Project Risk

Management and
Resource Scheduling
Project Management and Basics of Research
BTHM32013G

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Risk
• A risk may be defined as a potential problem.

• It may or may not occur. But, it should always be assumed that

it may occur and necessary steps are to be taken.

• Risks can arise from various factors like improper technical

knowledge or lack of communication between team members,
lack of knowledge and etc.

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 Risk and Uncertainty
“Risk is the situation, where there is enough information to justify
assignment of probabilities to different outcomes, thus enabling us
to calculate the expected value of outcomes”.
• Risk can be insured against investment for them.
• Positive risks are called opportunities.
• Negative risks are called threats.

“Uncertainty is the situation, where the probabilities (Even the

subjective ones) attached to the various outcomes are unknown”.
• Hence, the uncertainty cannot be insured against. 3
Components of Risk
Risk has two primary components for a given event/ occurrence.

1. Probability of Event/ Occurrence

2. Impact/ Consequence of the event/ occurrence

The impact of a risk is always depends on the “Risk Exposure”, which

helps us to measure the magnitude of impact of a risk.

Accordingly,
Risk = f (Likelihood, Impact, Risk Exposure)
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Systematic Risk Vs Unsystematic Risk
• Systematic Risk
This risk that affects the overall market. Occurs due to change in the
country’s economic position, tax reforms, or a change in the world energy
situation etc.

• Unsystematic risk
This risk that is independent of economic and political and all other such
factors. It is associated with factors related to a particular company or industry.

The investor can reduce/ control the unsystematic risk by means of a

diversified portfolio. The systematic risk can not be avoided.

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Project Risk Management
• The objective of project risk management is to
- understand project and programme level risks
- minimize the likelihood of negative events
- maximize the likelihood of positive events on projects and
programme outcomes.

• Project risk management is a continuous process that begins

during the planning phase and ends once the project is
successfully commissioned and turned over to operations

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Project Risk Management
• Risk management is a process of the identification, analysis, assessment,
control, and avoidance, minimization, or elimination of unacceptable
risks.

❖It helps to decide whether to proceed with a project or not based on

the impact of identified risks
❖Identify and select project with the highest chance of success
❖It can be applied in project planning and project implementation
stages to evaluate as to how a project can be successfully
completed
❖If risks are not considered and controlled, it will affect the Schedule,
Scope, Cost and Quality of a Project
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Risk Management Process

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Project Risk Identification
• Risk identification is the identification of all possible risks that
could either negatively or positively affect the project.

• Potential contributors to risk identification include:

Project team members (planners, engineers, architects, contractors etc);
Risk management team members;
Subject matter professionals (IT, Safety, Legal etc);
Customers (internal and external);
End users; and
Organization management and leadership.

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Sources of Project Risk Identification
• What you need to identify a Project Risk
• Product description
• Planning documents
• Project Scope Statement
• Cost Management Plan
• Schedule Management Plan
• Communications Management Plan
• Enterprise Environmental Factors
• Stakeholder Register
• Quality Management Plan
• Historical Information (Previous Project Data)
• Expert Knowledge
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Risk analysis
• The analysis phase determines the likelihood and impact of each
identified risk and prioritizes risks for management attention.

• Analysis is typically a two-step approach:

• Step 1 – Qualitative analysis

• Step 2 – Quantitative analysis

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Response Planning
• Response planning is the phase where the project team
develops response actions and alternative options to reduce
project risks.

• Project teams use response planning to decide ahead of time

how they will address possible risk occurrences and how they
will avoid, transfer, mitigate or accept project risks.

