5-Project Risk & Procurement Management

Project Risk Management
and
Procurement Management
Project Risk Management

Risk Management is
a process that focus on
identifying events and developing strategies to
responded and control risks can be occurred in a
project. It can often result in significance
improvement in the ultimate success of projects. Risk
management can be applied to:
Selecting projects
Determining project scope
Developing schedules
Developing cost estimates
It helps in defining strength and weakness helps to
integrate the other project knowledge areas.
Risk management allows the project manger to view

the project across the life cycle to identify, assess,
priorities, respond to and control risk. Effective risk
management increase the probability of project
success by:
preventing surprise/ problems

Preventing management by crises
Improving customer/stakeholders satisfaction
Increased profitability and competitive advantage
Project management body of knowledge (PMBOK)

defines project management as the systematic
process of identifying, analysing, and minimising
the probability and consequence of adverse events
to project objectives.
Risk Management and Project

Planning Process
2.
Requirements
Definition
1.
Objectives
, Goals
5.
Project
Baseline
Establishm
ent
Risk
Manageme
nt
4.
Estimate &
Schedule
Developmen
t
3.
WBS
Developmen
t & Project
Scope
The Nature of Risk

Business Risk Normal risk of doing business
that carries opportunities for both gains and losses.
( Business risk occurs as a result of business
decisions such as the decision to use new
technology in a project to leverage future business
opportunities).
Pure or Insurable Risk Risks that presents and
opportunity for loss only (For this type of risk
insurance can be done).
Known Risk Risks those are identified for a
particular project.
Unknown Risk - Risks that were not identified or
managed unknown risks if they occur on a project
and are positive are called windfalls.
Risk and Project Cycle

Risk Response Planning
Risk Monitoring and Control

Risk Analysis
Risk Identification
Risk Re-Planning
Risk Planning
INTIATION
PLANNING
IMPLEMENTATIONM
CLOSE OUT
The Risk Management Process

The PMBOK provides an overview of the process defined
as:
Risk Management Planning deciding how to
approach and plan the risk management activities for a
project
Risk Identification - determining which risks might
affect the project and documenting their characteristics
Qualitative Risk Analysis- performing a qualitative
analysis of risks and conditions to prioritise their effect on
the project objectives
Quantitative Risk Analysis measuring the probability
and consequences of risks and estimating their implication
on project objectives
Risk Response Planning developing procedures and
techniques to enhance opportunities and reduce threats to
the projects objectives
Risk Monitoring and Control monitoring residual
risks, identifying new risks, executing risk reduction plans,
and evaluating their effectiveness throughout the project
cycle.
The Risk Management Process

Identifying
Risks
Document
Results
Assess Risks
(Qualitative
&
Quantitative
)
Evaluate
Results
Develop
Risk
Response
Execute
Risk
Manageme
nt Plan
Sources of Risks in Projects

A number of studies have shown that projects share some
common sources of risks. In 1996 the Standish group
developed the following top ten success criteria for
information technology projects based on interviews with
Sl.
Success Criterion
60No.
IT professionals
(Weight indicates relativeWeight
importance)
1
Users Involvement
19
Executive Management Support
16
Clear Statement of Requirement
15
Proper Planning
11
Realistic Expectation
10
Smaller Project Milestone
09
Competent Staf
08
Ownership
06
Clear Vision and Objective
03
10
Hard-working, focussed staf
03
Total
100
Broad Categories of Risk Include:

Market Risk will the project product be marketable and
competitive?
Financial Risk is the project affordable and will it provide the
expected ROI? What about opportunities cost? Could the money
be better spent elsewhere?
Technology Risk - is the project technically feasible? Will the
technology meet project objective? Will the technology be
obsolete before the product is produced?
Risk IdentificationTo define a risk need to examine:
What is the probability of occurrence?
What is the impact to the project or the outcome if it does occur?
What it might occur?
How often it might occur (frequency)
Risk Symptom are the indicators or triggers for the actual risk
event. Such as cost overrun, product defects, etc. Identification
and documentation of risk symptom provides potentials
diagnostic tools for corrective action.
Risk Qualitative and quantitative Assessments

Expected Monetary Value is define as the product of
the risk event probability times the risk events monetary
value. i.e. If the estimate cost of a risk event is Tk.
10,000.00 and probability of its occurrence 0.20, the
expected
monetary
value
would
be
0.20x
10,000.00=Tk.2,000.00
PERT estimations
Monte Carlo Simulation for the Project Risk
Analysis
This analysis also uses pessimistic, optimistic and most
likely estimates and probability of their occurrence.
Monte Carlo simulation perform risk analysis by building
models possible result by substituting a range of values
a probability distr5bution
- for any factor that has
inherent uncertainty.
Expert judgement
Risk Response Development

