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Session 02: 10-12-2018
Session 02: 10-12-2018
Session 02: 10-12-2018
Session 02: 10-12-2018
Session 02: 10-12-2018
Session 02: 10-12-2018

Introduction – Definitions – classifications – project risk – scope, Project management – definitions – overview project plan. Management principles applied to project management, project management life cycles and uncertainty

– project plan . Management principles applied to project management , project management life cycles and

What is RISK

Any possible event or condition that, if it occurs, has a positive or negative effect on a project’s objectives.

Events that planning can not overcome or control.

has a positive or negative effect on a project’s objectives.  Events that planning can not

Project Risk Management

Risk Management Overview

I

N

C

R

E

A

S

I

N

G

R

I

S

K

Project Lifecycle Risk vs. Amount at Stake

CONCEPT DEVELOPMENT IMPLEMENT CLOSE PHASE PHASE PHASE PHASE OPPORTUNITY AND RISK PERIOD WHEN HIGHEST RISKS
CONCEPT
DEVELOPMENT
IMPLEMENT
CLOSE
PHASE
PHASE
PHASE
PHASE
OPPORTUNITY AND RISK
PERIOD WHEN
HIGHEST RISKS
ARE INCURRED
PERIOD OF
HIGHEST
RISK IMPACT
AMOUNT AT STAKE

$

V

A

L

U

E

Risk

Management

Project risk management is the art and science of identifying, analyzing, and responding to risk

throughout the life of a

project and in the best

interests of meeting project objectives

Risk management is often overlooked in projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates

Recapitulation - Risk

Management

A proactive attempt to recognize and manage internal events and external threats that affect the likelihood of a project’s success.

What can go wrong (risk event).

How to minimize the risk event’s impact (consequences).

What can be done before an event occurs (anticipation).

What to do when an event occurs (contingency plans).

What is risk management?

Identifying, analyzing, prioritizing, and responding to risk events

Integration of risk management activities into your other project management functions

Developing responses to risk to meet your project objectives

Project risk management is PROACTIVE

functions  Developing responses to risk to meet your project objectives  Project risk management is

Risk Management’s Benefits

A proactive rather than reactive approach.

Reduces surprises and negative consequences.

Prepares the project manager to take advantage of appropriate risks.

Provides better control over the future.

Improves chances of reaching project performance objectives within budget and on time.

Project Management Maturity by Industry Group and Knowledge Area*

 

Engineering/

Telecommunicat

Information

Hi-Tech

Knowledge Area

Construction

ions

Systems

Manufacturing

Scope

3.52

3.45

3.25

3.37

Time

3.55

3.41

3.03

3.50

Cost

3.74

3.22

3.20

3.97

Quality

2.91

3.22

2.88

3.26

Human Resources

3.18

3.20

2.93

3.18

Communications

3.53

3.53

3.21

3.48

Risk

2.93

2.87

2.75

2.76

Procurement

3.33

3.01

2.91

3.33

KEY: 1 = LOWEST MATURITY RATING

5 = HIGHEST MATURITY RATING

*Ibbs, C. William and Young Hoon Kwak. “Assessing Project Management Maturity,” Project Management Journal (March 2000).

Managing Risk

Step 1: Risk Identification

Generate a list of possible risks through brainstorming, problem identification and risk profiling. Macro risks first, then specific events

risks through brainstorming, problem identification and risk profiling.  Macro risks first, then specific events
risks through brainstorming, problem identification and risk profiling.  Macro risks first, then specific events

Brain storming for Risk Identification

Chose a facilitator (best

manager)

if

other

than

the project

Chose a scribe to capture the risks

Use a category or categories to start the creativity flowing

Do not judge or analyze during this effort

Focus on getting the universe of risks for your project

flowing  Do not judge or analyze during this effort  Focus on getting the universe

