Project Risk Management
Dec 2010
What is Risk?
Risk is the uncertainty of an action or activity
which may have an impact on the
achievement of the (project’s) objectives,
outputs & benefits
It is the result of the combination of Impact &
Probability
2
Project Risk Management
• Undertaking any project entails risk
• A random & ad hoc reaction to identification &
Why? management of risk is often fatal to success/
sustainability of the project, or may require costly
interventions
• Systematic process of managing risk:
To achieve objectives in a manner consistent with public
interest, human safety, environmental factors & law
What? To minimize the adverse impact of risk on project's
resources, objectives & outputs
Does not mean eliminating risk but reducing operational surprises/ losses
3
Risk Management Cycle
Based on
Risk assumptions
Identification which may be
risky
Log frame
Design & superv’n
docs
Brainstorm
Risk Monitoring Risk Assessment
& Reporting Measurement
Update regularly Prioritisation
Communicate Classification
Risk Response
Avoid (eliminate)
Assists in process
Reduce (diminish)
of identification/
Depends on risk Share (outsource) mitigation
appetite/preferences Accept (retain)
4
Risk Identification
Risk Inventory Pyramid
COUNTRY
ENVIRONMENT
SOCIO-ECONOMIC
EXTERNAL RISKS ENVIRONMENT EXTERNAL RISKS
PARTNERS POLITICAL
ENVIRONMENT ENVIRONMENT
LEADERSHIP AND GOVERNANCE
INNOVATION &
PLANNING RISK MANAGEMENT
INTERNAL RISKS POLICIES, PROGRAMS RESOURCING AND INTERNAL RISKS
AND PROCESSES STEWARDSHIP
INFORMATION SYSTEMS PERFORMANCE AND RISK
MEASUREMENT, MONITORING
AND REPORTING
PRODUCTIVE WORKFORCE IN A
HEALTHY WORK ENVIRONMENT ACCOUNTABILITY
COUNTRY FOCUSED SERVICE DELIVERY AND CONSULTATIONS
CONTINUOUS IMPROVEMENT AND LEARNING
5
Risk Universe
Define the Risk Universe
– Develop understanding of business area– review documents, interviews
– May be structured by process and/or location
Define High Priority risks
– Evaluate the nature & types of errors/ omissions that could occur, i.e., “what can
go wrong”
– Consider significant risks common in the industry or experienced in past
– Information Technology risks (i.e. - access, backups, security, data integrity)
– Volume, size, complexity and homogeneity of the individual transactions
processed through a given account or group of accounts (revenue, receivables)
– Susceptibility to error or omission as well as manipulation or loss
– Robustness versus subjectiveness of processes for determining significant
estimates
– Decentralized authority
– Extent of change in the business/ human resources
– Other risks extending beyond potential material errors/ omissions in financial
statements 6
Risk Assessment - Measurement
Impact Description
6 •Catastrophic: requires urgent/ extensive action; lives lost, funding
withdrawn, project failure
UNACCEPTABLE RISKS
5 •Major: requires urgent/ extensive action; cancellation/ suspension of
funding, very costly remedies
4 Significant: delays in funding, impacts potentially > 1 component,
requires urgent intervention of third parties (donors/ ministry), costly
remedial actions
3 Moderate: requires remedial action as soon as possible, impacts on 1
component, modest cost
2 Low: requires some remedial action, minor costs
1 Negligible: no interference with other activities, no financial cost
Likelihood Description
6 •Virtually certain to occur in the time frame “Black swan”
5 •Highly likely in the timeframe; several precedents
4 Likely to occur; some precedents
3 Unlikely, but not unprecedented
2 Unlikely, without precedent
ACCEPTABLE RISKS
1 Virtually impossible
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Risk Monitoring
Log frame approach to risks - example
# Basic objective Risk event L I RP Actor Time
isk Consequence isk Mitigation Strategy frame
Decline in the •Farm viability deteriorates H H 5 •Crop diversification in line with, Project
1 Profitable farmer managed Annual
sugar price and •Financing institutions refuse national & international market leadership,
and self-financing irrigation
schemes established and impacts on the to fund capital and on farm needs national Sugar
economic viability development •Develop local livestock Association,
operational
of sugar cane as •Large scale irrigation ownership into commercial herds project
an anchor crop development compromised with supp. feeds produced on beneficiaries
with resulting increase in irrigation areas
poverty and increased food •Pursue downstream
security risk development initiatives with
potential to add value to crops
grown on the scheme, these
initiatives could be production of
crops with potential for bio-fuel
starch, oils & fibre production
2 Policy, institutional & social People resisting Land and irrigation M H 5 Facilitate agreement on equity Project leadership land owners,
environment supportive of land use change development delayed; less options acceptable to all parties Traditional Authorities & project
equitable integration of land is available for beneficiaries
smallholder farmers into the redistribution;
commercial economy Few landless people benefit
from irrigation
L: Likelihood/ I: Impact/ RP: Risk Priority
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Project Risk Management in IFAD
Begins at COSOP
Countries with high corruption/ poor governance ratings subject to
additional checks/ controls embedded into project design &
implementation
Risks highlighted in project design documents
Manage risks through expanded Log Frame – suggested
approach for projects
Annual Portfolio review – assess fiduciary aspects, project
implementation progress, outputs & outcomes, sustainability,
likelihood of achieving development objectives & impact in
increasing physical & financial assets/improving food security
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Risks in IFAD projects
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10 Golden Rules
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Thank You
