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| Definition of Risk Management Terms |
The Project Management Institute (PMI) defines project risk in its Project Management Body of Knowledge (PMBOK) as ‘‘an uncertain event or condition that, if it occurs, has a positive or negative effect on at least one project objective, such as time, cost, scope, or quality. A risk may have one or more causes and, if it occurs, one or more impacts.’’
PMBOK adds ‘‘Risk conditions could include aspects of the project’s or organization’s environment that may contribute to project risks, such as poor project management practices, or dependency on external participants who cannot be controlled.’’
Read also: Types of Risk in Construction Projects
Risk Management: A process designed to examine uncertainties occurring during project delivery and to implement actions dealing with those uncertainties in order to achieve project objectives
The definition of risk management in PMBOK, 6th Edition, is: ‘‘ The systematic process of identifying, analyzing, and responding to project risk.’’
Risk definition by AACEi Cost Engineering Terminology7 is: ‘‘the degree of dispersion or variability around the expected or ‘best’ value, which is estimated to exist for the economic variable in question, e.g., a quantitative measure of the upper and lower limits which are considered reasonable for the factor being estimated.’’
Download also: Project Risk Assessment Report
Time Contingency: An amount of time added to the base estimated duration to allow for unknown impacts to the project schedule, or to achieve a certain level of confidence in the estimated duration.
Probability: A measure of the likelihood of occurrence of an event.
Risk register: A checklist of potential risks developed during the risk identification phase of risk management.
Risk allocation: A determination of how to respond to risks, which can include shifting risk, avoiding risks, preventing or eliminating risks, and incorporating risks into the schedule.
Deterministic: A calculated approach to estimating single activity duration using work quantity divided by the estimated production rate.
Probabilistic: The determination of risk likelihood and consequences to establish duration ranges or risk-adjusted durations that can be used in a schedule in recognition that there are no certainties in estimating future durations.
Monte Carlo analysis: A probabilistic approach to determining confidence levels of completion dates for a project schedule by calculating durations as probability distributions.
Probability distribution: The spread of durations in a statistically significant population that is used for the range of durations in probabilistic scheduling approaches.
Download also: Planning and Schedule Free Templates
Confidence level: A measure of the statistical reliability of the prediction of project completion.
What-if scenario: A modeling of a risk for use in a CPM schedule in order to predict the ramifications of an identified risk.
Qualitative analysis: The determination of the likelihood of a risk occurring on the project, as well as assessing the severity of that risk should it occur and prioritizing the resultant list of risks.
Quantitative analysis: The assigning of a probability to the qualitative description of the risk, ranking the risks, and calculating the potential impact from both individual risks as well as the cumulative effect of all risks identified.
Exculpatory clauses: Disclaimer verbiage that is designed to shift risk.
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