Nominal Group for Risk Identification

Gather the core team for a risk workshop

Use flip charts or a whiteboard to collect info

Begin by having each person identify potential areas of risk

Then within each area have each person write at least 3-5

risk events

Repeat until everyone has listed their risks

Delphi Technique for Risk Identification

Identify a facilitator

The facilitator then identifies qualified experts to participate

The facilitator poses questions to the experts individually

The facilitator then analyzes the results to identify common themes

The results are then shared with the experts for validation

The list is then refined and again shared with the panel

The facilitator the creates a single results document

Mind Mapping for Risk Identification

Begin with a category of risk in the center represented by a circle

Major risks for that category are represented by lines connecting with the circle

For each major risk identify smaller risks that are part of that risk

Do not judge or evaluate at this time

Continue until no more risks can be identified

are part of that risk  Do not judge or evaluate at this time  Continue

Managing Risk

Step 2: Risk Assessment

Scenario analysis for event probability and impact

Risk assessment matrix

Failure Mode and Effects Analysis (FMEA)

Probability analysis

Decision trees, NPV, and PERT

Semi-quantitative scenario analysis

Analysis (FMEA)  Probability analysis  Decision trees, NPV, and PERT  Semi-quantitative scenario analysis

Managing Risk (cont’d)

Step 3: Risk Response Development

Mitigating Risk

Reducing the likelihood that an adverse event will occur.

Reducing impact of adverse event.

Avoiding Risk

Changing the project plan to eliminate the risk or condition.

Transferring Risk

Paying a premium to pass the risk to another party.

Requiring Build-Own-Operate-Transfer (BOOT) provisions.

Retaining Risk

Making a conscious decision to accept the risk.

Managing Risk (cont’d)

Step 4: Risk Response Control

Risk control

Execution of the risk response strategy

Monitoring of triggering events

Initiating contingency plans

Watching for new risks

Establishing a Change Management System

Monitoring, tracking, and reporting risk

Fostering an open organization environment

Repeating risk identification/assessment exercises

Assigning and documenting responsibility for managing risk

Contingency Planning (DR/BCP)

Contingency Plan

An alternative plan that will be used if a possible foreseen risk event actually occurs.

A plan of actions that will reduce or mitigate the negative impact (consequences) of a risk event. Risks of Not Having a Contingency Plan

Having no plan may slow managerial response.

Decisions

potentially

made

under

pressure

can

be

dangerous and costly.

Planning Risk Management

The main output of this process is a risk management plan—a plan that documents the procedures for managing risk throughout a project

The project team should review project documents and understand the organization’s and the sponsor’s approaches to risk

The level of detail will vary with the needs of the project

organization’s and the sponsor’s approaches to risk  The level of detail will vary with the

Issues Addressed in a Risk Management Plan

Methodology

Roles and responsibilities

Budget and schedule

Risk categories

Risk probability and impact

Revised stakeholders’ tolerances Tracking

Risk documentation

 Risk probability and impact  Revised stakeholders’ tolerances  Tracking  Risk documentation

Contingency and Fallback Plans, Contingency Reserves

Contingency plans are predefined actions that the project team will take if an identified risk event occurs

Fallback plans are developed for risks that have a high impact on meeting project objectives, and are put into effect if attempts to reduce the risk are not effective

Contingency reserves or allowances are provisions held by the project sponsor or organization to reduce the risk of cost or schedule overruns to an acceptable level; management reserves are funds held for unknown risks that are NOT part of the cost baseline but ARE part of the budget and funding requirements

Risk and Contingency Planning

Technical Risks

Backup strategies if chosen technology fails.

Assessing

can be resolved. Schedule Risks

Use of slack increases the risk of a late project finish.

Imposed duration dates (absolute project finish date)

Compression of project schedules due to a shortened project duration date.

whether

technical

uncertainties

Risk and Contingency Planning (cont’d)

Costs Risks Time/cost dependency links: costs increase when problems take longer to solve than expected.

Price protection risks (a rise in input costs) increase if the duration of a project is increased. Funding Risks

Changes in the supply of funds for the project can dramatically affect the likelihood of implementation or successful completion of a project.

Contingency Funding and Time Buffers

Contingency Funds

Funds to cover project risks—identified and unknown.

Size of funds reflects overall risk of a project

Budget reserves - linked to the identified risks of specific work packages.

