Alper Bender - Project Risk Management
- 1. PROJECT RISK MANAGEMENT Prepared by Alper BENDER University of Technology Sydney, 2016
- 2. Summary • What is risk • Establishing Context • Risk Identification • Risk analysis and evaluation • Risk Treatment • Monitoring and review • Case Study: The New Zealand Project • Reference list Figure 2 – The Risk management process Source: Standards Australia AS/NZS ISO 31000:2009
- 3. What is the project risk management? ISO 31000 defines risk management as ‘Coordinated activities to direct and control an organization with regard to risk The Risk management process 1. Establishing Context 2. Risk Identification 3. Risk analysis and evaluation 4. Risk Treatment 5. Monitoring and review What is risk? Uncertain event - positively or negatively • Negative = Threat • Positive = Opportunity Figure 1 - Risk, uncertainty and Cost vs. the project time Source: PMBOK 4th Edition, 2008, p.17
- 4. Establishing Context Definition of the relationship between project and the environment that it operates within the boundaries dealing with risk are clear. Establishing context includes: • The external environments (such as political, social, legal and financial) • The internal environments (such as strategy, resources and capabilities) Description Catastrophic Major Moderate Minor Insignificant Objective Project objective not achieved Objective delayed by 50% or more Objective delayed by less than 50% Milestone not achieved Negligible impact on milestones Financial 50% variance to budget 30% variance to 20% variance to 10% variance to budget %5 variance to budget Environmental Very Serious long-term environmental effects Serious long-term environmental effects Serious medium-term environmental effects Moderate short-term effects but not affecting ecosystem Minor effect on biological or physical environment Legal Significant Prosecution and fines Major breach of regulation Serious breach of regulation with investigation Minor legal issues, non- compliances and breaches of regulation Figure 3 – Example of Risk management context Source: Department of Treasury and Finance, Project Risk Management Guideline, 2009, p.7
- 5. Project Risk Environment Statutory Planning approval delay Industry Market Change in demand Client Targets Conflict between primary & secondary objectives Tactics Brief changes not confirmed in writing Risk Identification The process of determining potential risks. Risks can be physical, financial, ethical or legal. Tools: • Documentation Reviews • Information Gathering Technique • Checklist Analysis • Assumptions Analysis • Diagramming Technique • Swot Analysis • Expert Judgement Figure 4 – Risk Breakdown Structure for construction design Source: International Journal of Project Management, Chapman R.J. 2001, vol.19, p.147-160
- 6. Risk analysis and evaluation Risk analysis Quantitative or qualitative Risk evaluation Create a risk rating table, Very Low: Acceptable risk; no action required Low: Reduced as low as reasonably practical, further action may not be required Tolerable: Plan required to reduce the risk as far as is reasonably practical High: Urgent action required to allow activity to continue. Plan required for sustainable risk control Very High: Risk intolerable; activity must cease until the risk has been reduced Figure Likelihood – Consequence - Risk Rating Source: Chartered Accountants Australia + New Zealand, Analyse & Evaluate Risks
- 7. Risk treatment Risk treatment plans involve developing a range of options to reduce adverse impacts. The highest rated risks should be addressed as a top-priority Step 1. Choose a treatment action Step 2. Outline the treatment plan to be used to treat risk Step 3. Identify an owner who monitors progress of the treatment plan Step 4. Specify a target resolution date RISK IDENTIFICATION RISK TREATMENT Event Action Plan Risk Owner Resolve by Failure to collect receivables in a timely manner REDUCE 1. Identify requirements to track receivables, consider such things as payment terms and conditions 2. Develop process to track aged debtors/receivables supporting requirements including system reports Office Manager 15-Sep-12 Figure 5 – Example of Action plan for treating the identified risks Source: Chartered Accountants Australia + New Zealand, Treat Risks Negative Risk Positive Risk Avoid Exploit Share/Transfer Share/Transfer Reduce Enhance Accept Accept
