Chapter 11

Project Risk Management

According to the PMBOK® Guide—Third Edition, “Project Risk Management includes the processes concerned with conducting risk management planning, identification, analysis, responses, and monitoring and control on a project; most of these processes are updated throughout the project. The objectives of Project Risk Management are to increase the probability and impact of positive events, and decrease the probability and impact of events adverse to the project.”

The PMBOK® Guide—Third Edition describes six processes in the Project Risk Management Knowledge Area:

• 11.1 Risk Management Planning
• 11.2 Risk Identification
• 11.3 Qualitative Risk Analysis
• 11.4 Quantitative Risk Analysis
• 11.5 Risk Response Planning
• 11.6 Risk Monitoring and Control

Government projects follow the same processes, but the project risks include social, environmental, and political risks, in addition to financial risks. Many government projects would be rejected or abandoned if they were subjected to objective financial analysis, as typically used in the private sector. For example, a return on investment (ROI) analysis considers both upside risk (e.g., profit potential) and downside risk (e.g., loss potential). Government projects often do not demonstrate a profit potential, but are intended to generate a return through benefits to the public-at-large or to a segment of the public. A well-known example is the International Space Station Program. This program posed immense risk of financial and human loss, and had virtually no potential for profit. Although it is considered a huge success by all governments involved, such programs would have been completely unacceptable in the private sector unless the upside benefits outweighed the downside risks. In contrast to objective financial analysis in the private sector, the success of a government project may also be evaluated according to subjective criteria, such as values held by stakeholders—the citizens—through their government body.

11.1 Risk Management Planning

See Section 11.1 of the PMBOK® Guide—Third Edition.

11.1.1 Risk Management Planning: Inputs

Section 11.1.1 of the PMBOK® Guide—Third Edition discusses four inputs to Risk Management Planning. An additional input has application in government projects:

• .5 Laws and Regulations
  Citizens, through their government body, establish mandatory practices for government projects in the form of laws and regulations. These laws and regulations establish limitations on each project and define risks that the citizens will not accept. Hence, these laws and regulations are intended to manage risk, although such laws generally do not use the word “risk.” Laws and regulations, as expressed in mandatory policies and practices, become incorporated into organizational process assets (such as those described in Section 11.1.1.2 of the PMBOK® Guide—Third Edition). Some of these policies and practices may relate to:
  • Air and water quality
  • Affirmative action and assistance to disadvantaged groups
  • Archeological, historical, and architectural preservation
  • Mitigation of impacts to affected businesses and communities
  • Endangered species protection
  • Protection of endangered ecological systems such as wetlands, grasslands, or waterways
  • Noise or sound mitigation
  • Religious freedom and the protection of sacred places
  • Protection of scenic areas and parks.
  
  Several of the above categories are often combined into an omnibus environmental protection law.

11.1.2 Risk Management Planning: Tools and Techniques

See Section 11.1.2 of the PMBOK® Guide—Third Edition.

11.1.3 Risk Management Planning: Outputs

See Section 11.1.3.1 of the PMBOK® Guide—Third Edition. In addition to the outputs described in this section, the following additional information pertaining to risk categories is relevant to public sector projects:

• Risk Categories. In government projects, political risk is another subcategory within the external risk category. Government projects are more susceptible to political risk than projects in the private sector. Each phase of a government project is typically subject to government approval. In addition, government priorities can change for various reasons, reflecting a change in the will of the citizens as expressed through the election process. Thus, if government priorities change before approval of the final phase of a project, the project could be halted prior to completion—a significant political risk (see Figure 11-4).
  
  Sources of political risk vary and may include, for example:

• Various Levels of Government Organizations. Stakeholders in a nation or region—and their national or regional government body—may support a project, while local stakeholders—and their local government body—may oppose the project. This is often associated with the NIMBY (“not in my back yard”) syndrome. From a national or regional perspective, stakeholders may support a project (e.g., a hazardous waste disposal facility), but local stakeholders may oppose it.
• Other stakeholder conflicts. For instance, stakeholders may want to commute to work alone each day in their private automobiles, but other stakeholders support reducing air pollution by promoting the use of high-occupancy vehicles or carpooling. In some cases, stakeholders may not be sure about their priorities.
• Changes over time. Stakeholders may support a project when funds are plentiful, but may later oppose the project when funds are scarce and tax increases are needed to complete it.

11.2 Risk Identification

See Section 11.2 of the PMBOK® Guide—Third Edition.

11.2.1 Risk Identification: Inputs

See Section 11.2.1 of the PMBOK® Guide—Third Edition.

