Risk Management

By: Jonathan A. Ramirez

Rick A. Morris, PMP

If projects didn't allow for some degree of risk, great discoveries and inventions would never have been made. The Wright Brothers and Charles Lindbergh took great risks to achieve their projected goals. Risk should be managed with precautions, but it should not stop you from proceeding with your project, unless you determine that the risk is too great or without reward.

Presentation Outline
1. 2. 3. 4. 5. 6. Audit in Relation to Accounting What is Risk? Why Manage Risk in Project Management? Risk Analysis Tools Risk Management Plan

The Project Audit

1. Current status of the project 2. Expected status of the project 3. Status of critical tasks

4. An assessment of potential risks

5. What lessons can be applied to other projects 6. What are the limitations of the audit

Audit in Relation to Accounting

Financial audit as to receipts and documents that would support the project expenditures and income The audit would be an independent party that would asses the fairness of the Financial Statements: Income Statement; Balance Sheet; and the Cash Flow Statement.

What is Risk?
(Noun) a situation involving exposure to danger. A probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action.

Financial Risk
The probability that an actual return on an investment will be lower than the expected return.

Risk Nature
From a broad-based perspective, risk is the exposure to uncertain, and potentially bad, consequences. In the scope of project management, risks are uncertainties that may negatively affect the project by challenging the project's constraints or parameters. Unforeseen consequences may result in loss of time, money, labor, or the project as a whole (Morris, 2013 ).

Analogy of Risk
Risk leads to Loss Some losses are uncertain Some can be controlled and some cannot be controlled So Controlling them indirectly So it must be managed

ISO 31000:2009
Risk management is the identification, assessment, and prioritization of risks.

Why Manage Risk in Project Management?

Whatever your role, it's likely that you'll need to make a decision that involves an element of risk at some point. Risk is made up of two parts: the probability of something going wrong, and the negative consequences if it does (Manktelow et. al.).

Risk Analysis Process

Risk Analysis Correct/Adjust Implement controls Monitor

Risk Analysis
1. Identification of the Threats
Specific vulnerabilities Tools: Swot Analysis; Failure Mode Effects Analysis; Scenario Analysis

2. Estimate Risk
Risk Value = Probability of Event x Cost of EventTools

Risk Management
1. Avoid the Risk 2. Share the Risk 3. Accept the Risk 4. Controlling Risk

Avoidind the Risk

What if Analysis/Scenario Analysis

Share the Risk

You could also opt to share the risk and the potential gain with other people, teams, organizations, or third parties. For instance, you share risk when you insure your office building and your stock with a third-party insurance company, or when you partner with another organization in a joint product development initiative.

Accept the Risk

Controlling the Risk

Business Experiments are an effective way to reduce risk. They involve rolling out the highrisk activity but on a small scale, and in a controlled way. You can use experiments to observe where problems occur, and to find ways to introduce preventative and detective actions before you introduce the activity on a larger scale.

Plan
Preventive Pro-Active Post-Active

Sources:
ISO 31000
https://store.iso.org/store/app?page=basket%2FB asketMain&service=page&guilang=en&continue_s hopping=http%3A%2F%2Fwww.iso.org%2Fiso%2F catalogue%5Fdetail.htm%3Fcsnumber%3D43170

Risk
http://www.businessdictionary.com/definition/ris k.html#ixzz2dWSAS0hS

 Rick A. Morris, PMP The Nature of Risk

http://www.netplaces.com/projectmanagement/risk-management/the-nature-ofrisk.htm

James Manktelow and Amy Carlson.

Risk Management http://www.mindtools.com/pages/article/new TMC_07.htm#sthash.C5or6Eho.dpuf