- 8. Monitoring and Review Key points to monitor during project lifecycle: • Reviewing the identified risk regularly and updating risk register based on changes of the risk • Identifying new strategies • Defining new risks Risk register Details of identified risks, an example of how this can be documented in a risk register is shown: Risk Register Number Risk Description Category Cause Likelihood Impact Priority Response Mitigation Type Trigger Event Method of Monitor Immediate action Owner Risk Status Risk Budget 1 Infrastructure is low quality Road infrastructure can cause material handling problems. Procurement Rural zone's road condition Likely Major Very High Road maintenance works are started before lighting material handling. Administrative Control Be very hard to transport materials by vehicle Time of material handling is monitored Extra materials are stored for transport lag Project Manager OPEN $1,000.00 2 Explosion Coal gas breathing and bringing fire to this gas can result in death Energy Chemical action of coal gas Unlikely Catastrophic High Extra security measures are taken during project Isolation - Personal protective equipment Be fatal effected of realised coal gas Warning signs are put working area. Coalmine staff should quit mine immediately Project Manager OPEN $5,000.00
- 9. Case Study The title of the case study: The New Zealand Project The Background: Modernising the power plant which is located in New Zealand Stakeholder: New Zealand Government Contractor: The ABB Group in Sweden RISK IDENTIFICATION RISK TREATMENT Category Priority Event Action Plan Verbal communication problem between the Scandinavian and New Zealand clients AVOID Translating all relevant documents or using an interpreter. Using visual methods of communication Communication HIGH Likely Moderate The area is a highly active earthquake zone SHARE (Insurance) Reducing the impact of earthquake is limited to adherence to existing standards of construction and public awareness using available material. The options are mitigation, preparedness, response and recovery. External TOLERABLE Rare Catastrophic The perspective of New Zealand clients: the history of major projects in NZ has been marked by industrial disputes, cost over-runs and time extensions. ACCEPT Ignoring the risk by showing self-confidence Stakeholder LOW Unlikely Minor The plant is situated near housing and national park. Therefore, a low noise was an important requirement. REDUCE If a noise level exceeds the acceptable standards, the most effective way is to change the noise source (such as a machine) Requirements VERY HIGH Likely Major The new transmission is to be 375 miles of which 25 will be under water. The Pacific may create problems for the underwater cables SHARE (Insurance) Underwater cables can be insured by other company. Technical HIGH Possible Major
- 10. References • AS/NZS ISO 31000:2009, ‘Risk management – Principles and guidelines’, Standards New Zealand • Australian Sport Commission, 2014 ‘Risk Management’, Belconnen ACT, viewed 5 September 2016, <http://www.ausport.gov.au/supporting/clubs/governance/risk_management> • Bruce, A. 2011,’Risk Management and Methodologies’, RiVidium Corporation • Dahlgren, J., Soderlund, J. & Tell, F. 2000,’The New Zealand Project', Linköping University, School of Management • Hilson, D. 2002,’The Risk Breakdown Structure (RBS) as an aid to effective risk management’, PMI Fifth Conference France-Sud, • ISO 31000 Overview and Implications for Managers 2009, ‘Risk Management Update’, InConsult • PMI. 2008, ‘A Guide to the Project Management Body of Knowledge (PMBOK® Fourth Edition)’ Square, PA. • Wideman, R. Max, 1992, ‘Project and program risk management a guide to managing project risks and opportunities’, Drexel Hill, PA : Project Management Institute, v. no. 6
Editor's Notes
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- #3: My presentation will cover this summary of the content: What is risk Establishing Context Risk Identification Risk analysis and evaluation Risk Treatment Monitoring and review Case Study: The New Zealand Project Reference list
- #4: What is risk? A risk is uncertain event that may influence on a project either positively or negatively A negative risk is a threat which is undesirable and potentially can cause serious problems and derail the project, for example, lack of construction material A positive risk is an opportunity which is wanted by the Project Manager and the stakeholders, and may have a positive impact on the project, for example, finishing a part of the project way before schedule Risk management is the identification, evaluation, and prioritization followed by controlling of risks The purpose of project risk management Determining conditions that are likely to effect the project achievements of scope, cost and time Increase the probability and positive risks Reduce adverse impacts on achieving objectives Risk Management Process It is fundamental that there is consultation and communication with everyone in each step.
