---
title: "Risk planning; internal, external; risk reduction"
subject: "Project Engineering"
chapter: 5
key: "semester_7/project_engineering:risk-reduction-internal-external-planning"
source: https://www.bctengineer.com/q/semester_7/project_engineering/risk-reduction-internal-external-planning
site: BCT Engineering
---

# Risk planning; internal, external; risk reduction

Project Engineering · Chapter 5: Project Risk Analysis and Management

- Asked in: 2072 Kartik
- Video: [What is Risk Management? (With Real-World Examples) | From A Business Professor](https://www.youtube.com/watch?v=cXAqQ7ofdHw) — Business School 101
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/project_engineering/risk-reduction-internal-external-planning
- Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-5

## Question

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.

## 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.

## Answer

#### 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

| Basis | Internal risk | External risk |
|---|---|---|
| Source | Inside the project/organisation | Outside the project/organisation |
| Control | Can be controlled by the project team | Cannot be controlled, only reduced or transferred |
| Examples | Wrong estimate, poor design, weak management, skill shortage | Policy change, inflation, flood, earthquake, bandh |
| Response | Avoid, mitigate | Transfer, 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.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. What is the output of risk management planning?
   A. The risk register
   B. The risk management plan guiding all other risk processes
   C. The insurance policy
   D. The contingency reserve only
   Answer: B. Planning defines approach, roles, budget, scales and thresholds, producing the risk management plan. (Key point: Risk management plan)

2. Which responses suit internal risks and external risks respectively?
   A. Internal: avoid, mitigate; external: transfer, accept, contingency
   B. Internal: transfer; external: avoid
   C. Both only accept
   D. Internal: accept; external: mitigate
   Answer: A. Internal risks are controllable so avoided/mitigated; external risks can only be reduced, transferred or covered by contingency. (Key point: Internal vs external response)

3. Why is risk reduction part of risk response planning?
   A. It is done after the event
   B. It is planned before the risk occurs with owner, budget and time
   C. It always transfers the loss
   D. It needs no cost
   Answer: B. Reduction is planned and budgeted in advance as part of the response plan. (Key point: Why reduction is response planning)

4. In the hydropower tunnel example, which action reduces the poor-rock risk?
   A. Extra geological drilling and seismic survey before design
   B. Buying flood insurance
   C. Ignoring geology
   D. Raising the tariff
   Answer: A. Extra drilling and surveys, flexible support and an experienced contractor lower the probability of surprise and the delay. (Key point: Tunnel example)

## Related in Project Engineering

- [Internal/external risks; Nepal; hydropower](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Arisk-internal-external-nepal-hydropower) — Project Engineering, chapter 5
- [Risk transfer, reduction as response techniques](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Arisk-transfer-reduction-response-justify) — Project Engineering, chapter 5, asked 2×
- [Internal risk of Nepalese construction project](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Arisk-internal-construction-nepalese-company) — Project Engineering, chapter 5
- [Risk response planning strategies](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Arisk-response-planning-strategies) — Project Engineering, chapter 5, asked 3×
- [Risk, sources, risk response planning](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Arisk-define-sources-response-planning) — Project Engineering, chapter 5
- [Project vs traditional management; external environment](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aproject-vs-traditional-mgmt-external-env) — Project Engineering, chapter 1

## Related in other subjects

- [Importance of risk response planning](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Arisk-response-planning-importance) — ICT Project Management, chapter 12
- [Page size impact; internal, external fragmentation](https://www.bctengineer.com/question.md?key=semester_6%2Foperating_system%3Apage-size-impact-fragmentation) — Operating System, chapter 4
- [Noise, distortion, interference; internal and external noise](https://www.bctengineer.com/question.md?key=semester_6%2Fcommunication_systems%3Anoise-types-internal-external) — Communication Systems, chapter 1
- [External vs internal noise; interference sources; need for modulation](https://www.bctengineer.com/question.md?key=semester_6%2Fcommunication_systems%3Aexternal-internal-noise-interference-needs) — Communication Systems, chapter 1