manager must rely upon sound
judgment and the use of the appropriate tools in
dealing with risk. The ultimate decision on how to
deal with risk is based in part upon the project
manager’s tolerance for risk.

Dr .Harold Kerzner
 Inherent risks
As an extension of the evaluation process, the
inherent risk level for each risk may be
considered, using the four-point. 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

 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.
SEMI-QUANTITATIVE RISK ASSESSMENT
 Risk factors and priorities
To calculate risk factors or levels, the descriptive likelihood assessments are converted
to numerical measures. The numerical measures are averaged , to give a risk likelihood
measure
P=risk likelihood measure, on a scale 0 to 1
=average of likelihood factors;
C=consequence measure, on a scale 0 to 1
=average of consequence factors.
RF=risk factor
=P + C − (P*C).
The risk factor RF, from 0 (low) to 1 (high), reflects the likelihood of a risk arising
and the severity of its impact. The risk factor will be high if the likelihood P is high, or
the consequence C is high, or both.
Note that the formula only works if P and C are on scales from 0 to 1
 Another way of calculating risk factors
RF =P*C.
This form of expected value calculation is common in some forms of safety analysis.
Here P and C are not restricted to the ranges 0 to 1.
The recommended method of calculating risk factors uses the first form:
RF=P + C − (P*C).

 Semi-quantitative priorities for individual risks

Priorities for individual risks can be assessed in a similar fashion to those for project
elements. However, the simpler and more direct scales discussed in the previous
section are commonly used.
 High, medium and low risks
Risk factors and the initial ranking in the risk profile can only be a guide to priorities
for management attention, due to the constraints of the procedures used to generate
them. Accordingly, a two-stage process is commonly used to set priorities.
Risks are sequenced in decreasing order of risk factors. Each risk in the sequenced list
is examined to determine whether it has been classified correctly, and the
classification is modified accordingly.

 Detailed assessment scales for likelihoods

Detailed assessments may be made on a variety of likelihood measures. for projects
of varying kinds, sizes and degrees of complexity.

 Detailed assessment scales for consequences

Consequences should be assessed on the basis of the impacts of risks on the project
as a whole, not just on individual elements.
RISK TREATMENT

 Risk treatment strategies

During the response identification and assessment process, it is often helpful to
think about responses in terms of broad risk management strategies:
 Risk prevention
To eliminate sources of risk or reducing substantially the likelihood of their
occurrence.
Examples of risk prevention include:
• more detailed planning.
• the selection of alternative approaches.
• improving designs and systems engineering, or adopting enhanced design
standards.
 Risk sharing
Some risks can be transferred in part from the purchasing organization to another
party, so the other party bears the initial consequences if the risk arises. Sharing a risk
with another party usually incurs a cost for the organization.
  Impact mitigation

Impact mitigation is directed to minimizing the consequences of risks. Some risks,

such as those associated with economic variations or extreme weather conditions,
cannot be avoided.
Impact reduction strategies include
• contingency planning
• quality assurance;
• contract terms and conditions.

 Insurance
Insurance is a well-known risk sharing strategy. Insurance is particularly relevant to
the management of ‘residual’ risks, where active risk prevention and mitigation
measures have been implemented.
  Risk retention
Sometimes risks cannot be avoided or transferred, or the costs of doing so would be
high. In these circumstances, the organization must retain the risks

 Using likelihood and consequence information

The likelihood and consequence ratings are used to determine the risk priorities.
They also provide a guide to the kinds of risk treatment responses that may be
relevant for each risk
Likelihoods and consequences
Treatment options overlay of the risk priority rating table
 Developing and selecting feasible risk treatment responses
It is usually important to identify and list a range of responses that might be
implemented if a risk event were to occur, particularly for the Extreme, High and
Medium risks. The process begins with a review of the risk and how it might arise.
From the review, a list of responses to the risk should be generated. When assessing
risk treatment strategies the following points should be borne in mind

• The aim of the evaluation

• While the description of the selection process is framed in terms of costs and benefits
• The screening process need not be very complex to be effective

As part of evaluation, risks should be examined at the level of the overall project,
across the elements, to develop wider decision rules for controlling and managing risk
 Risk and response scenarios
A scenario is a description of how a risk might arise, the responses that might be taken and
their consequences.

 Secondary risks and responses

A secondary risk arises as a consequence of a primary risk, or as a consequence of
implementing a control or a treatment response.

