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Business Project management. Risk in a project

From the above equation, it can also be inferred that the overall impact of all risks associated with a project may be calculated by adding up all the ‘R’ values of all the risks associated with the project. As far as the probability (P) is concerned, being a variable, it varies with different stages of time in the life cycle of a project. For example, the probability of an accident occurring during a building construction project varies at different stages of the lifecycle. This might directly be related to various other factors in turn which themselves vary with the project cycle. For instance, the implementation stage of the project usually is more susceptible to this kind of risk in terms of the probability of occurring (Hillson and Hulett 2004) and thus it might be at different levels. Determination of probability is more a qualitative exercise than a quantitative one. There is no clear cut way or model of determining the probability though the probability might be estimated based on past data (Mind Tools, 2012). The way to do it is to arrive at mathematical models of probability distributions as close to the real probability as possible. It is also important to note that as many factors as can affect the probability of a given event need to be taken into account in order arrive at a realistic estimate of the probability of an event. A simple way to arrive at a probability level for an event is to assign a score on a scale of 1 to 10, wherein 1 represents the least probability and 10 represent the highest probability. The scores should be greater than zero because if its zero, it is not likely to occur and thus not a risk and if its 10 then it becomes a certainty and then too it is not a risk. The costs associated with an event also vary with various stages in the project lifecycle which means a snapshot sum total of all the factors that affect project cost associated with a certain event (Rochester 2012). Looking at the event based project cost in the above example, it might be seen that the cost of an accident might be more when the project is in progress, for instance the construction work is in full swing and the building as well as people working with project are more vulnerable to any mishap. The cost might be less when for example, the work is off on account of a holiday. On a longer time scale, in the above example, the costs associated with an accident just prior to the completion of the building project might be substantially high, since a lot of money and resources have been invested by then. As seen above, the difficulties in arriving at realistic values of ‘P’ and ‘C’ make it important to consider a qualitative mode of assessing the project risk (Wordpress 2009). The project risk matrix as shown below Consequences IV III I II As seen in the figure above, the project risk as expressed in terms of probability is classified as low and high on the vertical axis. The Consequences or costs associated are represented as low or high on the horizontal axis. This represents four typical situations represented by four quadrants, for the project risk situations. The four combinations are as follows: Quadrant 1: Low probability-Low Cost Risk impact Quadrant 2: Low probability- High Cost Risk impact Quadrant 3: High probability-High Cost Risk imp
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