The Owner's Role in Project Risk Management (2005) / Chapter Skim
Currently Skimming:
5 Risk Mitigation
5 Risk Mitigation
Pages 41-51
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 41... ...
This chapter discusses the importance of risk mitigation planning and describes approaches to reducing or mitigating project risks. RISK MITIGATION PLANNING Risk management planning needs to be an ongoing effort that cannot stop after a qualitative risk assessment, or a Monte Carlo simulation, or the setting of contingency levels.
|
From page 42... ...
Risk mitigation planning should continue beyond the end of the project by capturing data and lessons learned that can benefit future projects. RISK RESPONSE AND MITIGATION TOOLS Some risks, once identified, can readily be eliminated or reduced.
|
From page 43... ...
This has led to the development of a special kind of network diagram for risk mitigation activities, known as the waterfall diagram, which is described in Chapter 7. Risk Transfer and Contracting There is a common adage about risk management -- namely, that the owner should allocate risks to the parties best able to manage them.
|
From page 44... ...
Risk allocation without quantitative risk assessment can lead to attempts by all project participants to shift the responsibility for risks to others, instead of searching for an optimal allocation based on mutually recognized risks. Contractors generally agree to take risks only in exchange for adequate rewards.
|
From page 45... ...
The function of quantitative risk assessment is to determine if the predicted reduction in risk by changing from alternative A to alternative B is worth the cost differential. Risk avoidance is probably underutilized as a strategy for risk mitigation, whereas risk transfer is overutilized -- owners are more likely to think first of how they can pass the risk to someone else rather than how they can restructure the project to avoid the risk.
|
From page 46... ...
For example, the uncertainty about the presence of specific chemical pollutants in a water supply may be reduced only after project initiation and partial completion. Under these circumstances commitment to specific risk management actions during planning makes project success a gamble that the uncertainty will be resolved as assumed in planning.
|
From page 47... ...
Changing scope is generally a bad practice in conventional projects, but in high-uncertainty projects midcourse corrections may be necessary responses to changed conditions or improved information, if the scope change is made in accordance with a preplanned review and decision process defined in the front end plan (i.e., not scope creep or the unplanned use of scope as contingency)
|
From page 48... ...
Delaying commitment to a single strategy or solution by carrying alternative optional strategies until sufficient information becomes available to resolve the uncertainty is an example of the use of options as a form of managerial flexibility. Another example of an options approach was that used by the Manhattan Engineer District in World War II, in which both an enriched uranium and a plutonium device were developed so that there would be an available alternative; information gained from one was used in making a decision about the other (i.e., which to use)
|
From page 49... ...
This should be a proactive not a reactive process. As an illustration of a risk assessment applied to both downside risk and upside opportunity, consider the case of a risk associated with two alternate technologies or processes.
|
From page 50... ...
However, this elementary illustration indicates that the best approach may be to pursue the engineering of both options until, using a series of decision points, enough additional information is obtained to refine the cost estimates and thus determine which process should be chosen. If project directors seek to manage the risks, not simply to compute them, then they should recognize that project engineering and design can be conducted in a series of steps, such that after each step -- e.g., conceptual design, process engineering, plant general arrangements, production design, detailed design, and procurement -- the engineering process will produce new information and a new cost estimate for the technologies being considered.
|
From page 51... ...
The objective of risk management should be to decide whether or not to build a project, and which of alternative process technologies to use, not merely to compute risks or probability distributions. The example also shows that adding management decision points increases the value of the project to the owner.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.