11.2.2 Risk Identification: Tools and Techniques

Section 11.2.2 of the PMBOK® Guide—Third Edition discusses tools and techniques for Risk Identification. In two of these areas, Information Gathering Techniques and Stakeholder Analysis, additional tools and techniques are relevant to government projects:

• .2 Information Gathering Techniques
  Section 11.2.2.2 of the PMBOK® Guide—Third Edition discusses the following techniques for information gathering: brainstorming; Delphi technique; interviewing; root cause identification; and strengths, weaknesses, opportunities, and threats (SWOT) analysis. These techniques are generally the same for government projects, but the focus can be different. On government projects, these techniques focus on factors of concern to the citizens and their government body. In government projects, for instance, risks associated with cost and schedule may be far less important than those associated with other factors, such as environmental protection and affirmative action.
       In addition to the techniques described in Section 11.2.2.2 of the PMBOK® Guide—Third Edition, field research and surveys can be especially valuable on government projects:
  • Field research. Field research is essential in environmental areas such as air and water quality, the protection of endangered species, and noise mitigation. Specialists need to perform field observations and tests to ascertain how a project might affect these factors.
  • Interviewing. Interviewing is useful in identifying some citizens’ social concerns such as affirmative action; archeological, historical, and architectural preservation; and the protection of scenic areas. In government projects, interviewing is also called “surveys.”
• .6 Stakeholder Analysis
  Section 11.2.2.2 discusses the use of interviewing as an information gathering technique. After interviewing stakeholders, analysis can be performed on information gathered from the stakeholders.

11.2.3 Risk Identification: Outputs

See Section 11.2.3 of the PMBOK® Guide—Third Edition.

11.3 Qualitative Risk Analysis

See Section 11.3 of the PMBOK® Guide—Third Edition.

11.3.1 Qualitative Risk Analysis: Inputs

See Section 11.3.1 of the PMBOK® Guide—Third Edition.

11.3.2 Qualitative Risk Analysis: Tools and Techniques

Section 11.3.2 of the PMBOK® Guide—Third Edition discusses tools and techniques for Qualitative Risk Analysis. One additional tool has application on government projects:

• .6 Public Review
  If there is any controversial issue relating to a government project, the project is often subjected to scrutiny through public review. This allows a government body to gauge the will of its citizens. Public review can include public meetings and/or publication of documents for review and comment. Public meetings can have varied formats, including formal hearings before a government body; formal presentations to a public audience followed by a question and answer session; and public workshops. Public requests for review and comment are often required before or after a public meeting, especially in regard to environmental documentation. Some of the best practices in public review include:
  • Holding public debates between supporters and opponents of a project. Every project has advantages and disadvantages. Supporters and opponents of the project need an opportunity to present their arguments for or against a project in a clear, logical manner. Often, supporters of the project have more resources and information and, thus, are better prepared to present their arguments. Unfortunately, this can leave opponents to respond mainly on an emotional level. Emotions do not inform the public or contribute to a search for the best alternative. Hence, public review may involve helping opponents of the project present their arguments. Project resources must, therefore, be committed to helping opponents articulate their case and place all feasible alternative choices before the public and the representative body.
  • Holding workshops rather than public hearings or formal presentations. In a public workshop, different aspects of the project are described at booths or information stations. At several stations, there are recording devices for people to give their opinions. Members of the public move from booth to booth to learn about the project and present opinions. In this way, everyone has the opportunity to participate. In public hearings, by contrast, there is one public place where people can address the assembly. Participation in hearings is limited to those who feel strongly about the project or who enjoy public speaking. Most people do not participate. Workshops are more interactive, give a better gauge of public opinion, and are more useful in developing logical arguments and alternatives.

11.3.3 Qualitative Risk Analysis: Outputs

See Section 11.3.3 of the PMBOK® Guide—Third Edition.

11.4 Quantitative Risk Analysis

See Section 11.4 of the PMBOK® Guide—Third Edition.

Quantitative Risk Analysis on government projects utilizes characteristics similar to those of private sector projects. However, unlike private sector projects, government project risk is not expressed only in terms of cost and schedule. Risks relating to social and environmental concerns may have much greater weight than risks relating to a project’s cost and schedule, as well as those relating to scope.

11.4.1 Quantitative Risk Analysis: Inputs

Section 11.4.1 of the PMBOK® Guide—Third Edition discusses inputs to Quantitative Risk Analysis. An additional input, under “project management plan,” has application on government projects:

• .5 Project Management Plan
  See Section 11.4.1.5 of the PMBOK® Guide—Third Edition.
  • Project environmental management plan. On government projects, a risk management plan often includes environmental management planning. For example, a risk management plan may include a storm water runoff management plan. In addition, a risk management plan may include mitigation plans for other environmental concerns, such as impacts to neighboring businesses and communities.

11.4.2 Quantitative Risk Analysis: Tools and Techniques

See Section 11.4.2 of the PMBOK® Guide—Third Edition.

11.4.3 Quantitative Risk Analysis: Outputs

See Section 11.4.3 of the PMBOK® Guide—Third Edition.

11.5 Risk Response Planning

See Section 11.5 of the PMBOK® Guide—Third Edition.

11.6 Risk Monitoring and Control

See Section 11.6 of the PMBOK® Guide—Third Edition.