Compare and Contrast of Risk

Compare and Contrast of Risk

Hydroelectric Development verses an Irrigation Scheme

Keller Graduate School of Management PM595

Project Risk Management

Table of Contents

Identifying Risk ............................................................................................................................................................. 3 Quantifying Risk ........................................................................................................................................................... 4

Risk Assessment ............................................................................................................................................................ 4 Differences and Similarities .......................................................................................................................................... 5

References ..................................................................................................................................................................... 7

Introduction

Identifying Risk Quantitative risk analysis defined by the PMBOK as "the process of numerically analyzing the effect of identified risks on overall project objectives" (PMBOK, 2008). The first project involves hydroelectricity, while the second project involves an Irrigation System that will be built in two separate stages. Risk is involved with every project along with a great deal of uncertainty. It is the job of the Project Manager (PM) to determine and understand the uncertainties surrounding a project and how much risk they are willing to take on with each new project as well as how the PM will analyze and mitigate certain risk factors. This paper will compare and contrast two case studies that involve a hydroelectric development project and an irrigation scheme project. One author defines the quantitative risk analysis process as the "Identification of where security controls should be implemented and the cost envelope within which they should be implemented" (Meritt, 2011). This paper will also deal with the quantitative risk analysis process and how each company handled quantitative risk factors and the tools utilized to distribute associated costs in order to effectively institute specific contingencies in estimating cost. In order to achieve a better understanding of risk analysis, organizations can implement a risk analysis plan without incurring high costs. The first project involves hydroelectricity development. "Hydropower is electricity generated using the energy of moving water" (Nationalgeographic.com, 2011). Due to a recessional economy, hydroelectric development production was unclear. In order to mitigate risk, the owner/stakeholder for the hydroelectric project desired to confirm capital costs for the project due to original estimates being too optimistic combined with contingency allowances that were too small. The owner/stakeholder desired to know actual cost verses cost due to a force majeure (a catastrophic event). Original costs for this project were derived from traditional analysis, which broke the project down into smaller line by line segments or tasks and sub-tasks. Research for this project consisted of historical data and the team's feelings on how they managed previous projects. Their combined industry experiences only allowed to the team to delegate 10% to contingency costs. Additionally, the team took a short cut and was only interested in sufficient details that would not take up additional time or cost more monies. The second project involves an irrigation scheme or a Water System. An Irrigation System is defined as "a system that supplies supplying dry land with water by means of ditches etc. In addition to the land, systems for regular irrigation include a main water-intake unit, which draws water from a source (river, reservoir, canal, or well)" (freedictionary.com, 2011). The irrigation project is a smaller budgeted project and is scheduled to be completed in two separate stages. This project involves water from a pumping station being taken from the river and sent to a reservoir and as in stage two the open-channel is being replaced with pipes so that more water can be distributed over a wider farm area. The second project team incorporated risk differently and they effectively identified risk at each stage of the project. The first stage had risk that overlapped into stage two of the project. However, due to risk that was closely monitored, stage one's risks were properly addressed prior to the work being completed.

Quantifying Risk The hydroelectricity team quantified risk "each risk was multiplied, to form a distribution of the cost of each element as a percentage of the base cost, taking account of all risks combined. This distribution was scaled by the estimate value to generate a distribution of cost for the element measured