BUSS 5070 - Project Risk Management

Week 2: Introduction to Project

Risk Management

Dr Udara Ranasinghe
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BUSS 5070 – Project Risk Management
Course Content:

Week 1: Introduction to risk

Week 2: Introduction to project risk management
Learning outcome
At the completion of this week, you should be able to:
 Identify and understand risk events, causes and effects and develop a risk statement
 Identify the changes in risk through the project life cycle
 Define project risk management
 Demonstrate why Risk Management is relevant with the increased complexity of
organisations and projects
 Understand the elements of a risk management plan
 Understand the risk management process
 Review what makes a good risk manager?
Developing a risk statement

Activity 1 : Discussion forum week 2

 Read the case study: Refurbishment of State Library of Victoria (next side)
 Identify a risk event and associated causes and effects
 Develop a risk statement
 Post your risk event, causes and effects and risk statement in the week 2 discussion
forum. Once you make a new post, you will be able to see the posts of others.
 Feel free to comment on others' posts to share your ideas.

You can find an example on slide 7

Activity 1: Case study - Refurbishment of State Library of Victoria

A transformative refurbishment at the State Library of Victoria (SLV) was carried out to
create 40% more publicly accessible space within Australia’s oldest and busiest public
library, while the library remained open to the public seven days a week. The
redevelopment included conservation, alteration and adaption of the State Library
building – which is made up of 26 connected buildings from the 1850s to 1990s –
including restoring the historic Ian Potter Queen’s Hall, which was built in 1856. The
replacement of the Ian Potter Queen’s Hall roof was a complex part of the project. It
needed to be done without exposing the hall to the elements or stirring up lead dust
which had settled in the roof space and needed removing first. The State Library site
presented numerous challenges as a work site. Open to the public seven days a week,
the construction team implemented dedicated site controls to ensure there were no
disruptions to the library’s operations and thousands of visitors.

Built - https://www.built.com.au/projects/state-library-
victoria/
Example:
Cause Risk Effect
 Actual site conditions  Unexpected site  Design changes
encountered on the site conditions – Structural  Changes in construction
differ from those instability methods
indicated in the initial as-  Project cost & timescale
built drawings increased
 Poor site investigation

Risk Statement: As a result of actual site conditions encountered on the site differing
from those indicated in the initial as-built drawings, unexpected site conditions
(structural instability) may occur, which would lead to design changes and delays to
project.
Risks Through The Project Life Cycle
Strategic Risk Vs Operational risk

Strategic risk: Something that is external to the organisation that, if it occurs, forces a
change in the strategic direction of the whole organisation

Operational risks: This can be an event that’s internal or external to the organisation that
will impact the ability to achieve the current strategy that the organisation have.

LS
Strategic Risk Vs Operational risk: Examples

Risks Strategic or
operational
Changes to customer demands or expectations ?
Emergence of new competitors ?
Cybersecurity events ?
Natural disasters (e.g. Flooding) ?
Strategic Risk Vs Operational risk: Examples

Risks Strategic or
operational
Changes to customer demands or expectations ?
Strategic
Emergence of new competitors ?
Strategic
Cybersecurity events ?
Operational
Natural disasters (e.g. Flooding) ?
Operational

LS
Risk perspective
 Risks vary with the perspective of the person

Example: Different perspectives of Risk in a construction project

 contractors
 consultants
 owners
Risk Management

“Doing nothing is not the avoidance of

all risk but the acceptance of a high risk
through inertia” (Edward De-Bono)
What is Project Risk Management?
Coordinated activities to direct and control an organization with regard to risk (ISO
31000,2018).

The structured process that allows individual risk events and overall project risk to be
understood and managed proactively, optimising project success by minimising threats
and maximising opportunities. (APM Body of Knowledge, 6th edition (section 2.5)).

The processes of conducting risk management planning, identification, analysis,

response planning, response implementation and monitoring risk on a project
(PMI,2017).