 Risk action plans

In any project, the development and implementation of detailed action plans for reducing
risks is the key to successful project risk management in practice.
Responsible managers should complete Risk Action Plan summaries for each risk classified
as Extreme or High on the agreed risk priority scale.

 Managing Medium risks

Although Extreme and High risks individually lead to the greatest potential problems,
there are usually many more Medium risks than Extreme and High risks, and the effect of
the Medium risks in aggregate may be significant The level of detail required may be lower,
but the same considerations apply.
 Implementation
Implementing the individual Risk Action Plans for Extreme, High and Medium risks
is essential for the benefits to be obtained from the project risk management process.
The requirements are straightforward:

• setting objectives;
• specifying responsibilities;
• allocating and controlling resources, including budgets;
• specifying schedules and milestones for implementing action items, and their
impact on the project schedule;
• monitoring and reporting progress and achievements; and assisting in the resolution of
problems.
MONITORING AND REVIEW
 Regular monitoring processes
Risk management should be a regular agenda item for project management meetings .
The primary tool is the risk watch list. This is used to ensure all the important risks are
examined.

 Updating the risk register

The risk register database is the main risk management tool for monitoring the risk
management process within the project. It lists the ranked risks and references the
associated risk action plans. Keeping the risk register up to date is the responsibility of
the project manager.

 Major reviews of risks

The nature of risks changes as projects and implementation timeframes change.
Regular reviews of risks and risk treatment will be undertaken as part of the normal
project management process to revise the lists of Extreme and High risks, to generate
new Risk Action Plans and to revise the risk register.
Risk Assessment and evaluation process

 The objectives of the risk assessment in tender evaluation are:

 To provide an initial indication of where the major risk might arise in the project

 To develop a risk baseline against which individual tenders responses can compared

 To assist the project team to focus on potential risk areas in their evaluation

 To provider for profile each tender offer submitted

 To provide a documented audit trail of project teams assumptions about potential risk areas
Basic structure of the assessment and evaluation process

 The structured and documented risk assessments produced in Phase 1 and the
subsequent adjustments in Phase 2 provide consistency and audit ability throughout
the evaluation. These assessments, generated by qualified specialists from the project
team, form the input to a simple risk model. The structured approach to risk
assessment and quantification assists greatly in the comparison of risks between
individual tenderness in the source selection process.
Phase 1: establishing the risk baseline
 Phase 1: establishing the risk baseline:
is concerned with establishing and documenting a risk baseline against which
individual tender responses can be compared.

 Phase 2: review of tenders

The tender review process builds on the risk baseline established in Phase 1 and
the documented assumptions associated with it. Its objective is to provide
comparative guidance to the tender evaluation team on the potential effects of risk on
the project, given each renderer's approach. Absolute measures of risk are of
secondary importance.
Worksheets similar to those used in the risk assessment in Phase 1 make the process a
measured and repeatable task and provide an audit trail of the assumptions.
Overall structure of the process
Outline of the steps in establishing the project risk baseline
The assessment process
 The initial assessments of risk WBS items are usually undertaken by the project team
in an interactive working session. The process involves several stages:
1. The project structure is reviewed with the project manager and key staff, and an agreed risk
WBS is generated. This may be based on the contract WBS contained in the request for tender
documents, or the WBS may be modified for risk assessment purposes

2. A training session is conducted for the project team. The objectives of the training are to
introduce the key concepts of risk and risk management and to exercise the project team in
the processes to be used in the assessment workshops.

3. If there is no adequate WBS Dictionary, the members of the project team produce an
outline description of that is included in each risk WBS item.

4. An assessment workshop is conducted, involving all the members of the team concerned
with the project. The first part of the workshop reviews the objectives of the risk assessment
study, the way it is proposed to relate this to the overall assessment, and the tasks to be
completed during the session.

5. The team reviews each risk WBS item in turn. The definition is read aloud and any
clarification needed is provided by the team member most familiar with the item. Key
assumptions are discussed and documented for the item, and then for each likelihood
Contract types and price basis
 Contract types and price basis
 Firm price: Allocate all financial risk to the contractors
(low risk) short duration (max 2 year)

 Fixed price: Allocate most financial risk to the contactors, but allow some
relief in the area of economic fluctuations
(low risk) longer duration (more 2 year)

 Incentive fee: Share financial risk between the contractors and client more
evenly
(moderate to high risk) (difficult accurate price)

 Cost plus contacts: Allocate all financial risk to customer

(high risk)
 Outsourcing
 The outsourced provision of goods and service in an organizational framework can be
considered in terms of three functions as show below
 Risks and hazards

 Technical risk and hazard assessment is

a particular sub-set of project risk
assessment that usually targets specific
safety, environmental and associated
regulatory requirements.

