Managing Project Risks

A comprehensive overview of project risk management, providing guidance on implementing and improving project risk management systems in organizations

This book provides a comprehensive overview of project risk management. Besides offering an easy-to-follow, yet systematic approach to project risk management, it also introduces topics which have an important bearing on how risks are managed but which are generally not found in other books, including risk knowledge management, cultural risk-shaping, project complexity, political risks, and strategic risk management. Many new concepts about risk management are introduced. Diagrams and tables, together with project examples and case studies, illustrate the authors’ precepts and ideas.

Each chapter in Managing Project Risks begins with an introduction to its topic and ends with a summary. The book starts by providing an understanding and overview of risk and continues with coverage of projects and project stakeholders. Ensuing chapters look at project risk management processes, contexts and risk drivers, identification, assessment and evaluation, response and treatment options, and risk monitoring and control. One chapter focuses entirely on risk knowledge management. Others explore the cultural shaping of risk, political risk in projects, computer applications, and more. The book finishes by examining the current state and potential future of project risk management.

In essence, this book: 

• Effectively communicates a conceptual and philosophical understanding of risk
• Establishes the nature of projects and the stakeholders involved in them
• Presents a systematic and logically progressive approach to the processes of project risk management
• Demonstrates how to recognize the drivers of project risks and the factors which shape them
• Emphasizes the importance of capturing and exploiting project risk knowledge
• Provides guidance about implementing and building (or improving) project risk management systems in organizations

Managing Project Risks will benefit practitioners and students of project management across a wide range of industries and professions. 

PETER J EDWARDS, PHD, is an Adjunct Professor at RMIT University in Melbourne, Australia. He has authored and co-authored more than 150 peer-reviewed journal and conference papers, two books, and five book chapter contributions.

PAULO VAZ SERRA, PHD, is a Senior Lecturer in the Faculty of Architecture, Building and Planning at the University of Melbourne, Australia, with more than 20 years of experience working in the construction industry in Europe. He coordinates the "Risk in Construction" and other courses within a Master of Construction Management degree program.

MICHAEL EDWARDS, B.SC., has worked for the Australian Commonwealth Government for over 20 years initiating and managing projects for services and service improvements.

