Dynamics of Project Risk Management
Lec-04
PROJECT RISK ANALYSIS
Qualitative Risk Analysis
By: Engr.Dr.Attaullah Shah
PhD ( Civil) Engg , Mphil (Eco),MSc Engg ( Strs), BSc Engg ( Gold Medalist),
MBA, MA ( Eco), MSc Envir Design, PGD Computer Sc.
Tel: 051-9250100
E-mail: pdaiou@yahoo.com.
Project Risk Management Process and questions
for project managers
Project Risk Analysis
• During the risk identification step, a business owner or
project team may identify many risks and it is often not
possible to try to address all those identified.
• The risk analysis step will assist in determining which risks
have a greater consequence or impact than others.
• Risk analysis involves combining the possible
consequences, or impact, of an event,
• with the likelihood of that event occurring. The result is a
‘level of risk’. That is:
4
Risk = consequence
x likelihood
Project Risk Analysis-Qualitative Assessment
Purpose
• Risk assessment is the overall process of risk analysis and risk
evaluation.
• Its purpose is to develop agreed priorities for the identified
risks.
• Risk analysis is the systematic use of available information to
determine how often specified events may occur and the
magnitude of their consequences.
• Risk evaluation is the process of comparing the estimated risk
against given risk criteria to determine the significance of the
risk.
Project Risk Analysis-Qualitative Assessment
Rationale
• Agreed priorities are used to determine where the greatest effort
should be focused in treating identified risks.
• They facilitate structured action planning and resource allocation.
Inputs
• Information used in the risk assessment process may include
historical data, theoretical analysis, empirical data and analysis,
informed opinions of experts and the concerns of stakeholders.
Method
• Determine the consequences of each risk, should it arise.
• Assess the likelihood of those consequences occurring.
• Convert the consequence and likelihood ratings to an initial priority
for the risk.
• Agree risk priorities and inherent risk levels.
Outputs
• Outputs comprise: a prioritized list of risks and a detailed
understanding of the impact upon the success of the project
should they occur; and
• Consequence and likelihood ratings, agreed risk priorities and
inherent risk levels.
Documentation
• Record ratings, priorities and risk levels in the risk register.
Qualitative vs. Quantitative risk analysis
• Qualitative analysis is based on nominal or descriptive scales for
describing the likelihoods and consequences of risks.
• This is particularly useful for an initial review or screening or
• When a quick assessment is required.
• Semi-quantitative analysis extends the qualitative analysis
process by allocating numerical values to the descriptive scales.
• The numbers are then used to derive quantitative risk factors.
• Quantitative analysis uses numerical ratio scales for likelihoods
and consequences, rather than descriptive scales.
• The analysis stage assigns each risk a priority rating, taking into
account existing activities, processes or plans that operate to
reduce or control the risk.
Qualitative Risk Analysis
• Qualitative risk assessment methods are quick and relatively easy
to use, broad consequences and likelihoods can be identified,
• They can provide a general understanding of comparative risk
between risk events, and the risk matrix can be used to separate
risk events into risk classes (ratings).
• Qualitative risk assessment techniques use descriptive terms to
define the likelihoods and consequences of risk events.
• Risk = consequence x likelihood
• The consequence may be described as insignificant—level 1,
minor—level 2, moderate—level 3, major—level 4, or
catastrophic—level 5.
• Similarly likelihoods can be determined as: almost certain—level A,
likely—level B, possible—level C, unlikely—level D, or rare—level E.
• Outputs from qualitative risk analyses are usually evaluated using a
risk matrix format.
Risk Matrix ( Basic)
Qualitative approaches are best used as a quick, first-pass
exercise where there are many, complex risk issues and
low-risk issues need to be screened out for practical
purposes.
However, many organizations use qualitative methods for
more comprehensive risk assessments.
Risk Matrix
• To implement a structure like this, it is
important that clear and consistent definitions
• of the consequence and likelihood scales are
used. These are likely to depend on the nature
• of the project, its objectives and criteria, and
the kinds of risks anticipated.
To implement a structure like this, it is important that clear and consistent
definitions of the consequence and likelihood scales are used.
These are likely to depend on the nature of the project, its objectives and
criteria, and the kinds of risks anticipated.
Consequences of risks
• Consequences are rated in terms of the potential impact
on the criteria, often on five-point descriptive scales linked
to the criteria identified in the context step.
• Where a risk has several consequences on different parts
of the scale, the highest consequence is used to generate
the rating. This generates a conservative view of the
overall consequences of the risk.
• The numerical limits in a financial impacts scale are often
linked to the size of the project, the size of the organization
undertaking it, or the amount it can afford to lose.