 The technical assessment techniques

outlined here provide specific
approaches to different parts of the
general risk management process
described in earlier chapters, applied in
a technical framework.
six fundamentals for safe operation referred to by Hawksley
 1. Hazards must be recognized and their risks must be understood by management.
 2. Appropriate equipment and facilities must be provided to reduce the risks to a level
as low as reasonably practicable (ALARP).
 3. Systems and procedures must exist to operate that equipment in a satisfactory
manner within the design intent and to maintain its integrity.
 4. Appropriate staff must be provided and given sufficient information, instruction,
supervision and training to operate the equipment, systems and procedures.
 5. Adequate arrangements must exist to detect and control emergencies.
 6. Effective systems must exist for promoting safety, auditing safety performance and
progressing safety issues.

 Note: All six fundamentals are required, and effective technical risk and hazard
assessment is
 essential to achieving Fundamentals 1 and 2.
Hazard study techniques
 Fault trees
 Fault tree analysis is an important specialist technique for risk assessment, with
significant extensions into quantitative aspects of risk analysis. It is a process, derived
from systems engineering, for identifying and representing the logical combinations
of causes, system states and risks that could lead to or contribute to a specified failure
event, often termed the top event.

 ND gate is used when a fault tree component and another component must both be in
the required state for the event to propagate; for example, the pressure vessel would
only fail if there were both an over-ressure and the relief valve did not open

 OR gate is used if the failure event is propagated if either one component or another
component is in a particular state; for example, the relief valve might fail to open if
there were a failure of the safety valve itself in a closed position or if the isolation valve
were closed manually by an operator.
Example of a fault tree for a pressure vessel failure
Fault trees: domestic example
 Event trees

 Event trees are used to show the patterns of events and consequences that may follow
from one or more initiating events.

 It usually involves the key technical members of the project team, together with any
specialists who can bring additional necessary expertise to the process.

 Each path in the tree corresponds to a specific accident sequence. If all the safety
systems and procedures work as planned, the consequences are likely to be small.
However, if the safety systems do not work fully, a range of more severe consequences
may result.
example: event tree for the catastrophic failure of a tailings
dam
 Quantification of project risks

 What is the Quantification of project risks?

▪ The use of numbers to describe risk

▪ Without numbers, risk is wholly a matter of gut.”

▪ “When you can measure what you are speaking of, and express it in numbers, you
know something about it. When you cannot measure it . . . your knowledge is of a
meager and unsatisfactory kind” Lord Kelvin (1824-1907)

• Qualitative Risk Analysis includes methods for prioritizing the identified

risks for further action.
Quantitative Position in Risk Management Process

Step 3
3
1 2 4 5
Assess
Plan
State Identify (Measure) Monitor
& Take
Objectives Risk & Report
Quantitative Action

Risk Communication

The Learning Loop

Quantitative Risk Analysis:
Inputs, Tools & Techniques, and Outputs

Inputs Tools & Techniques Outputs

1.Organizational 1.Data Gathering 1.Risk Register
Process Assets and (Updates)
2.Project Scope Representation
Statement Techniques
3.Risk Management 2.Quantitative Risk
Plan Analysis
4.Risk Register
5.Project
Management Plan
• Project Schedule
Management Plan
• Project Cost
Management Plan
 Quantitative Risk Analysis:
1) Data Gathering & Representation Techniques & Probability
distributions
Tools &
Techniques
 Data Gathering & Representation Techniques 1.Data Gathering
and
➢ Documenting the rationale of the risk ranges is an important
Representation
component of the risk interview, because it can provide information on Techniques
reliability and credibility of the analysis. 2.Quantitative Risk
Analysis
 Probability distributions. Continuous probability
distributions represent the uncertainty in values, such as
durations of schedule activities and costs of project
components.
 2) Quantitative Risk Analysis and Modeling Techniques
include Expected Monetary Value analysis. (EMV)
Tools & Techniques
Expected monetary value (EMV) analysis is a statistical 1.Data Gathering
concept that calculates the average outcome when the and
future includes scenarios that may or may 2) Representation
Quantitative Risk Analysis and Modeling Techniques Techniques
include Expected ُُMonetary Value analysis. (EMV) 2.Quantitative Risk
not happen. It is calculated by multiplying the value of Analysis
each possible outcome by its probability of
occurrence, and adding them together. The + values
mean threats
Quantitative Risk Analysis and Modeling Techniques
Quantitative Strengths VS Weakness