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Risk Response strategies - I
• Risk response strategies will target to reduce the Probability or Impact
of the risk
• A risk response strategy should be
• Realistic
• Cost effective
• Agreeable to key stakeholders
• Responsible
• Main Risk Response Strategies are as follows
i. Avoiding the Risk
ii. Transference the Risk
iii. Mitigating the Risk
iv. Accepting the Risk
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Risk Response strategies - II
• Avoidance of Risk usually involves changing the project plan
including
a) Expanding the Schedule of the Project
b) Reducing the Scope of the Project
c) Increasing the Cost of the Project to eliminate the risk

• Transference of Risk refers to the process of sharing the risk

with someone else or simply handing over the risk related tasks of
the project to another organization or a third party

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Risk Response strategies - III
• Mitigation of Risk involves carrying out work now to reduce the
Probability and / Or Impact of a risk to be within the acceptable
threshold limits
• It may include preventive, detective or testing possible ways to
reduce the risk

• Acceptance of Risk refers to the a risk that us tolerated because

no possibility to prevent or mitigate it or it is costly or it is difficult to
implement
• Contingency Plan is one of the commonly acceptable strategy to
cope with consequence of identified risks 15
 Expected Return and Risk
• Assume that anticipated returns of a project varies from - 06%
under the unfavorable condition to + 18.5% under the most
favorable condition.

• What is the chance or likelihood for each anticipated return /

outcome to occur?

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 Expected Return and Risk
• Assume that there is an equal probability (P = 0.25) associated
with the four states of economic conditions
• Hence, the Expected Value / Expected Net Present Value
[E(NPVi )] is the sum of product of each outcome (NPV) and its
associated probability as summarized in the table.
Economic conditions NPV (Rs. Mn) Probability Expected Value
(1) (2) (NPV) (Rs.Mn)
(3) – (1) x (2)
High Growth 18.5 0.25 4.63
Expansion 10.5 0.25 2.62
Stagnation 1.0 0.25 0.25
Decline (6.0) 0.25 (1.50)
Expected Rate of Return - 1.0 6.00
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Expected Return and Risk
• Expected Value of the Project is the average rate of return / NPV.
• It is only 6% in the above example.
• It is noted that the possible outcomes or NPV varies from - 06% to
+18.5%.

• Hence, it is interest to know the average dispersion of the possible

outcomes. It can be explained using the Variance and Standard
Deviation of outcomes
• Accordingly
• Variance of Expected Value
• Standard Deviation of Expected Value (σ) = 18
Expected Return and Risk
• Variance of Expected Value
86. 375
• Standard Deviation of Expected Value (σ) = = = 9.29%

• Hence, the returns are expected to fluctuate widely due to its standard
deviation of 9.29% is comparatively high . The lower NPV would be -
06% and highest NPV would be 18%.

• Investors tend to prefer with higher NPV and lower standard deviation
• Maxim: High Risk leads to High Return
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Active Learning

NPV Probability
200 0.3
600 0.5
900 0.2

Calculate the expected rate of return, variance and standard deviation

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Active Learning - Answer
NPV Probability
200 0.3
600 0.5
900 0.2

Probability weighted NPV:

= 0.3 x 200 + 0.5 x 600 + 0.2 x 900

= 540 (Expected value)
Variance of Expected Value
34680 + 1800 + 25920 = 62400
Standard Deviation of Expected Value (σ) = = = 249.8%

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Monitoring and Controlling
• The final step of risk management is monitoring and control.

• This process should be set up to track potential risks, oversee

the implementation of risk plans, and evaluate the effectiveness
of risk management procedures.

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Resource Scheduling

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Resource Scheduling
• Resource scheduling is the process of identifying when project
resources are needed and allocating them based on factors such
as capacity planning or resource availability.

• The main purpose of resource scheduling is to guarantee that

there’s no over or under-allocation of resources at any point of the
project.

• This leads to not only getting projects done on time and within
budget, but also builds morale, fosters better relationships, helps
with profitability and boosts stakeholder satisfaction.
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Scheduling Techniques
• Work Breakdown Structure - The project is scheduled in
various phases following a bottom-up or top-down approach.

• Flow Graph - Various modules are represented as nodes with

edges connecting nodes. Dependency between nodes is shown
by flow of data between nodes.

• Gantt chart or time Line Charts - A Gantt chart can be

developed for the entire project or a separate chart can be
developed for each function.

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