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The Essentials
Essential Questions
WHAT WHY WHEN HOW WHERE WHO
I keep six wise serving men.
(They taught me all I knew). There names are What & Why & When, and How & Where & Who
(Rudyard Kipling 1902)
WHAT
If it can go wrongit will (Murphys Law) Identification of what can go wrong, the consequences & the likelihood. Effect of uncertainty on objectives Perception Planning for contingencies Risk Context Risk management is a structured approach to identifying, assessing and controlling risks that emerge during the course of the policy, programme or project lifecycle. Its purpose is to support better decision-making through understanding the risks inherent in a proposal and their likely impact.
bhopal
Context
PROJECT
Risk Horseshoe
Neutral Fair' apportionment of risk
Balance
WHY
Objective view of a Project / Undertaking so that what can go wrong is incorporated into the Plan together with Actions that may be taken, by who & when Risk Management facilitates decision making and allows decisions to be made based on degree of uncertainty. Planning Contingencies (Cost & Time) Ascertain Degree of Exposure Communication / Responsibility / Allocation Optimism Bias Effective risk management helps the achievement of wider aims, such as: effective change management; the efficient use of resources; better project management; minimising waste and fraud; and supporting innovation.
WHEN
Planning - Risk Management Process adopted Execution - Risk may or may not be realised Monitoring & Control - Realising a risk/hazard is materialising and taking action as required Close Out - Learning & updating knowledge CONTINOUS NOT A Tick-in-the-box
HOW
Codes
ANZ STANDARD 4360:2004; BS31100:2008; National/Govt / State Codes
In house
Tailored to individual business
PMI
Generic to suit most projects
Approaches
Flow Chart
RISK PLANNING
IDENTIFY RISKS
NON-CRITICAL' RISKS
ADDITIONAL 'NON-CRITICAL'
CONTINGENCY PLANNING
FALLBACK PLANNING
SECONDARY RISKS
RISK OWNERS
RISK RESPONSE PLAN TIME & COST RESERVES "FINAL" PLAN RISK MONITORING & CONTROL
Planning
Inputs - Scope / Cost-Time estimates / Comms / Organisation Process / Enterprise Factors Tools & Techniques - Planning meetings & Analysis Outputs - Risk Management Plan
Planning
Strategic context - the environment within which the project/organisation operates; Organisational context - the organisation itself, its objectives, core activity and operations; and Risk management context - the parameters for dealing with risk
Identification
Inputs - Risk Management Plan / Activity $/Time estimates / Other Plans/ SHolder Register / Organisation Processes Tools & Techniques - Review Documents / Information gathering / Checklists / Assumptions / Diagrams/ Expert Judgement Outputs - Risk Register
Qualitative Assessment
Inputs - Risk Register / risk plan / Scope / Organisation Process Assets Tools & Techniques - Risk Probability & Impact Assessment / Risk Categorization & Prioritization / Expert Judgement Outputs - Updated Risk Register
Qualitative Analysis
Probability High Medium Low High Medium Low (3) (2) (1) (3) (2) (1) Almost certain Quiet Likely Possible > 70% 30% - 70 % <30%
Impact
> 1% of Project value 0.05 to 1% of Project value < 0.05% of Project value
Evaluation
Risk = Consequences x Likelihood
Impact M (2) H M L
Probability
L (1) M L L
H (3) H H M
Evaluation / Ranking
LIKELIHOOD Insignificant Minor CONSEQUENCE Moderate Major Catastrophic
Almost Certain
Significant Risk
Significant Risk
High Risk
High Risk
High Risk
Likely
Moderate Risk
Significant Risk
Significant Risk
High Risk
High Risk
Moderate
Low Risk
Moderate Risk
Significant Risk
High Risk
High Risk
Unlikely
Low Risk
Low Risk
Moderate Risk
Significant Risk
High Risk
Rare
Low Risk
Low Risk
Moderate Risk
Significant Risk
Significant Risk
Quantitative Assessment
Inputs - Risk Register / Risk Plan / Cost & Schedule Plans Tools & Techniques - Data gathering / Quantitative Analysis / Expert Judgement Outputs - Updated Risk Register
Quantitative Analysis
Quantitative Analysis
Cost Probability
Total cost Cumulative Frequency Line Graph
1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 405 410 415 420 425 430 435 440 445 Total cost (value)
0.20 0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 407. 33 409. 68 412. 04 414. 39 416. 74 419. 10 421. 45 423. 80 426. 16 428. 51 430. 86 433. 22 435. 57 437. 92 440. 28 442. 63 444. 98 447. 34 449. 69 452. 04
Probability
Probability
Ignoring a risk does not make it go away. You pay for your risk management if you do it or notunfortunately it may cost you more to cure than prevent. (An ounce of prevention is worth more than a pound of cure
Decision Tree
Use mec ha nic a l metho d +$80,000 +$80,000 0.500 Elec tro nic suc c ess +$150,000 0.500 Awa rd ed c o ntra c t +$90,000 Try elec tro nic metho d +$90,000 +$150,000 0.500 Elec tro nic fa ilure +$30,000 0.700 Ma g netic suc c ess Prep a re p ro p o sa l Try ma g netic metho d +$20,000 +$84,000 0.300 Ma g netic fa ilure $0 0.500 No t a wa rd ed c o ntra c t -$50,000 -$50,000 Use mec ha nic a l metho d $0 $0 +$120,000 +$120,000
+$20,000
Do n't p rep a re p ro p o sa l $0 $0
Response Planning
Inputs - Risk Register & Risk Management Plan Tools & Techniques - Strategies for ve / +ve risks, Contingency Responses Outputs - Risk Register / Contract Decisions / Update Documents / Project Mngmnt Plan
Transfer - Share Treat /ReduceAdaptMitigate (Enhance) Terminate Abandon - Avoid Take - Accept (Exploit)
Treatment
Treatment
High
IMPACT
CONTROL Hazards ACTIVELY MANAGE Preparation of scenarios & plans DELEGATE Expected Risks with Procedures High
Low
Realistic Reporting
Close Out
Not in PMBoK BUT part of Procurement close out
WHERE
Internal Within an organisation / project / technical capacity External Government, Legal, Environmental, Supplier Organisations.
WHO
Financial /Legislative Authority Commercial / Risk Capacity Legal relationships between parties Technical personnel to confirm compliance / quality/ approach Estimators Contract Administrators Planning and Project Controls Project Managers to orchestrate Governance to ensure performance
IDENTIFICATION
ANALYSE / QUANTIFY based on likelihood/severity Reviews PLAN / TREAT based on AVOIDANCE, ACCEPTANCE (Mitigation), TRANSFER, INSURE based on PROCEDURES/METHODS, REVIEWS REPORTS, MODIFICATIONS & closure
MONITOR,
Likelihood / Frequency
RARE -No recorded incidents or little opportunity for occurrence UNLIKELY MODERATE LIKELY ALMOST CERTAIN -
If budget is set at 420 then it is only 30% probable that this figure will be met. If the organisation wants 90% confidence then 430 is required then a reserve of 10 is required (430 420/420) which is a contingency of ~2.5%. The curve is flatter and wider for projects with greater uncertainty say on price of duration than a definitive cost, in which case the line is vertical. Decision tree
Flow
Risk Outcomes
But
&