This a process of taking steps to enhance opportunities
and develop responses to risks. There are four basic
response to risk:
Risk avoidance involves eliminating risk or threat,
usually by eliminating its cause.
Risk Acceptance can be either active or passive
o Passive
Acceptance
means
accepting
the
consequences should a risk occur.
o Active Acceptance means developing a contingency
plan should the risk occur- e.g. Work around
Risk Mitigation involves reducing the probability
and/or the impact of risk event
Risk Transference involves transferring the risk to
a third party e.g. Buying insurance in the event that
you have an accident
Matrix Depicts Risk Response for technical, Cost

and Schedule Risks
Technical Risks
Cost Risks
Schedule Risks
Emphasise
team Increase
the Increase
the
support and avoid frequency of project frequency
of
stand-alone project monitoring
project monitoring
structure
Increase
project USE
WBE
manger's authority network
Diagram/CPM
and USE
WBE
and
network
Diagram/CPM
Improve
problem Improve
Select the most
handling
and communication
experience
communication
project
goals project Manger
understanding and
team support
Increase
the Increase
frequency
of managers
project monitoring authority
project
Risk Management Plan, Contingency Plan and Contingency

Reserve
A risk management plan documents the procedures for managing
risk throughout the project. It address the following questions:
Why is it important to take/not take this risk in relationship to the
project objectives?
What is the specific risk and what are the risk mitigation
deliverables?
What risk mitigation approach will be used?
Who are the persons responsible for implementing the risk
management plan?
When will the milestones associated with the mitigation approach
occur?
How much is required in terms of resources to mitigate risk?
Contingency plans are predefined action, if an identified risk occur.
Contingency reserves are provisions held in reserve by the project
sponsor for possible changes in scope or quality that can used to
mitigate cost and /or schedule risk.
Risk Response Control It involves to risk events over

the course of project by executing the risk management
plan and risk management processes.
This requires on-going risk awareness and monitoring. New
risk may be identified during the course of the project.
When contingency plans are not in place or an event
occurs, a workaround or temporary fix may be need to be
found.
Top Ten Risk Items Tracing
It is a communication tool used for maintaining awareness
of risk throughout the life of the project. A risk tracing chart
is developed that shows current and previous months top
ten risks. Risk management reviews:
Keep key stakeholders aware of factors that could prevent
project success
Provide opportunities to develop and/or consider
alternative risk mitigation strategies.
Promote confidence in project team by demonstrating its
ability to proactively manage the risk
Project Procurement Management

Project procurement/purchase management is
defined as the process to acquire goods and
services for a project from outside organisation.
Common Reasons for outsourcing
Cost reduction
It allows line employees to focus on core business
It provides access to specific skill and technologies
Staff flexibility. Easier and more economical to use
contractors to cover peak workload.
Increase accountability. A well-written contract
clarifying key project deliverables.
The Key Processes and activities Involved in

project Procurement Management
Process
Description
Activities
Procurement
planning
Determining
what
procure and when
Solicitation
planning
Documenting
requirement
identifying
sources
Solicitation
Obtaining
quotations, Receive proposal
bids, offers, or proposal as
appropriate
Source selection
Choosing from
potential vendor
Contract
administration
Managing the relationship Complete

with the vendor
sustainable
of work
Contract close-out
Completion
settlement
to Make
decision
or
buy
project Issue Requested for

and proposal
potential
of
among Award contract
and Formally
the contract
amount
close
Procurement Planning
Project procurement planning is the process of
identifying which project needs can best be met by
using products or services outside of the organisation.
Key questions are:
1. Do we outsource?
2. how do we outsource?
3. What to outsource?
4. How much to outsource?
5. When to procure?
Procurement Planning Tools and Techniques
Make-or-buy is used to help an organisation decide if it
is in their interests to make certain products or
perform certain services inside the organisation , or if
it is better to buy them from an outside organisation.
Types of Contract
1. Fixed price or lump sum contracts are contracts with a
fixed total price for delivery of a well-defined product or
service.
2. Cost reimbursable contacts are contracts involving
payment to the vendor for direct and indirect actual costs.
Indirect costs such as overhead are often calculated as a
straight percentage of direct costs.
There are three main types of reimbursable contract.
1. Cost plus incentive fee (CPIF) a contract where the
buyer pays the vendor allowance performance costs along
with a predetermine fee and an incentive bonus.
2. Cost plus fixed fee (CPFF) - a contract where the buyer
pays the vendor allowance performance costs plus a fixed
payment usually based on percentage of estimated costs.
3. Cost plus percentage of costs (CPPC) - a contract
where the buyer pays the vendor allowance performance
costs along with a predetermine percentage base on total
costs
Solicitation Plan
Solicitation planning involves preparing the
documents needed for soliciting goods or services
and determining the evaluation criteria for awarding
the contract.
Solicitation
Solicitation involves obtaining proposal or bids from
prospective vendors.
Source Selection
Sources selection involves evaluation of
bidders, choosing best one, negotiating the
contract, awarding the contract and notifying
the successful and the unsuccessful bidders.

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Project Risk Management

Project Risk Management

Risk management allows the project manger to view

preventing surprise/ problems

Project management body of knowledge (PMBOK)

Risk Management and Project

The Nature of Risk

Risk and Project Cycle

Risk Monitoring and Control

The Risk Management Process

The Risk Management Process

Sources of Risks in Projects

Executive Management Support

Clear Statement of Requirement

Smaller Project Milestone

Clear Vision and Objective

Hard-working, focussed staf

Broad Categories of Risk Include:

Risk Qualitative and quantitative Assessments

Risk Response Development

Matrix Depicts Risk Response for technical, Cost

Risk Management Plan, Contingency Plan and Contingency

Risk Response Control It involves to risk events over

Project Procurement Management

The Key Processes and activities Involved in

Managing the relationship Complete

project Issue Requested for

among Award contract

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