Project Risk Management Objectives
The Project Risk Management is designed to:
Be scalable to project size and complexity
Pull communication of risks across project milestones and phases
Actively manage risk to enhance project success
Integrate into the current project delivery process, and
Involve all functional units in the management of risks.
Project Risk Management Values
Identifying, communicating, and managing project risks requires a risk management culture. This
culture is defined by the values in which we operate. The following attributes depict PRM values
required for the development of a successful risk management culture. (Project Risk Management Handbook: A Scalable Approach, 2012)
Risk decision‐making based on balancing project values such as cost, schedule, and quality
Joint ownership of risks and responsibilities
Benefits of Project Risk Management to the Project Team
Caltrans project risk management helps the project manager and the other project members to manage
project risks over the life of each project, enlisting the support and effort of all of the functional units as
the project moves along the delivery cycle. This includes: (Project Risk Management Handbook: A Scalable Approach, 2012)
Better ability for the project team to focus time and effort on highest rated risks
A scalable approach, consistent with existing processes
Enhanced coordination and transparency with functional units, which facilitates early
identification of critical risks
Bridging of functional stovepipes to maintain focus on project success by all functional units
Support of the project manager’s mission through the management accountability process
What is meant by “Risk”
In the context of a project, we are concerned about potential impacts on project objectives such as cost and time. A general definition of “risk” in this context is: Risk is an uncertainty that matters; it can affect project objectives negatively or positively. The uncertainty may be about a future event that may or may not happen and the unknown magnitude of the impact on project objectives if it does happen. Thus, a “risk” is characterized by its probability of occurrence and its uncertain impact on project objectives.
The kinds of risks appearing in a risk register are shown below based on when they might occur during the life cycle of a project. (Project Risk Management Handbook: A Scalable Approach, 2012)
- Throughout the project life cycle, a future event that may occur at any time in a project’s lifecycle is a risk. It has a probability of occurrence and an uncertain impact if it does occur.
- During Planning and Design, uncertainty in the total cost estimate, due to uncertain quantities and unit prices is a risk. In this case the probability is 100% (the estimate and its uncertainties exist), and the uncertainties impact the project cost.
- During construction, a Notice of Potential Claim (NOPC) has a probability of becoming a Contract Change Order (CCO) and an uncertain cost/time impact if this happens. This risk is retired from the register if the claim is dismissed or if it is replaced by a CCO.
- During construction, a CCO which has occurred (100% probability) is a risk, but its cost/time
impact may be uncertain. If there is an estimate in the CCO Log of the project, the uncertainty is
expressed as a range around the estimate. This risk is retired from the register when the CCO is
executed with the contractor
Risk identification determines what might happen that could affect the objectives of the project and how those things might happen. It produces a deliverable — the project risk register – that documents the risks and their characteristics. The risk register is subsequently amended by the qualitative or quantitative risk analysis, risk response, and risk monitoring processes. Risk identification is an iterative process because new risks may become known as the project progresses through its life cycle. (Project Risk Management Handbook: A Scalable Approach, 2012)
“Risk” Includes Threats and Opportunities
The concept of risk can include positive and negative impacts. This means that the word “risk” can be used to describe uncertainties that, if they occurred, would have a negative or harmful effect. The same word can also describe uncertainties that, if they occurred, would be helpful. In short, there are two sides to risk: threats and opportunities. Projects in design have the greatest potential for opportunities because the project is still open to changes. Risk reduction and avoidance are opportunities, as are value analyses, constructability reviews, and innovations in design, construction methods, and materials. Once a project enters construction, the project objectives (scope, time, and cost) are fixed contractually, so opportunities to save money and time are fewer. Any changes must be made using a contract change order (CCO), and only a negative CCO such as one resulting from a Value Engineering Change Proposal by the contractor would still afford an opportunity to save money and time. Otherwise, CCOs add cost and/or time to the project. So, the risk management focus during construction is on reducing or eliminating risks. (Project Risk Management Handbook: A Scalable Approach, 2012)
Qualitative Risk Analysis
Qualitative risk analysis includes methods for prioritizing the identified risks for further action, such as risk response. The PRMT can improve the project’s performance effectively by focusing on high‐priority risks. Team members revisit qualitative risk analysis during the project’s lifecycle. When the team repeats qualitative analysis for individual risks, trends may emerge in the results. These trends can indicate the need for more or less risk management action on particular risks or even show whether a risk mitigation plan is working. (Project Risk Management Handbook: A Scalable Approach, 2012)
Project Risk Management Handbook: A Scalable Approach. (2012) (1st ed.).
|Academic Level||College (3-4 years: Junior, Senior)|
|Subject Area||Business Studies|
|Number of Pages||3 Page(s)/825 words|