- #5: Establish the context It is important to understand the context of project before risk can be clearly find out and managed. Establishing context is focused on: Achieving main idea of the subject of the risk assessment Creating the scope of the risk assessment activities. Enhancing plan for the risk assessment activities. Establish the content by considering: The external environments (such as political, social, legal and financial) The internal environments (such as strategy, resources and capabilities)
- #6: Risks can be environmental, economic, ethical or constitutional Environmental risks such as personal injuries or organisation property, equipment, vehicles and buildings Economic risks such as organisation assets and theft, loans, license fees, insurance costs, lease payments or fines by the government. Ethical risks such as potential losses of organisation prestige Constitutional risks consist of responsibilities exploited providers, participants of organisation caused by local government authorities The first step is to identify what may miscalculate and what is the consequence of it existing. Key questions to ask include: What can happen? List risks, one of the tool is RBS diagram that is shown in this slide. How and why it can happen? List the possible strategies to deal with
- #7: Risk analysis What is the likelihood of risks? What can be the consequences if risks occur? Decide which risk factors will be potentially have massive impact and take priority related with managing of the risk. The rating of risk is analysed by integrating with likelihood table and consequences table. Risk evaluation involves comparing the level of risk found during the analysis process with previously established risk criteria, and deciding whether risks can be accepted. If risks are calculated as the very low category, they can be confirmed as minimal level. These risks should be checked and regularly updated to make sure the risks remain acceptable. If risks are calculated in the other categories, they should be treated using one or more of the strategies following by next slide.
- #8: Risk treatment includes identifying the range of options for treating the risk, evaluating those options, making the risk treatment plans and apply those plans. It should be considered the most effective plan to achieve the desired outcome within the scope. It is important that taking an action following necessary policies and legislation to treat the risk. These actions are: Negative Risk Avoid: Refusing the risk and choosing an alternative plan or alternative less risky process to eliminate the threat Reduce: Choosing contingency plans to minimize the likelihood or consequence of the risk to an acceptable level Share or Transfer: Sharing the risk with another party such as contract or insurance Accept: Accepting the risk if it is at acceptable level (low) Positive Risk Exploit: Eliminating the uncertainty related with an opportunity to make sure it definitely happens Share: Sharing with the another party who gets the most effective benefit from the opportunity for the project Enhance: Developing the probability and beneficial effect of an opportunity Accept: Taking advantage of an opportunity but not seeking it for long term
- #9: Monitoring and review is a continuing part of risk management in all step of the cycle. Few risks remain passive. Thus, Risk conditions that may affect the likelihood and consequences. Therefore, review is an elemental factor of the risk management treatment plan. Creating risk register template that slide shows helps reviewing of the risk. Key questions: What is requirements of the risk? What is the timeframe ? Who is responsible of treating risk? The purpose of a risk register is to document the structure of all risks that have been identified including its analysis and plans.
- #10: Project Background This power plant was launched in 1965, it was a 560MW link between Benmore on South Island and Haywards on North Island and this project started in 1985 to provide an opportunity for the transfer of huge hydroelectric power from the south island to the highly populated city of Hawards up north. The project aim was the expansion by building a new plant and modernization of the old plant. Project Challenges The new transmission was to be 375 miles of which 25 will be under water. The Pacific might create problems for the underwater cables The area is consider a high risk zone for earthquakes. The vast majority of New Zealand international mega projects failed due to budget overruns and schedule delays, it also resulted in more than NZ$500 Million under disputes and claims. The old plant was situated near housing and national park. Therefore, a low noise was an important requirement. The distance and time difference between New Zealand and Sweden is forming a barrier. There was a verbal communication problem between the Scandinavian and New Zealand clients. The treatment plan that is made by myself is stated in the table. Conclusion The new plant was connected with the old one making a hybrid solution which was the first in that time zone. From my perspective, project risk management is the most important process in project life cycle and these tools such as risk register should be implemented for every project.
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