Management reserves -large funds to be used to cover major unforeseen risks (e.g., change in project scope) of the total project. Time Buffers

Amounts of time used to compensate for unplanned delays in the project schedule.

Change Control System Process

1. Identify proposed changes.

2. List

expected

effects

on schedule and budget.

3. Review,

evaluate,

and

of

proposed

approve

or

changes

disapprove

of changes formally. 4. Negotiate and resolve conflicts of change, condition, and cost.

5. Communicate changes to parties affected.

6. Assign responsibility for implementing change.

7. Adjust master schedule and budget.

8. Track all changes that are to be implemented

Benefits of a Change Control System

1. Inconsequential by the formal process.

changes

are

2. Costs of changes are maintained in a log.

3. Integrity

of

the

WBS

and

performance

is maintained.

discouraged

measures

4. Allocation and use of budget and management reserve funds are tracked.

5. Responsibility for implementation is clarified.

6. Effect of changes is visible to all parties involved.

7. Implementation of change is monitored.

8. Scope changes will be quickly reflected in baseline and performance measures.

INTEGRATING RISK WITH OTHER PROJECT MANAGEMENT FUNCTIONS

PROJECT MANAGEMENT INTEGRATION INFORMATION / COMMUNICATIONS Life Cycle and Environment Variables Ideas, Directives,
PROJECT
MANAGEMENT
INTEGRATION
INFORMATION /
COMMUNICATIONS
Life Cycle and
Environment Variables
Ideas, Directives, Data
Exchange Accuracy
PROJECT RISK
PROJECT
RISK
Ideas, Directives, Data Exchange Accuracy PROJECT RISK Cost Objectives, Restraints COST HUMAN RESOURCE

Cost Objectives,

Restraints COST
Restraints
COST
HUMAN RESOURCE
HUMAN
RESOURCE

Availability

Productivity

Restraints COST HUMAN RESOURCE Availability Productivity Services, Plant, Materials: Performance CONTRACT /

Restraints COST HUMAN RESOURCE Availability Productivity Services, Plant, Materials: Performance CONTRACT /

Services, Plant, Materials:

Performance CONTRACT / PROCUREMENT
Performance
CONTRACT /
PROCUREMENT
SCOPE Expectations
SCOPE
Expectations

Feasibility

QUALITY
QUALITY

Requirements

Standards

Time Objectives,

Constraints

TIME
TIME

Risk Identification

Risk in corporate business is typically divided into 2 basic types Business Risk:

Chances of profit or loss associated with a business endeavor

Business employs a staff of qualified workers to increase profit and reduce chances of loss

Pure or Insurable Risk: Divided into 4 categories

Direct property: Destruction of property by fire, etc.

Indirect property: Extra expenses associated with rental property or loss due to a business interruption

Liability: Chance of a lawsuit of bodily injury, damages, etc.

Personnel: Injuries to workers (Worker’s Comp)

Risk Identification – contd.

Risk in project management is inadequate -Not enough

attention is paid to risk on projects

All risks are not independent and frequently the greatest risk on a project comes from a series of related/integrated events

Ultimate responsibility of risk management resides with the project sponsor

As the project manager representing the sponsor, risk management becomes a large responsibility for you

sponsor  As the project manager representing the sponsor, risk management becomes a large responsibility for

Risk Breakdown Structure

Risk Breakdown Structure The Risk Breakdown Structure (RBS) lists categories and sub-categories for project risk. The

The Risk Breakdown Structure (RBS) lists categories and sub-categories for project risk. The actual categories will vary across different types of projects.

Project Risk Quantification

By developing a simple estimate of the probability that an event will be late in delivery

Ideally done using weighted averages

Moonsamy says 35% chance of being late

Ayyasamy says 40% chance of being late

Appasamy says 50% chance of being late

Moonsamy gets twice as much credit because he knows more about the situation

The probability is: ((2 x 35) + (40) + (50)) / 4 = 40%

Quantifying risk probability can become quite complex, there are many resources to assist you with more detailed approaches