LS
Project Risk Management – Objectives

The objectives of project risk management are to

increase the probability and/or impact of positive risks and
decrease the probability and/or impact of negative risks,
in order to optimize the chances of project success.
Positive risks – Examples

Uncertain situations that can be exploited by the project team in

order to create added value for the client

A bidding contractor may identify an opportunity during the bidding process

and its benefits sold within the bid.
Value Management
Marina. A property development project involved the development of a marina
and subdivision of adjacent residential land for sale. The original scope would Quality Management
result in a significant financial loss to the government developer but it was
embarked upon to stimulate economic and social development in a regional
city. However an opportunity was identified – the conversion of a proposed
road within the project scope into a canal system within the development that
created numerous blocks of land with a waterfront. This increased the sale
prices of the land resulting in a significant profit to the government agency.
Risk management

Reactive Risk Management

Proactive Risk Management

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 Risk management

Proactive Risk Management Reactive Risk Management

The process of assessing This risk management approach is better

known as crisis management or putting
continuously what can go wrong,
out fires. This type of risk management
determining what risks are important, almost always negatively affects the
and their impact, and implementing a organisation’s schedule, cost and quality.
strategy to deal In addition, process improvement
opportunities are ignored – firefighting
has priority.

LS
Why project Risk management
 Profit maximisation - to minimise loss
 Assess and ascertain project viability
 Identify project risks and quantify the potential cost of each risk and
plan for it; or work around it to alleviate the risk
 Allow appropriate measures to be taken to control the effects of risks
and provide cost contingency for clients.
 Avoid unsatisfactory projects and enhance margins
 Keep insurance premiums to acceptable levels
 Protect the firm's credibility and reputation
What makes better risk management

 Consistency - Risk registers, Risk policies and Framework

 Expertise & experience
 Accountability and Responsibility
 Effective Information storage and accessibility Software
 Culture of Unconscious Competence by all levels of staff
 History of Risk Management
 1945 - WW2 required completion of work, on time in scope
and to a tight budget
 1950s – Project Management techniques developed, PM
Associations created
 1970s – Profession of Project Management
 1980s – Formalisation of approach to PM?PRINCE method
developed
 1990s – Management by Projects, enhancement of PM tools
 2000s – Agile Manifesto Written
 2008 – PM techniques move into related areas (case
management)
 2012 – ISO 21500:2012 Standard for Project management
 2015 – Complexity on projects
Risk Management Planning

Risk management planning is the process of defining

how to conduct risk management activities for the
project. (PMI, 2017)
The Risk Management Plan may include

 Objectives
 Methodology
 Roles & Responsibilities
 Budget
 Timing
 Risk Categories
 Scoring & Interpretation
 Tolerance Thresholds
 Reporting formats
 Tracking

(Baccarini, 2019) LS
Does every project needs an in-depth risk management
plan?
 Importance of the project
 Project size or value
 Project complexity,
 The amount of change introduced by the project
 Project novelty
Risk Management Process

Establish context

Communication & Consultation

Monitor and Review

Risk Identification

Risk Assessment
Risk Analysis

Risk Evaluation

Risk Treatment

(Source ISO 31000)

 Risk management Process – Six questions to ask

What are we trying to achieve?

What could affect us achieving it?

Which of those are important?

What could we do about it?

Did it work?

What’s changed?
Risk Management Process
What are we
What could affect trying to achieve?
us achieving it?

Establish context

Communication & Consultation

Monitor and Review

Risk Assessment
Risk Identification
Which of those
are important?
Risk Analysis

What’s changed?
Risk Evaluation

Risk Treatment Did it work?

What could we
do about it? (Source ISO 31000)
Risk Management: Reluctance of Use

Difficult to justify benefits

Lack of time and money
Overconfident and Fire-Fighting
Done naturally
Lack of awareness
Lack of expertise.
Undesired outcomes

LS