• There is often a trade-off between risk and opportunity, the
resolution to which must usually take place at managerial
levels well above that of the project.
• In some organizations, the health and safety scale is adjusted
so that a single fatality falls in the most severe consequence
category. This reflects the organization’s attention to
employee safety as a core part of its vision and duty of care.
Scales of Consequences
Scales of likelihood
Likelihood scale for repetitive
procurement projects
Risk Evaluation
Risk evaluation is about deciding whether risks are
tolerable or not to the project, taking into
account:
• The controls already in place or included in project
plans;
• The likely effectiveness of those controls;
• The cost impact of managing the risks or leaving
them untreated;
• Benefits and opportunities presented by the risks;
and
• The risks borne by other stakeholders.
Adjustment of priorities
Adjustments to the initial priorities may be made for several
reasons.
• Risks may be moved down. Typically these will be routine,
well-anticipated risks that are highly likely to occur, but with
few adverse consequences, and for which standard responses
exist.
• Risks may be moved up. Typically there will be two categories
of risks like this: those risks that the project team feel are
more important than the initial classification indicates; and
those risks that are similar to other high-priority risks to the
project and hence should be considered jointly with them.
• Some risks may be moved up to provide additional visibility if
the project team feels they should be dealt with explicitly.
Risk Register (contents)
• The risk register for a project provides a repository for current
information about the risks and the treatment actions relating to
them.
Template of Risk Register
Problems with qualitative analysis
• Key criticisms are:
– that qualitative methods are imprecise,
– It is difficult to compare events on a common
basis, there is rarely clear justification of
weightings placed on severity of consequences
and the use of emotive labels makes it difficult for
risk communicators to openly present risk
assessment findings to stakeholders.
– Furthermore, the outputs from qualitative
approaches are difficult to incorporate into
financial business considerations.
CONSTRUCTION AND OPERATION OF PIPELINE PROJECTS
IN PAKISTAN - ASSOCIATED RISK AND THEIR SOLUTION
A Case Study
•
•
Sajjad Mubin: University of Engineering and Technology, Lahore, Pakistan sajjadmubin@uet.edu.pk, http://www.uet.edu.pk
U.A. Goryainov: Russian State University of Oil and Gas, Moscow, Russia, Construction of Oil & Gas Pipelines and Storages
Department http://www.gubkin.ru
http://www.ogbus.ru/eng/authors/Mubin/Mubin_1.pdf
Route of TAPI gas pipeline project
Future pipeline projects
Proposed Risk Model
Risks and Project life cycle
• Risks during Construction
• Risk during Exploitation of oil and gas
pipelines risks in gas pipeline construction
sector.
Risk Break Down Structure (RBS)
Standard Values of Consequence ( Impact)
and its probability ( Likelihood)
Risk register
Results and Recommendations
1. Three most critical tasks calculated by Risky Project are Excavation ,
Transportation of Material and Stringing of pipelines. The most critical
risks come out to be change in economic parameters, delay in approval
from regulatory body, internal and external communication,
earthquake and terrorism during construction and operation of gas
pipelines.
2. Considering all risks the probable value to project completion
calculated by Risky project is 460 days however the base project
duration is 390 days. Similarly the project cost with out risks is
350,00,000 however, with risks it is 391,00,000. On the basis of that
contingency budget of project can be formulated to cater the risk.
3. The secondary risks like change in material prices, construction not
finished in time or budget and design not in time can be reduced or
transferred to the other party or organization by contract. However
SNGPL is designing, constructing and operating gas pipelines so risk
can be eliminated by strengthening the internal organizational capacity
for design, construction and operation.
• 4. Organizational or technological risk like insufficient resource
planning or project management, change in scope etc can be
eliminated by improving the process or application of new
technologies available in this field. New state of the art
technologies are helpful in managing change at any stage of
the project.
• 5. Probability of risk occurrence P comes out to be the
function of project duration “T” both during construction and
operation phase. However Intensity of destruction or Impact is
a function of enterprise environment.
• 6. Historical data of river flows shows that the flood has
probability of 95% of occurrence between June to August. This
risk can be minimized during construction phase by
rearranging the construction schedule. Other risks like
landslides are associated with floods, rain fall or earthquakes.
Assignment No.4
• Please visit the MS Engg. Thesis titled as
“ DEVELOPMENT OF A FRAMEWORK FOR
PRELIMINARY RISK ANALYSIS IN
TRANSPORTATION PROJECTS”
http://www.wpi.edu/Pubs/ETD/Available/etd-12254123510/unrestricted/GUOW.pdf
- Explain how the risks in Transportation Projects have been
identified and analyzed
- List the risks involved in the Transportation projects
- How can you compare these risks with the risks in transportation
projects of Pakistan.