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Managing Risk and Uncertainty in an International Project

Managing Risk and Uncertainty in an International Project. Chapter 4. What is risk in the context of project management?. Risk is an uncertain event that, if it occurs, can have a positive or negative impact on the project.

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Managing Risk and Uncertainty in an International Project

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  1. Managing Risk and Uncertainty in an International Project Chapter 4

  2. What is risk in the context of project management? • Risk is an uncertain event that, if it occurs, can have a positive or negative impact on the project. • There are risks that can be anticipated (known-unknown), and risks that emerge during the project (unknown-unknown). • Sources of risks that can be anticipated: • Risk related to the management of the international project. • Risk residing in the wider external project environment. • Risk management is influenced by the local cultures project members were socialized in (see next slide).

  3. Individuals from equality-oriented cultures may involve the whole project team to identify and monitor risk. They also may involve all relevant group members into the decision on countermeasures. Project managers from hierarchy-oriented cultures may identify risk on their own and be the only one responsible for taking countermeasures. Group members may be very comfortable not having any responsibility for this ‘dangerous’ task. Individuals from cultures with high risk avoidance tend to fear unfamiliarity and ambiguous situations. They may try to ignore risk. People from risk-embracing cultures may be more actively seeking for risk, also to turn it into an opportunity. Equality Embracing Risk Individual Hierarchy Avoiding Risk Group People from individualistic cultures might be more inclined to take decisions on their own in risky and urgent situations, whereas persons from group-oriented cultures may want to consult with other group or network members which is time-consuming. The impact of culture on risk management 3

  4. The risk management process • Risk that can be anticipated needs to be planned for. • Risk planning means identification of risk, analysis of risk impact, planning responses to risk, monitoring and controlling the project for risks that may occur. • These activities are also referred to as risk management. • Each step of the process contains the following sub-activities (see next slide):

  5. Required inputs: • Required inputs: • Extended risk register with contingency plans • Change requests • Stakeholder management analysis The Risk Management Process • Project scope statement • Work breakdown structure • Analysis of organization’s environment • Required activities: • Monitor risk status • Ensure appropriateness of response plans • Monitor project environment for emerging risks • Ensure proper execution of risk management plan • Required Tools & Techniques: • Documentation reviews, including lessons learnt from previous projects • Information gathering techniques • Diagramming techniques • Risk checklists • Tools to systematically analyse project and organizational environment 4 1 • Required Tools & Techniques: • Project status meetings • Environment scanning tools Monitoring & Controlling Risks Identifying Risks Main Output: Risk register outline Main Output: Updated risk register Performing Risk Planning Analyzing & Prioritizing Risks Required activities: Required activities: • Assess of impact of risks on main project objectives • Combine impact of risks with probability of risk occurrence • Prioritize risks in terms of ‘high risk’, ‘medium risk’ and ‘low risk’ • Select of risk response strategies for identified risks • Compile of contingency plans • Estimate of cost and time for contingency measures 2 3 • Required Tools & Techniques: • Probability and impact matrix • Probability distribution calculations • Sensitivity analysis • Expected monetary value analysis EMV Required Tools & Techniques: Not discussed in this book Scheduling and costing for contingencies (cf. Chapter 5) Main Output: Extended risk register including contingency plans (with budget and estimated time) Main Output: Risk register with classification of risks, risk triggers, assumptions, and risk owners 5

  6. Risk identification tools • PESTEL • Tool that structures the political, economic, sociocultural, technological, environmental and legal environment of a project for ONE geographical market, typically a country. • The cultural gap analysis tool introduced in Chapter 3 helps with the analysis of the sociocultural environment. • Examples of industry specific tools: • Hazard and Operability Study (HAZOP): Systematic analysis of process systems, equipment and procedures to identify potential hazards to people/project stakeholders and the environment. • Fire Safety Study (FSS): Examines specific causes and impacts of fire in the context of the project. • Construction Safety Study (CSS): Identifies major hazards in the construction plan.

  7. Examples of factors to be checked with the PESTEL tool • Political systems and its stability • Security risks like social unrest • Sovereign risks like expropriation • Level and acceptance of corruption • Tariff and non-tariff barriers to trade • GNP trends • Level of interest rates • Inflation rate • Volatility of currency • Purchasing power • Employment rate • Capital supply Political Economic • Antitrust law • Tax regime • Health and Safety • Labour law • Product liability law • Social insurance law • Protection of intellectual • property • Reliability of law • enforcement • Similarity of cultural norms with organization’s home country • Religious habits and customs • Quality of education • Demographic development • Language skills • (Social) mobility • Public opinion (e.g. on • environmental protection) • Work-life balance Country Socio-cultural Legal Techno-logical Environ-mental • Environmental protection laws • Availability of natural resources • Use and reuse of energy • Level of transportation and • communication infrastructure • Level of innovation • Technology clusters 7

  8. Risk analysis • Probability and impact matrix. • Low-tech tool for risk prioritization. • Combines the likelihood of risk occurrence with the effect the risk will have on the project objectives. • Provides stakeholders with overview of risk propensity. • Categorization of risks in terms of project impact can be three stage (low, medium, high) or five stage (insignificant, minor, moderate, major, horrible). • For ease of control and communication, it is recommended to use colour coding: • RED for risks that are likely to occur and have a big impact on the project. • AMBER for risks with medium impact on project results and/or medium to low likelihood of occurrence. • Green for risks with low probability of occurrence and low impact on the project’s objectives.

  9. Strategies to cope with foreseeable risk • Risk avoidance. • Risk mitigation. • Risk acceptance. • Risk transfer. • Risk absorption or pooling.

  10. Example of risk register First, the risk needs to be identified (field ‘risk description’). To analyse the risk and to plan for counter measures or contingency measures, the cause of the risk has to be known (field ‘cause of risk’). Information on risk propensity, impact on project results, cost of potential counter measures, and date of risk occurrence has to be added 10

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