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Project Management - Risk Management

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I need some help in answering the below question.

The diagram (attached) presents a graphic model of the risk management dilemma. This helps us understand that risk management is an essential consideration in any project and that we have to take a proactive approach to rather than reactive one to minimize risk impact.

1. Why at the start of a project is risk high?
2. Why at the start of a project is the cost of fixing a risk so low?
3. When the intersection of the cost and risk curves occurs, what does imply for the project? Can you call the project a success at this point?
4. How do you construct such a model for your project? What data is available?

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Solution Summary

The solution explains why at the start of a project is risk high, why at the start of a project is the cost of fixing a risk so low and when the intersection of the cost and risk curves occurs, what does imply for the project,

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1Why at the start of a project is risk high?

Because projects are unique undertakings, they involve a degree of uncertainty. At project start, only broad information about characteristics of product are available. This is the concept stage and different tasks such as analysis and design have to be performed to get the project off the ground. Therefore the level of complexity is high as there are different alternatives to choose from starting from different designs of the product to different markets which the company can enter. At this stage anything from the design of the product to the estimation of market demand can go wrong. Hence, the probability of successfully completing the project is lowest, and hence risk and uncertainty are highest, at the start of the project. The probability of ...

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