Project Risk Analysis

PROJECT RISK ANALYSIS
INTRODUCTION:
Project Risk Analysis is a process which enables the analysis and

management of the risks associated with a project. Properly undertaken it will
increase the likelihood of successful completion of a project to cost, time and
performance objectives.
Risks for which there is ample data can be assessed statistically. However, no
two projects are the same. Often things go wrong for reasons unique to a particular
project, industry or working environment. Dealing with risks in projects is
therefore different from situations where there is sufficient data to adopt an
actuarial approach.
Risk Analysis
This stage of the process is generally split into two 'sub-stages'; a qualitative
analysis 'substage' that focuses on identification and subjective assessment of risks
and a quantitative analysis 'sub-stage' that focuses on an objective assessment of
the risks.
 Qualitative Analysis
A Qualitative Analysis allows the main risk sources or factors to be

identified. This can be done, for example, with the aid of check lists, interviews or
brainstorming sessions. This is usually associated with some form of assessment
which could be the description of each risk and its impacts or a subjective labelling
of each risk. A sound aim is to identify the key risks, perhaps between five and
ten, for each project (or part-project on large projects) which are then analysed and
managed in more detail.
 Quantitative Analysis
A Quantitative Analysis often involves more sophisticated techniques,

usually requiring computer software. To some people this is the most formal aspect
of the whole process requiring:
• measurement of uncertainty in cost and time estimates
• probabilistic combination of individual uncertainties.
An initial qualitative analysis is essential. It brings considerable benefit in terms of

understanding the project and its problems irrespective of whether or not a
quantitative analysis is carried out. It may also serve to highlight possibilities for
risk 'closure' i.e. the development of a specific plan to deal with a specific risk
issue.
Risk Management
This stage of the process involves the formulation of management responses to

the main risks. Risk Management may start during the qualitative analysis phase as
the need to respond to risks may be urgent and the solution fairly obvious. Iteration
between the Risk Analysis and Risk Management stages is likely.
Risk Management can involve:
• identifying preventive measures to avoid a risk or to reduce its effect
• establishing contingency plans to deal with risks if they should occur

• initiating further investigations to reduce uncertainty through better
information
• considering risk transfer to insurers
• considering risk allocation in contracts
• setting contingencies in cost estimates, float in programmes and tolerances

or 'space' in performance specifications.
Techniques And Methods
Analysis and Management can be split into its two constituents or stages -
Risk Analysis (Qualitative and Quantitative) and Risk Management. There is no
one technique or method for carrying out either stage of the process. Some of the
techniques and methods that can be employed are detailed below.
Qualitative Risk Analysis
The first phase of the qualitative analysis is identification. This is considered by

some as the most important element of the process since once a risk has been
identified it is possible to do something about it. Identification can be achieved by:
• interviewing key members of the project team
• organising brainstorming meetings with all interested parties
• by using the personal experience of the risk analyst
• reviewing past corporate experience if appraisal records are kept.

All of the above methods are greatly enhanced by the use of check lists which can
either be generic in nature i.e. applicable to any project or specific to the type of
project being analysed.
Quantitative Risk Analysis
Once all risks have been identified, during the qualitative analysis, it may be
appropriate to enter into a detailed quantitative analysis. This will enable the
impacts of the risks to be quantified against the three basic project success criteria:
cost, time and performance. Several techniques have been developed for analysing
the effect of risks on the final cost and time-scale of projects. However, such
techniques do not always readily apply themselves to the analysis of performance
objectives.
The main techniques currently in use are:
 Sensitivity Analysis, often considered to be the simplest form of risk

analysis. Essentially, it simply determines the effect on the whole project of
changing one of its risk variables such as delays in design or the cost of
materials. Its importance is that it often highlights how the effect of a single
change in one risk variable can produce a marked difference in the project
outcome.
CONCLUSION:
The number of companies practicing Project Risk Analysis and Management is

continuing to increase due to the realisation that the methods, techniques and
processes involved form an integral part of project and business management. The
increase in its use has led not only to expertise being gained by individuals within
companies but the arrival of specialist consultancies that can train, advise and carry
out Project Risk Analysis and Management for their clients. Project Risk Analysis
and Management has also established itself as an important element in the
syllabuses of many universities and higher educational establishments.
AVANTHI’S RESEARCH AND TECHNOLOGICAL ACADEMY
( RAVADA )
Marks awarded:
STUDY
ON
RISK ANALYSIS
IN
ENTREPRENEURSHIP AND PROJECT MANAGEMENT
( 2ND MID MINI PROJECT-4TH SEM )

MASTER OF BUSINESS ADMINISTRATION
BY
SUNIL KUMAR
09HQ1EOO44

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PROJECT RISK ANALYSIS

Project Risk Analysis is a process which enables the analysis and

A Qualitative Analysis allows the main risk sources or factors to be

A Quantitative Analysis often involves more sophisticated techniques,

• measurement of uncertainty in cost and time estimates

• probabilistic combination of individual uncertainties.

An initial qualitative analysis is essential. It brings considerable benefit in terms of

This stage of the process involves the formulation of management responses to

Risk Management can involve:

• identifying preventive measures to avoid a risk or to reduce its effect

• establishing contingency plans to deal with risks if they should occur

• considering risk transfer to insurers

• considering risk allocation in contracts

• setting contingencies in cost estimates, float in programmes and tolerances

Techniques And Methods

Qualitative Risk Analysis

The first phase of the qualitative analysis is identification. This is considered by

• interviewing key members of the project team

• organising brainstorming meetings with all interested parties

• by using the personal experience of the risk analyst

• reviewing past corporate experience if appraisal records are kept.

Quantitative Risk Analysis

The main techniques currently in use are:

 Sensitivity Analysis, often considered to be the simplest form of risk

The number of companies practicing Project Risk Analysis and Management is

AVANTHI’S RESEARCH AND TECHNOLOGICAL ACADEMY

ENTREPRENEURSHIP AND PROJECT MANAGEMENT

( 2ND MID MINI PROJECT-4TH SEM )

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