Page 80 - DMGT302_FUNDAMENTALS_OF_PROJECT_MANAGEMENT

Unit 4: Project Budgeting

incentives, excise duties, sales tax, industrial licensing, preferential purchases, credit controls, Notes
financial regulations, and subsidies/penalties of various kinds.

Did u know? Competition from substitutes and near substitutes should be specified because
almost any product may be replaced by some other product as a result of relative changes
in price, quality, availability, promotional effort, and so on.

4.9 Risk Analysis in Capital Investment Decisions

Design projects are inherently risky. Every project is different in some way and this carries with
it uncertainties. In project management parlance, risk is the term used to describe the amount of
uncertainty and number of threats (elements that threaten the success of the project) that exist or
potentially exist in a project. The greater the amount of uncertainty and number of threats, the
greater the risk (see Figure below).

Figure 4.1: Greater the uncertainty greater the Risk

The Greater the uncertinity, the greater the Risk

Uncertainty

High Risk Low Risk

While it is not possible to alleviate all risks, some risks can be eliminated by thoughtful problem
solving, while others can be successfully managed so their impact on the project is kept to a
minimum.

When the coach of a football team relays the play to the quarterback and the quarterback calls
the play in the huddle, a number of uncertainties exist. Will the play work? Will the
center-quarter back exchange go smoothly? Will everyone block the way they are supposed to?
Will the receiver get open? Will the quarterback throw the ball accurately? Will the receiver
catch the ball Will the pass receiver get tackled and fumble? Will the receiver or someone else on
the team get hurt? There are many uncertainties. And there are many threats, too.
The defensive team might blitz. A linebacker might anticipate a pass, fall back and play pass
defense. A defensive back might intercept the football. A pass rusher might evade a blocker,
tackle the quarterback, and fall on top of him. The quarterback might end up flat on his back,
injured.
To increase the likelihood of the football team winning, the team is, first of all, composed of
talented players and coaches who then plan and practice in advance. Every team member knows
his role and responsibilities to the team. Plays are practiced over and over. Various scenarios are
rehearsed: if this happens, then do this; if that happens, then do that. In football, talented players
and coaches who plan and practice are the keys to winning because they reduce the risks that
prevent winning.

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