07 managing risk
- 2. Where We Are Now 2
- 3. 3
- 4. Purpose The purpose of risk management is to reduce the overall project risk to a level that is acceptable to the project sponsor and other stakeholders. 4
- 5. Understanding the Project Risk • Project risk is defined by PMI as “an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives”. • A negative impact poses a threat threat – “a condition or situation unfavorable to the project…a risk that will have a negative impact on a project objective if it occurs.” PMBOK® Guide 5
- 6. Understanding the Project Risk • A positive impact poses an opportunity • A project manager proactively seeks to eliminate/reduce the impact of threats and capitalize on opportunities opportunity – “a condition or situation favorable to the project … a risk that will have a positive impact on a project objective if it occurs.” PMBOK® Guide 6
- 7. International Construction Project Risk Factors 7
- 8. The Risk Event Graph 8 Defining Planning Executing Closure
- 9. Risk Management • 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 (prevention). • What to do when an event occurs (contingency plans). 9
- 10. 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. 10
- 12. 1. Risk Identification • Information gathering • Risk Profile • Risk Breakdown Structure (RBS) • Understanding relationships • Risk register Risk identification – “the process of determining which risks might affect the project and documenting their characteristics.” PMBOK® Guide 12
- 13. • A brainstorming activity considering “what could go wrong” • Interview stakeholders • Use a SWOT analysis • Use a structured review – review a variety of project and other documents to uncover possible risks Information Gathering 13
- 14. 14 A risk profile is a list of questions that address traditional areas of uncertainty on a project. These questions have been developed and refined from previous, similar projects Partial Risk Profile for Product Development Project Risk Profile
- 15. 15 Risk Breakdown Structure (RBS) Organizations use risk breakdown structures (RBSs) in conjunction with work breakdown structures (WBSs) to help management teams identify and eventually analyze risks.
- 16. • Learn the cause and effect relationships on risk events – Use a flow chart that shows how people, money, data, or materials flow from one person/location to another • Consider why a certain risk event may happen through root cause analysis – “Why might this happen?” Root cause analysis – “an analytical technique used to determine the basic underlying reason that causes a variance or defect or risk. A root cause may underlie more than one variance or defect or risk.” PMBOK® Guide Understanding Relationships 16
- 17. • Understand triggers • A trigger may be specific to an individual risk • Triggers can be general indications of problems for the project as a whole Triggers – “indications that a risk has occurred or is about to occur.” PMBOK® Guide Understanding Relationships 17
- 18. • Project manager displays lack of self-esteem • Team members do not show enthusiasm for project. • Project was started with inadequate time for planning. • Communications is overly general with little focus. • Reports yield little information about true project status. • Little effort has been given to risk management. Trigger for a Project as a Whole 18
- 19. • The primary output of risk identification is the risk register • The risk register includes risk categories, identified risks, potential causes, potential responses • The risk register is a living document Risk register – “the document containing the results of the qualitative risk analysis, quantitative risk analysis, and risk response planning. The risk register details all identified risks, including description, category, cause, probability of occurring, impact(s) on objectives, proposed responses, owners, and current status.” PMBOK® Guide Risk Register 19
- 21. 2. Risk Assessment • Qualitative Risk Analysis • Quantitative Techniques in Risk Analysis • Risk Register Updates 21 Risk event / condition Severity Impact (Effect or Consequences) Causes Likelihood of occurrence Controllability Risk assessment is the determination of quantitative or qualitative value of risk related to a concrete situation and a recognized threat (also called hazard).
- 22. • How likely is a risk to happen? • How big will the impact be? • When is the risk likely to occur? • How easy will it be to notice and correctly interpret the trigger? Qualitative risk analysis – “the process of prioritizing risks for subsequent further analysis or action by assessing and combining their probability and impact.” PMBOK® Guide Qualitative Risk Analysis 22
- 23. Qualitative Risk Analysis - Cause and Effect Diagram 23
- 24. Qualitative Risk Assessment - Risk Severity Matrix 24 Very Low Low Medium High Critical Very High High Medium Low Very Low Hardware Malfunctio ning Interface Problem System freezing
- 25. • Bigger, more complex, riskier, more expensive projects may benefit from the rigor of quantitative structured techniques • Use when it is critical to predict the probability of completing a project on-time, on-budget, at the agreed upon scope and/or agreed upon quality Quantitative risk analysis – “the process of numerically analyzing the effect on overall project objectives of identified risks.” PMBOK® Guide Quantitative Techniques in Risk Assessment 25
- 26. Common Quantitative Risk Assessment Techniques 26
- 27. • Add the probability of each risk occurring and its impact to the register • Document results of quantitative risk analysis in the risk register Risk Register Updates 27
- 28. 3. Risk Response Development • Strategies for Responding to Risks • Develop contingency plans • Risk Register Updates Risk response planning – “the process of developing options and actions to enhance opportunities and reduce threats to project objectives.” PMBOK® Guide 28
- 29. Common Risk Strategies 29 or Reduce
- 30. • 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 made under pressure can be potentially dangerous and costly. Contingency Planning 30
- 32. 4. Risk Response Control • 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 32
- 33. • Sources of Change –Project scope changes –Implementation of contingency plans –Improvement changes Change Management Control 33
- 34. • The Change Control Process – Identify proposed changes. – List expected effects of proposed changes on schedule and budget. – Review, evaluate, and approve or disapprove of changes formally. – Negotiate and resolve conflicts of change, condition, and cost. – Communicate changes to parties affected. – Assign responsibility for implementing change. – Adjust master schedule and budget. – Track all changes that are to be implemented Change Management Control 34
- 37. Key Terms Avoiding risk Change management system Contingency plan Mitigating risk Risk Risk profile Risk severity matrix Scenario analysis Sharing risk Transferring risk 37
- 38. Backup 38