International project management
tapaswini
Chapter4IPM.pdf
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.
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).
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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.
Equality Hierarchy
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.
Embracing
Risk
Avoiding
Risk
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.
Individual Group
THE IMPACT OF CULTURE ON RISK MANAGEMENT
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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):
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Required inputs:
Required Tools & Techniques: 1. Project status meetings
2. Environment scanning tools
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3 2
4
Identifying
Risks
Analyzing &
Prioritizing
Risks
Performing
Risk
Planning
Monitoring &
Controlling
Risks
The Risk
Management
Process
1. Assess of impact of risks on main project objectives
2. Combine impact of risks with probability of risk occurrence
3. Prioritize risks in terms of ‘high risk’, ‘medium risk’ and ‘low risk’
Main Output: Risk register outline
Required Tools & Techniques:
1. Documentation reviews, including lessons learnt from previous projects
2. Information gathering techniques
3. Diagramming techniques
4. Risk checklists
5. Tools to systematically analyse project and organizational environment
1. Project scope statement
2. Work breakdown structure
3. Analysis of organization’s environment
Main Output: Risk register with classification of risks, risk triggers,
assumptions, and risk owners
Required Tools & Techniques:
1. Probability and impact matrix
2. Probability distribution calculations
3. Sensitivity analysis
4. Expected monetary value analysis EMV
Required activities:
1. Select of risk response strategies for
identified risks
2. Compile of contingency plans
3. Estimate of cost and time for
contingency measures
Required Tools & Techniques:
Scheduling and costing for contingencies (cf. Chapter 5)
Required activities:
Required inputs:
1. Extended risk register with contingency plans
2. Change requests
3. Stakeholder management analysis
Not
discussed
in this book
Main Output: Extended risk register including contingency plans (with budget
and estimated time)
Required activities:
1. Monitor risk status
2. Ensure appropriateness of response plans
3. Monitor project environment for emerging risks
4. Ensure proper execution of risk management plan
Main Output: Updated risk register
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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.
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Country
•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
•Level of transportation and
communication infrastructure
•Level of innovation
•Technology clusters
•Environmental protection laws
•Availability of natural resources
•Use and reuse of energy
•Antitrust law
•Tax regime
•Health and Safety
•Labour law
•Product liability law
•Social insurance law
•Protection of intellectual
property
•Reliability of law
enforcement
•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
Legal Socio-
cultural
EXAMPLES OF FACTORS TO BE CHECKED WITH THE PESTEL TOOL
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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.
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STRATEGIES TO COPE WITH
FORESEEABLE RISK
1. Risk avoidance.
2. Risk mitigation.
3. Risk acceptance.
4. Risk transfer.
5. Risk absorption or pooling.
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Risk register
Risk
No. Risk description
Cause of
risk
Probability
of occur-
rence
Impact
on
project
Contin-
gency
measure
Cost in
Yen
Date of
entry
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
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