Risk management is the process of identifying, assessing, and prioritizing risks that could potentially impact an organization’s ability to achieve its objectives. It involves analyzing the likelihood and potential impact of risks and taking actions to mitigate, transfer, accept, or avoid them.
The objective of risk management is to reduce the likelihood and severity of negative events and maximize opportunities for positive outcomes. It is an ongoing process that involves identifying and evaluating risks, implementing strategies to manage them, and monitoring and reviewing the effectiveness of these strategies.
Risk management can be applied to various aspects of an organization, including financial, operational, reputational, and legal risks. Effective risk management helps organizations make informed decisions, prioritize resources, and ensure the sustainability of their operations.
Note: Deterministic computing is incapable of processing qualitative (unpredictable) input; where probabilistic approach is cognitive but does not offer definitive answer (only provide suggestions). Therefore, avoid making your risk analysis unnecessarily complicated. The models and tools are only to facilitate the outcomes they are not the silver-bullets!
Contingency is an amount added to an estimate to shelter the project cost against changes that are likely to occur. Contingency can be treated as an allowance for costs that may result from incomplete design, changes due to unforeseen conditions, and market variations. Contingency can be derived by deterministic or probabilistic modeling, expert judgment, predetermined guidelines, simulation analysis, and parametric modeling.
Φ Probabilistic Analysis and Modeling
Φ Deterministic Analysis and Modeling
Φ Parametric Modeling
Φ Expert Judgment
Φ Predetermined Guidelines
Φ Simulation Analysis
Φ Discreet Events Driven Risks
Φ Probability of Occurrence
Φ Potential Relative Impact Analysis
Φ (SCSA) Special Cost and Schedule Allowance Development