* Experts can differ

greatly
-
+ Useful in showing * Expensive; may not
causation, degree be available
and correlation
+ More amenable to * Not amenable to
verification complex human
+ Facilitates trade-offs behavior or systems
between risk &
benefit * Lack of data forces
assumptions, giving
+ Allows greater
false sense of
objectivity
certainty/precision
QUANTIFICATION FOR PROJECT RISKS
QUANTIFICATION FOR PROJECT RISKS

 Any commitment or target places a risk on the person or organization that must
meet it.
 The common aspiration to risk-free forecasts and estimates is illusory and
unattainable.

 The aggregate effect of a large number of component risks on a project as a whole

is difficult to comprehend without support.

 Quantitative risk modelling is a means of describing these components and

evaluating their aggregate implications.
 COST-ESTIMATING

Outline of the risk analysis approach

For each risk, the effect on the cost was quantified as a distribution of the cost expressed as
a percentage of the base estimate for the relevant element.

This distribution was scaled by the estimate value to generate a distribution of cost for the
element measured in dollars. Within cost elements, the risks were considered to be
independent.

The cost distributions for the individual elements were added, taking into account the
relationships and correlations between the elements, to generate a distribution of total cost
for the project.

This distribution was used to evaluate the adequacy of the contingency allowance.
 COST-ESTIMATING: Estimating accuracy

The treatment actions implemented in response to identified risks provide important

inputs to the design process, as well as to project planning and contract negotiation..
The benefits can be substantial:
• sensitivity analysis is facilitated.
• result distributions can be used directly in economic or cost-benefit analyses; and
• feedback to the design, tendering and contract negotiation processes is enabled.
As a key part of the procurement process, an analysis like this contributes to decisions
about the form a contract should take (which party is best able to manage or bear the
risk?) and the appropriate price (how much might it be worth?) assessed in probabilistic
terms.
RISK ANALYSIS AND ECONOMIC APPRAISAL

Summary of the steps in determining the net benefit for an option

 RISK ANALYSIS AND ECONOMIC APPRAISAL

Extension to include distributions in the appraisal process.

It illustrates produces a distribution of the output measure of interest.

The ability to handle dependence Properly and Flexibly is a key requirement for
risk analysis.
 RISK ANALYSIS AND ECONOMIC APPRAISAL

Simplified outcome/response scenario structure

Where the set of outcome and response scenarios is common across risk events, the
probability tree structure may be simplified
 RISK MANAGEMENT PROCESS Checklist
Risk identification
[ ] Select an appropriate process for risk identification
[ ] For each element, identify and number the risks Include opportunities
[ ] Describe each risk and list the main assumptions
[ ] Assess the implications for the project

Risk analysis
[ ] Assemble data on the risks and their consequences
[ ] Analyse the consequences of the risks in terms of the criteria
[ ] Analyse the likelihoods of the risks arising
[ ] Summarize the analysis for each element on the assessment summary sheet
[ ] Combine the consequence and likelihood assessments to derive levels of risk

Risk evaluation
[ ] Rank risks in order of decreasing level of risk
[ ] Plot the consequence and likelihood measures on the risk contour diagram
[ ] Draw a risk profile if appropriate
[ ] Identify Extreme or High risks for detailed risk action planning
[ ] Identify Medium risks for management and monitoring
[ ] Identify Low risks for routine management
[ ] Specify the person responsible for ensuring each risk is treated appropriately
 RISK MANAGEMENT PROCESS Checklist
Risk treatment
Identify feasible responses

[ ] For each Extreme, High. or Medium risks, identify the feasible responses
[ ] Describe each response and list the main assumptions
[ ] Use response description worksheets for detailed analyses