List of Tables xv

List of Figures xvii

Preface xix

Acknowledgements xxiii

Glossary xxv

1 Introduction 1

1.1 Introduction 1

1.2 The Project Perspective 1

1.3 The Project Stakeholder Perspective 2

1.4 Overview of Contents 3

1.5 Limitations Caveat 5

2 An Overview of Risk 7

2.1 Introduction 7

2.2 Risk Definitions 7

2.3 Threat and Opportunity 9

2.4 Risk and Uncertainty 11

2.5 The Dynamic Nature of Risk 16

2.6 Psychology and Perceptions of Risk 17

2.7 Risk Awareness 18

2.8 Classifying Risk 19

2.9 Risk Communication 28

2.10 Summary 28

References 29

3 Projects and Project Stakeholders 31

3.1 Introduction 31

3.2 The Nature of Projects 31

3.3 Project Objectives 32

3.4 Project Phases 39

3.5 The Composition of Projects 41

3.6 Processes of Project Implementation 43

3.7 IT Project Example 44

3.8 Organisational Structures for Projects 46

3.9 Project Stakeholder Relationships 47

3.10 Stakeholder Organisational Structures 55

3.11 Modes of Organisational Management 60

3.12 Project Stakeholder Decision Making 61

3.13 ‘Risky’ Projects 65

3.14 Summary 67

References 68

4 Project Risk Management Systems 69

4.1 Introduction 69

4.2 Risk Management 70

4.3 Risk Management Systems 72

4.4 Risk Management Standards and Guides 73

4.5 A Cycle of Systematic Project Risk Management 75

4.6 Project Stages and Risk Management Workshops 79

4.7 A Project Risk Register Template 86

4.8 Summary 88

References 88

5 Project Risk Contexts and Drivers 91

5.1 Introduction 91

5.2 The Contextualising Process 92

5.3 Internal Contexts as Risk Drivers 93

5.4 External Contexts as Risk Drivers 94

5.5 Using Contextual Information 100

5.6 Summary 101

Reference 101

6 Approach to Project Risk Identification 103

6.1 Introduction 103

6.2 Approach to Risk Identification 104

6.3 Workshop Timing 105

6.4 Types of Risk Identification Techniques 110

6.5 Summary 116

Reference 117

7 Project Risk Identification Tools 119

7.1 Introduction 119

7.2 Activity‐Related Tools 120

7.3 Analytical Tools 128

7.4 Associated Representative Tools 137

7.5 Matrix Tools 149

7.6 Simulation and Visualisation Tools 149

7.7 Speculation Tools 153

7.8 Structural and Management Tools 155

7.9 Risk Identification Statements 156

7.10 Summary 158

References 160

8 Project Risk Analysis and Evaluation 161

8.1 Introduction 161

8.2 Qualitative Analysis 163

8.3 Assessing Likelihood 164

8.4 Assessing Impacts 167

8.5 Evaluating Risk Severity 168

8.6 Quantitative Analysis 172

8.7 Risk Mapping 179

8.8 Summary 181

References 182

9 Risk Response and Treatment Options 183

9.1 Introduction 183

9.2 Risk Attitudes and Appetites 184

9.3 Existing Risk Controls 187

9.4 Risk Response Options 188

9.5 Risk Treatment Options 194

9.6 Risk Mitigation Principles 195

9.7 Strategic Use of ALARP (‘As Low as Reasonably Practical’) 197

9.8 Reassessment 198

9.9 Recording Decisions 198

9.10 Summary 198

References 199

10 Risk Monitoring and Control 201

10.1 Introduction 201

10.2 Assigning Responsibility 202

10.3 Monitoring Procedures 204

10.4 Control Measures 207

10.5 Reporting Processes 209

10.6 Dealing with New Risks 210

10.7 Disaster Planning and Recovery 211

10.8 Capturing Project Risk Knowledge 212

10.9 Summary 213

References 213

11 Project Risk Knowledge Management 215

11.1 Introduction 215

11.2 Knowledge Definitions and Types 216

11.3 Knowledge Transformation 217

11.4 Types and Forms of Knowledge 218

11.5 Organisational Culture and Knowledge Management 219

11.6 The Knowledge Creation Cycle 220

11.7 Additional Issues of Organisational Culture 226

11.8 KMS Alignment and Information Redundancy 226

11.9 Tools and Techniques for Eliciting Risk Knowledge 227

11.10 Developing Organisational Risk Wisdom 233

11.11 Project and Organisational Risk Register Architecture 233

11.12 Challenges for Implementing Risk Knowledge Management Systems 237

11.13 Communication and Risk Knowledge Management 240

11.14 Summary 242

References 243

12 Cultural Shaping of Risk 245

12.1 Introduction 245

12.2 Culture in Society 246

12.3 Organisational Cultures 247

12.4 External Cultures as Project Risk Shapers 253

12.5 Organisational Cultures of Other Project Stakeholders 254

12.6 Applying Cultural Shaping in Project Risk Management 255

12.7 Summary 259

Reference 260

13 Project Complexity and Risk 261

13.1 Introduction 261

13.2 The Concept of Complexity 261

13.3 Relative Complexity 268

13.4 Uncertainty and Project Complexity 270

13.5 Identifying and Mapping Complexity 272

13.6 Influence of Complexity on Risk Management 273

13.7 Complexity and Mega‐projects 273

13.8 Summary 276

References 276

14 Political Risk 277

14.1 Introduction 277

14.2 Political Spheres 279

14.3 Dimensions of Political Risk Factors 280

14.4 Examples of Political Risks 281

14.5 Political Stakeholders 284

14.6 Managing Political Risks 284

14.7 In‐house Political Risks 288

14.8 More Extreme Political Threat Risks 288

14.9 Summary 290

Reference 291

15 Opportunity Risk Management 293

15.1 Introduction 293

15.2 Concept of Opportunity Risk 294

15.3 Opportunity Risk in Projects 295

15.4 Examples of Opportunity Risks 296

15.5 Managing Opportunity Risks 298

15.6 Summary 306

Reference 307

16 Strategic Risk Management 309

16.1 Introduction 309

16.2 Strategic Issues for Project Risk Management 310

16.3 PRMS Process Strategies 321

16.4 Summary 325

References 326

17 Planning, Building, and Maturing a Project Risk Management System 327

17.1 Introduction 327

17.2 PRMS Objectives 328

17.3 Planning and Designing the PRMS 329

17.4 Risk Management Maturity 333

17.5 Building the PRMS 339

17.6 PRMS Performance Review and Improvement Cycle 343

17.7 Summary 348

References 349

18 Computer Applications 351

18.1 Introduction 351

18.2 Project Risk Management System (PRMS) Software Applications 352

18.3 Other Information Technologies and Tools 359

18.4 Summary 360

19 Communicating Risk 363

19.1 Introduction 363

19.2 Communication Theory and Models 364

19.3 Components in the Communication Process 366

19.4 Communicating Risk in the PRMS Cycle 370

19.5 Communicating Project Risk Beyond the Project Stakeholder Organisations 372

19.6 Evaluating Risk Communication 374

19.7 Summary 374

References 375

20 Conclusions 377

20.1 Introduction 377

20.2 Current State of Project Risk Management 378

20.3 Future Project Risk Management 381

20.4 Checking Your Reading Satisfaction 383

20.5 Closing Remarks 391

Case Study A: Public–Private Partnership (PPP) Correctional Facilities Project 393

Case Study B: Rail Improvement Project 403

Case Study C: PM Consultant and a Government Aid–Funded Pacific Rim Project 409

Case Study D: High‐Capacity Metropolitan Train Mock‐up Project 415

Case Study E: Hot‐Rod Car Project 417

Case Study F: Aquatic Theme Park Project 421

Index 425

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