Lec 3

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Steps involved in Risk Management
 Risk Management Planning
 deciding how to approach and plan risk management
activities
 Risk identification (Qualitative & Quantitative)
 Identify project, product and business risks;
 Qualitative risk analysis
 Performing a qualitative analysis of risks and conditions
to prioritize their effects on project objectives;
 Quantitative risk analysis
 Measuring the probability and consequences of risks
and estimating their implications for project objectives

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Steps involved in Risk Management
 Risk Planning
 Draw up plans to avoid or minimize the effects
of the risk;
 Risk Monitoring & Control
 Monitor the risks throughout the project;

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Risk Management

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Risk Quantification

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Quantitative Risk Identification
 There are three main quantitative risk identification
techniques;
–Decision trees
–Influence diagrams and
–Monte Carlo Simulation

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Quantitative Risk Identification
1. Decision Trees
 Rather like flowchart diagrams these represent a
method of looking at, for example ,two options and
making a decision. By analyzing the impact each
decision will have, the risks of taking that decision can
be forecast and used to anticipate problems or inform
the direction the project takes.
 This technique is best suited to simpler situations. In
complex scenarios they can become confusing and
complicated

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Quantitative Risk Identification
Decision Tree Analysis

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Quantitative Risk Identification
2.Influence Diagrams
 This technique results in a diagram which is similar to
a project network diagram or Microsoft Project PERT
charts.
 In this case each box will contain a variable or decision
which will have an influence on future progress. By
analyzing the impact each variable will have, the risks
of taking one path over another can be forecast and
used to anticipate problems or inform the direction
the project takes

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Quantitative Risk Identification
3.Monte Carlo Simulation
 Looking at both best and worse case scenarios as well
as most likely scenario and then planning what the
impact of each is.
 This can be plotted against the Project Baseline and
the Critical Path to show the consequence of risk and
allow you to anticipate suitable response to risk.

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Quantitative Risk Identification
3.Monte Carlo Simulation
 Generates number of possible scenarios based on
input to the simulation model.
 Effectively accounts for every possible value that each
variable could take and weights each possible scenario.
 Its objective is to calculate the combined impact of the
model’s various uncertainties to determine probability
distribution of the possible model outcome.
 Involves random sampling of each probability
distribution within the model.

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Risk Analysis

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Risk Analysis
 Assess probability and seriousness of each risk.
 Probability may be low, medium, high or extreme.
 Risk effects might be catastrophic, serious,
tolerable or insignificant

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Risk Quantification

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Risk Quantification

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Qualitative Risk Analysis

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Quantitative Risk Analysis

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Quantitative Risk Analysis

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