Select the best responses

[ ] Identify the benefits and costs for each response

[ ] Select the best responses for each risk

Develop Risk Action Plans

[ ] Develop Risk Action Plans for all Extreme and High risks
[ ] Actions (what is to be done?)
[ ] Resource requirements (what and who?)
[ ] Responsibilities (who?)
[ ] Timing (when?)
[ ] Reporting (when and to whom?)
[ ] Use risk action summary worksheets for executive reporting
 RISK MANAGEMENT PROCESS
Checklist

Reporting, implementation and monitoring

[ ] For major projects, produce a formal Risk Management Plan
[ ] For other projects, collate and summarize the Risk Action Plans
[ ] Implement responses and action strategies
[ ] Monitor the implementation of the Risk Action Plans
[ ] Assign responsibilities for monitoring
[ ] Specify reporting processes, frequencies and responsibilities
[ ] Undertake periodic review and evaluation
Example Worksheet and Evaluation Tables
WORKSHEETS AND EVALUATION TABLES

Project summary risk report

WORKSHEETS AND EVALUATION TABLES

Major project periodic risk report

 EXAMPLES OF RISKS AND TREATMENTS
Commercial Contract general conditions

• Competing projects • Arbitration, courts

• Competitive pressures • Changes to standard general conditions
• Demand management • Commercial issues
• Innovation • Common use contract
• Market growth • Conditions for acceptance
• Market share • Contractor to inform himself
• Delay due to principal or other factors
• Force majeure events
• General conditions
• Insurance, indemnities
• International contract terms
• Legal, regulatory
• Legally binding
• Liquidated damages
• Practical completion date
• Prompt payment
• Safety
• Scope
• Security, warranties
• Specification requirements, quality
 EXAMPLES OF RISKS AND TREATMENTS
Economic
Counterparty
• Commodity prices
• Ability to meet contract commitments • Currency stability
• Attitude to litigation • Demand growth
• Client business failure • Demographic trends
• Client change of ownership • Discount rate
• Client inability to take delivery of project • Energy price
• Client misunderstanding of needs • Inflation rate
• Client speed of response • Interest rates
• • Experience with organization
• Failure to pay or delayed payment Environment
• Future business
• Loading or preferential treatment of bids • Amenity values
• Payment delay history • Conservation
• Payment philosophy • Dust
• Principal interaction • Endangered species
• Principal’s attitude to changes in scope • Hazardous chemicals and materials
• Project culture and attitude • Heritage values
• Latent conditions
• Noise
• Recycling
 EXAMPLES OF RISKS AND TREATMENTS
Financial Joint venture, partnership

• Debt: equity ratios, gearing • Complexity of the agreement

• Equity funding and ownership • Complexity of the business structure
• Financing costs • Level of control
• Funding sources • Level of responsibility
• Funding withdrawn or delayed • Partner financially unstable
• Investment conditions • Partner lacks technical resources
• Taxation effects • Partner withdraws from joint venture
• Working capital requirements, liquidity • Potential for litigation
• Probity
Industrial relations • Requirement for skills
• Award suitability • Staging aspects
• Flow-on effects
• Job security Legal/regulatory
• Labour laws, regulations • Approval processes
• Loss of management control • Conflicts of interest
• Strength of unions • Inadequate terms and conditions
• Strike leading to delays • Lack of knowledge of applicable laws
• Strike settlement leading to higher costs • Unclear contract
 EXAMPLES OF RISKS AND TREATMENTS
Natural events
• Drought
• Excessive heat, cold
• Fire
• Flood
• Landslip, subsidence
• Lightning
• • Storm

Political and social

• Community consultation
• Community support
• Government endorsement
• Government or political intervention
• Policy change
• Political change
• Pressure groups

Product life cycle stage

• Mature
• New
• R&D required
CONCLUSIONS
 Risk management for large projects:
 Large projects have characteristics that set them apart from ‘routine’ activities. Risk
management for these projects usually requires careful selection of the approach to be used,
and often the ‘standard’ approaches must be modified to suit the project and the context.
 Stakeholders:
 Most projects have several stakeholders, Large projects require good communications strategies, and often a formal project
communications plan. The communication strategy should incorporate media, community, government

 Complex requirements and contracts:

 Size and complexity often go hand in hand, and there are often more than just scale effects. Particular care is needed in tender evaluation

 There are many ways of looking at risks, from the riskiness of work items seen in the semi
quantitative and tender evaluation
 qualitative approaches for ranking risks and setting priorities.