Project risk management is one of ten knowledge areas that explained in Project Management Body of Knowledge (PMBOK) that is related and integrated to each other. Here is the function of risk relations in project management

What is Project Risk?

• Project risk is Cumulative effect of chances of uncertain occurrences adversely effecting project objectives
• Probability of occurrence of an undesirable outcome

Desired project outcome means minimizing occurrences of negative risks (threats) or maximizing positive risks (opportunities)

In order to obtain desired project outcome, the first step that project managers to do in managing risk are identifying risks. There are some principles in identifying project risks:

 By Knowledge of Condition:

1. Certainty/known
2. Uncertainty/ Known-unknown
3. Full uncertainty /Unknown-unknown
4. By Types of Project Impact or Effect:
5. Scope
6. Quality
7. Schedule
8. Cost
9. By Risk Nature Impact Factor Source Structure:
10. External Unpredictable

• Regulatory
• Natural Hazards
• Postulated events
• Side Effects
• Completion

11. External Predictable

• Market Risks
• Operational
• Environmental Impacts
• Social Impacts
• Currency Changes
• Inflation
• Taxation

12. Internal Non-Technical

• Management
• Schedule
• Cost
• Cashflow
• Loss of Potential

13. Technical

• Changes in Technology
• Performance & Productivity
• Risks Specific to Technology
• Design
• Sheer Size and Complexity of Project

14. Legal

• Licenses
• Patent Rights
• Contractual
• Outsider Suit
  • Insider Suit
  • Force Majeure

4. Risks by Events

• Risk Event Factors: Risk Event, Risk Probability, Outcome & Consequence
• Risk Occurrence: Discrete Types, Continuous Types, Triggers or symptom & indications of risk occurrence that has occurred or is just about to occur

Risk Assessment & Quantification

1. Samples of Risk Assessment of Conditions / Events Causing Risk: Integration, Scope, Schedule, Cost, Quality, Resources, Communication, Procurement, Stakeholders, Risk Awareness
2. Risk Quantification: Estimate Impact, Assess Outcome, Assess Consequence, Determine relative scale and priority between risks
3. Specific Project Risk Related Measurements: Profitability or Feasibility: CBR, NPV, IRR; Cost Overrun: Profitability, NPV, & IRR; Schedule Delays: Penalties, Image, & Costs; Quality: Specification, Profitability, Delays; Reliability, Safety, & Flexibility

Several tools that can be used for risk evaluation:

1. Risk Classes/Information Related: Common Caused Risk where data is plentiful; Special Caused Risk where data is rare
2. Tools for Common Caused Risk: Decision Tree, Expected Value, Monte Carlo, Probability Distribution, Optimization
3. Tools for Special Caused Risk: Delphi Techniques, Lessons Learned, Brainstorming, Personal Conferencing, Sensitivity Analysis, AHP, System Dynamics, Optimization
4. Tools for Complex Mixed Risk Evaluation & Analysis: Simple Modelling, Simulation with/without Monte Carlo Modelling, Combination Modelling, Knowledgebase/Expert Systems/Artificial Intelligence

Here are the key steps for risk evaluation

Steps for Risk Evaluation & Analysis:

1. Chose the right tools to evaluate risk/s
2. Define the probability of occurrence of such risk/s
3. Assess the consequence and severity of such risk/s
4. Define the rank and priority of such risks
5. Inputs for Risk Evaluation & Analysis
6. Risk circumstances
7. Risks identified
8. Project Status
9. Project Type
10. Precision and reliability of data
11. Scale of probability & Impact

Written by:

Alin Veronika, MT, PMP, PMI-RMP

COO of Avenew Indonesia & Chapter President of Project Management Institute (PMI) Indonesia Chapter