Page 185 - DCAP304_DCAP515_SOFTWARE_PROJECT_MANAGEMENT

Unit 10: Risk Management

Objectives Notes

After studying this unit, you will be able to:
 Explain the Risk Management

 Describe categories of risk
 Explain Schedule Risk Assessment Plan
 Discuss applying PERT technique

Introduction

In risk management, a prioritization process is followed whereby the risks with the greatest
loss and the greatest probability of occurring are handled first, and risks with lower probability
of occurrence and lower loss are handled in descending order. In practice the process can be very
difficult, and balancing between risks with a high probability of occurrence but lower loss
versus a risk with high loss but lower probability of occurrence can often be mishandled.
Intangible risk management identifies a new type of a risk that has a 100% probability of
occurring but is ignored by the organization due to a lack of identification ability. For example,
when deficient knowledge is applied to a situation, a knowledge risk materialises. Relationship
risk appears when ineffective collaboration occurs. Process-engagement risk may be an issue
when ineffective operational procedures are applied. These risks directly reduce the productivity
of knowledge workers, decrease cost effectiveness, profitability, service, quality, reputation,
brand value, and earnings quality. Intangible risk management allows risk management to
create immediate value from the identification and reduction of risks that reduce productivity.
Risk management also faces difficulties allocating resources. This is the idea of opportunity cost.
Resources spent on risk management could have been spent on more profitable activities.
Again, ideal risk management minimizes spending while maximizing the reduction of the
negative effects of risks.

10.1 Risk Management

Risk management is the discipline of identifying, monitoring and limiting risks. In some cases
the acceptable risk may be near zero. Risks can come from accidents, natural causes and disasters
as well as deliberate attacks from an adversary.

Figure 10.1: International Space Station

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