LUSAKA UNIVERSITY

SCHOOL OF POSTGRADUATE STUDIES

MSc Project Management

GBEPM 610 RISK MANAGEMENT

ASSIGNMENT: 2 (Part Time)

DATE: 17th April, 2020

DUE DATE: 4th May 2020

Question One

The Zambeef company is facing challenges of low supply of its beef products due to
increased demand in three townships in Lusaka namely; Kuku, Mandevu, and X

Chawama.Consequently, management is considering increasing production using one

of the three alternatives A (Work overtime), B (Install new Equipment) and C (Rent a
Machine). The demand for the three alternatives which is 20,000, 35,000 and 65,000
has a demand probability ratio of 0.5,0.3 and 0.2 respectively. The fixed cost per month
as calculated by the Finance team is given as Work Overtime(23,000), Installation of
the Equipment (87,500) and Renting a machine (42,000). Subsequently, the variable
costs are 9,7 and 8 respectively. The price per unit on all options is 20. The Project
Manager upon receipt of this information, he/she must do some risk analysis using the
decision tree to come up with the best option to meet the market demand. Note that the
given figures came up after some accounting computation process.

Task: Compute the Risk Analysis using decision tree method with the parameters given
by the Project Accountant. Calculate the following:

a.) Profit per demand levels [3 marks]

b.) Expected values [3 marks]

c.) Total Values [3 marks]

d.) Which option is the best? [3 marks]

e.) Explain briefly the advantages and disadvantages of a Decision Tree Technique
and its limitations. [6 marks]

Question Two

Risk Analysis on project is carried out either qualitative or quantitative techniques. List 5
techniques of each method, advantages, disadvantages and limitations. [20 marks]

Qualitative Advantages Disadvantages Limitations

Techniques
1. Root-Cause  Allows  It does not  It does not
Analysis identification of allow for analyze the
2. Estimating additional, determination risks

techniques dependent of probabilities mathematically

to identify the
3. Post-project risks and results
probability and
reviews/lessons  Allows the using
likelihood.
learned/historical organisation to numerical
Instead, it uses
information identify risks measures
stakeholder’s
4. Probability and that may be  Costs benefits inputs (expert
impact matrix related analysis is judgment) to
5. Analytic Hierarchy because of more difficult judge the
process their common during likelihood and
root causes selection of impact

 Basis for selections  It considers all

development  Achieved the risks

identified in the
of pre-emptive results have
identify risk
 and general process.
comprehensive character,  Findings
responses approximations cannot be
 Can serve to and any other extended to
reduce information. wider network
apparent  No attempt is with the same
complexity made to assign degree of
 Easy frequencies to certainty that
presentation - the linguistic quantitative
The results of the features which analyses can.
qualitative risk
are identified in This is
analysis can be
the data, and because the
presented
rare findings of the
graphically using
a risk information risk analysis
assessment receives the are not tested
matrix. A project same amount to discover
manager can use of attention as whether they
a risk
more frequent are
assessment
information. statistically
matrix to
significant or
communicate
risk management due to
strategy to team chance.
members or
senior
management.
 Simple
assessment
methods - The
project team
does not require
a training to
conduct the
 qualitative risk
analysis, as it
doesn't rely on
any complicated
tools or
software.
 Easy
prioritization -
Since the
qualitative risk
analysis already
classifies risks
according to
their likelihood
and impact, it
becomes easy
to determine
risks that an
organization
should focus on
- the ones falling
into the highest
likelihood and
impact
categories.
 No need to
determine
frequency - The
qualitative risk
analysis results
don't depend on
the risk
occurrence
frequency, so the
 team performing
the analysis can
save time by not
predicting the
frequency and
the exact timing
of each risk.
 Assists with
identification of
risks for further
analysis.
Quantitative Advantages Disadvantages Limitations
Techniques
1. Three Point  Numerically  Quantitative  It only
investigating risk analysis is considers the
Estimate
the combined dependent on risks which we
2. Decision Tree impact of the scope and mark for further
analysis in the
Analysis identified accuracy of
Perform
single project defined
3. Expected Monetary Qualitative Risk
risks and other measurement
Value (EMV) Analysis
sources of scale
4. Monte Carlo Process. These
uncertainty on  Analysis are the risks
Analysis  overall project results may not that have a
5. Fault Tree objectives. It be precise and high impact on
allows for the could even be the project
Analysis (FMEA)
definition of confusing objectives.

