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Risk planning; internal, external; risk reduction

Short answer

Risk management planning defines approach, roles, budget, scales, and outputs the risk management plan. Internal risks originate inside the project and are controllable; external risks originate outside and are only transferable or acceptable. Risk reduction lowers probability or impact, as with extra geological drilling before tunnel design to reduce poor-rock delay.

Define risk management planning. Explain in detail the internal and external risks in a project. Justify, giving a suitable example, how risk reduction is taken as risk response planning.

Risk management planning

Risk management planning is the process of deciding how to carry out risk management for a project. It defines the approach, methodology, roles and responsibilities, budget and time for risk activities, risk categories, definitions of the probability and impact scales, risk thresholds, reporting formats and tracking. The output is the risk management plan, which guides all the other risk processes.

Internal and external risks

BasisInternal riskExternal risk
SourceInside the project/organisationOutside the project/organisation
ControlCan be controlled by the project teamCannot be controlled, only reduced or transferred
ExamplesWrong estimate, poor design, weak management, skill shortagePolicy change, inflation, flood, earthquake, bandh
ResponseAvoid, mitigateTransfer, accept, contingency

Internal risks:

  1. Inaccurate cost estimate and schedule, and unrealistic bids.
  2. Incomplete and poor design, drawings and surveys.
  3. Weak planning, coordination and project management.
  4. Shortage of skilled labour, engineers and equipment.
  5. Poor financial management and cash-flow problems.
  6. Poor quality control and lack of a safety culture.
  7. Delay in decisions, approvals and payments by the client.
  8. Weak contract management and disputes with subcontractors.
  9. Frequent changes of design or scope (variations).

External risks:

  1. Political: change of government or policy, bandh, instability.
  2. Economic: inflation, interest and exchange rate changes, material price rise.
  3. Legal: change in tax, law or regulation; court cases.
  4. Natural: flood, earthquake, landslide, extreme weather.
  5. Social: local opposition, land and compensation conflict.
  6. Market: change in demand, tariff or competition.

Risk reduction as risk response planning

Risk reduction (mitigation) is a response strategy that lowers the probability and/or impact of a threat to an acceptable level. It is planned before the risk occurs, with an owner, budget and time, and is part of the risk response plan, so it is a risk response planning technique.

Example (hydropower tunnel project): there is a risk that poor rock conditions will cause delay and cost overrun. Reduction actions: extra geological drilling and seismic survey before design, a design with flexible support systems, keeping rock support materials in stock, and employing an experienced tunnelling contractor. These actions are planned and budgeted in advance and they bring the probability of geological surprises and the resulting delay down to an acceptable level, which justifies risk reduction as a risk response planning technique.

✓ Answer checked by Claude Opus 5.5 (high effort)

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