Risk Management Models for Use by the Project Manager

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UNIVERSITY OF JOHANNESBURG

RISK MANAGEMENT MODELS FOR USE BY THE PROJECT MANAGER

A research paper submitted in partial fulfilment
of the requirements for the subject

PJB4088 – Project Management

at the

UNIVERSITY OF JOHANNESBURG

Student Name: Lusanda Njenge
Student Number: 201109115

Date: 15th October 2012

Table of Contents
ABSTRACT2
1.INTRODUCTION2
2.LITERATURE REVIEW2
2.1What is a Risk2
2.2Risk Management3
3.RISK MANAGEMENT MODELS4
3.1Risk Cube4
3.2Risk Burndown Chart5
3.3GANTT Chart and Milestone Chart5
3.4PERT or CPM6
3.5PRA7
3.6SWOT Analysis7
3.7GAP Analysis7
3.8Value Chain Analysis8
3.9FMEA or FMECA8
3.10Decision Tree Analysis9
3.11Sensitivity Analysis9
3.12Monte Carlo Simulation9
3.13Other Risk Management Models9
4.FINDINGS AND RECOMMENDATIONS10
5.CONCLUSION10
BIBLIOGRAPHY11

ABSTRACT
Risk management models are tools that are used to manage project risk, whether the risk is technical, organisational, schedule, cost, etc. Various models are available to the project manager, although most are generic in nature and require the project manager to have prior knowledge of past failure trends in order to make a more informed decision. In order to achieve more accurate results, a project manager can tailor-make a risk management model to suit his specific project. 1. INTRODUCTION

Projects, by their very nature, involve risks because they are unique. Risk has two components, namely probability and consequence. The aim of risk management is to reduce the probability of the risk occurring as well as putting safety measures in place so that the consequence of the risk can be minimal.

The aim of this paper is to investigate risk management models available to the project manager. Risk management models are tools that have been developed to manage project risks. They help the project manager to evaluate the risks at hand and make appropriate decisions. There are a vast number of risk management models to address the different types of risk.

The paper starts off with a literature review, which defines risk, discusses different categories of project risk, and discuses the meaning and method of risk management. The paper then continues to discuss different risk management models and some of their shortcomings.

Due to the large number of risk management models, this paper is by no means exhaustive of the subject. It discusses mainly the generic models that are available, and it acknowledges that the best models are ones that are tailor-made for a specific project.

2. LITERATURE REVIEW
3.1 What is a Risk
A risk is defined as the likelihood and effect of not achieving a set project goal [1]. In project management, risk can be categorised using the Risk Breakdown Structure (RBS). According to the Project Management Body of Knowledge (PMBOK), a project can have technical risks, external risks, organizational risks, and project management risks, as can be seen in Figure 2.1 [2]. |

| | | Project
| | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Technical| | External| | Organizational| | Project Management| | |
| | |
| | |
| | |
| |
| Requirements| | Subcontractors and Suppliers| | Project Dependencies| | Estimating| | | | | | | | |
| Technology| | Regulatory| | Resources| | Planning| | | | | | | | |
| Complexity and Interfaces| | Market| | Funding| | Controlling| | | | | | | | |
| Performances and Reliability| | Customer| | Prioritization| | Communication| | | | | | | | |
| Quality| | Weather| | | | |
| | | | | | | |
Figure 2.1: Example of a Risk Breakdown Structure components [2] Project risk can also be broken down into three components, namely schedule risk, cost...
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