consequences  It must be  It only

of incidents enriched in considers the

occurrence in risks which we

qualitative
mark for further
a quantitative description
analysis in the
way.
Perform
 Assists with
Qualitative Risk
the
 identification of Analysis
the “effect of Process. These

identified risks are the risks

that have a
on overall
high impact on
project
the project
objectives.”
objectives.
 It also assists
with the
quantification
of the risk
exposure and
determines the
size of cost
and schedule
contingencies.
 The realization
of costs and
benefits
analysis during
selection of
projects.
 Obtains more
accurate
image of risk.

Question Three

What is corporate governance? Identify eight risks found at corporate level on the
project? [10 marks]

The Cadbury Report (1992) defines corporate governance as a system by which

organisations are directed and controlled. This entails that corporate governance is
about structures and processes put in place to facilitate and monitor effective
management of an organization including mechanisms to ensure legal compliance and
prevent improper or unlawful behaviour. It is important to understand that, governing is
not the same as managing. Governance is concerned with creating a balance between
the economic and social goals of an organizations including such aspects as the
efficient use of resources, accountability in the use of its power and the behaviour of the
organization in its social environment.
The following are some of the risks found at corporate level on the project:

 Budget Risk
The risk of budget control issues such as cost overruns. Budget estimates are based on
forward looking typically involves some degree of uncertainity.

 Resistance to Change
Resistance to change is a common occurrence whereby departments and/or individuals
defend the status quo resist projects or organizational changes.

 Integration Risk
Activities involving integration of technologies, information, processes or organizations
tend to be particulary high risk and are often overlooked.

 Resource Risk
The inability to secure sufficient resources such as skilled workers and budget.

 Skills Risk
Risks related to training, skill transfers or resources who are inexperienced at a particular
task.

 Stakeholders
Any risks related to stakeholders fulfilling their commitments to the project.
  Operations Risk
Operations risk is a failure of an organizations core processes. Any process disruptions on
the project could result in costs, revenue loss and damage reputation.

 Regulatory Risk
The possibility of new regulations that impact the project.

QUESTION Four
In 2017, Zambia Development Agency began the process of raising $33 billion
(approximately US $425 million) in the syndicated loan market to finance part of the
construction and operation of its biggest office complex and investment yard.
Syndicated loans involve two or more bank lenders united by a single set of legal
documents for providing credit to a borrower. The banks are coordinated by one bank
known as ‘lead arranger’
The project analyst for the lead arranger analyzing the project proposal received
information represented in the table below:
Description Likelihood Impact
Default 1 5
Start up Failure 1 5
Construction Delay 4 4
Market Risk (Sales) 2 4
Market Risk (Inputs) 1 4
Technology Failure 1 1
Weather Extremities 3 2
Political Instability 1 4
Tax Increase 4 4
Plant Failure 2 4

Requirements:
 a) Create the Probability Impact Grid. [5 Marks]
b) Classify the risks into high, medium and low [6 Marks]
c) Develop a risk register for this project. [5 Marks]
d) Describe what Put or Pay Agreement is and its importance with regards to
any project of your choice. [4 Marks]
TOTAL: [20
MARKS]

Adopt the ‘Harvard System’ for referencing. All materials to be listed under the ‘references’
section (NOT Bibliography) must be cited in the write-up.

Cadbury Report (1992). Report of the Committee on the Financial Aspects of

Corporate Governance. Burgess Science Press