1. Introduction to Project Risk Management.pptx
Transcript of 1. Introduction to Project Risk Management.pptx
Project Risk Management
Introduction to Risk Management
2
3
4
Outline
• What is Risk?• What is Project Risk?• Causes of Risk• Risk Attitude• Risk Optimization• Need for Risk Management• Risk Management Process• Project Risk Management• Role of Project Manager
5
What is Risk?
• The ISO 31000 (2009) / ISO Guide 73:2002 definition of risk is the 'effect of uncertainty on objectives'. In this definition, uncertainties include events (which may or may not happen and uncertainties caused by ambiguity or a lack of information.• It includes both positive and negative impacts on the
objectives.• Risks with negative consequences are called threats• Risks with positive consequences are called
opportunities (Yes, risk can be good!)
6
What is Project Risk?
According to the 5th Edition of the PMBOK® Guide, project risk is “an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost, or quality.”
Project Management Triangle
7
Project Risk
• Uncertain events: Unknown at point in time, in future when materialized will have positive or negative impact on the project objectives:
• A risk may have one or more causes and if it occurs may have one or more impacts.
• Some Examples of risks:• Environment availability takes longer than planned (-)• Environment non availability (-)• Non delivery of design specifications as per schedule (-)• High quality design specifications (+)• Stakeholders acceptance of process change (+)
• Project Risk is generally characterized by Probability and Impact measures: The probability of risk being materialized(High, Medium, Low) and Impact of risk on project objectives if it gets materialized(High, Medium, Low)
• Once the risk occurs, it is no longer a Risk, it is turned into an “Issue”
8
Causes of Risk
• Cause• May be a requirement, a constraint, assumption or a condition • Results into possibility of positive or negative outcome
• Examples of causes:• Requirement of environment availability • Environment breaks down • Limited resources availability • Skilled resource become available• A requirement, such as legal requirement imp0sed by laws or regulations• An assumption, such as the conditions in the market• A constraint, such as number of personnel available to work on any given phase of
the project• A condition, such as the maturity of the organization’s project management practices
• Either uncertain event occurring will have impact on project cost, schedule, scope, quality or performance
9
Risk Attitude
Uncertainty
Organization
objectives
Risks
• Risk Appetite: Degree of uncertainty an organization is willing to take in anticipation of a reward• Risk Tolerance: The degree or
volume of risk an organization will withstand• Risk Threshold: Refers to the level of
uncertainty or level of impact, the threshold below which an organization will accept the risk. Above this threshold, the organization will not tolerate the risk.
Consistent Approach
Open & Honest
Risk TakingRisk Avoidance
Risk Responses
Risk Attitude
Risk Tolerance –Specific Example
Risk Attitude – Key Questions
• What risks will the organization accept? (e.g., environment vs. quality compromises)• What risks will the organization will take on new
initiatives? (e.g., new product lines)• What risks will the organization will accept on
competing objectives? (e.g., gross profit vs. market share)• What capital buffer is the organization ready to invest?
12
• Consider both pros and cons of risk taking• When threats and
opportunities are better understood, risk taking is optimized and managers, in turn, will make more informed business decisions• Improved decision making
enables an organization to quickly meet emerging marketplace challenges
Risk Optimization
13
• Risks exists the moment the project is conceived• There needs to be a proactive approach for risk management
consistently throughout the project for the project to be successful• Risks must be actively identified and effectively managed at all
levels of the organization during entire life of the project• Lack of proactive focus on Risk Management
• Increase the impact of risks that are realized • Potentially lead to project failure
• Reactive response to risks result into• The projects paying heavy penalty in terms of cost, schedule, quality or
scope• Increased rate of project failures
Need for Risk Management
14
Assess
Plan
Implement
IdentifyCommunicate
Communication
Risk Management Process
15
Project Risk Management
• Risk Management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events and/or to maximize the realization of opportunities.• Project Risk Management is an important aspect of project
management.• Risk management is one of the ten knowledge areas defined in PMBOK.• Project risk can be defined as an unforeseen event or activity that can
impact the project's progress, result or outcome in a positive or negative way.
• Project Risk Management includes the processes of conducting risk management planning, identification, analysis, response planning, and controlling risk in a project.
16
Initiation Closure
Planning
Execution
Monitoring & Control
Project Start Project End
• Plan Risk Management : Define how to conduct risk management in the project
• Identify Risk Management: Determine risks that affect the project and document their characteristics
• Perform Qualitative Risk Analysis: Prioritize the risks for further analysis or action by assessing their probability of occurrence and impact
• Perform Quantitative Risk Analysis: Numerically analyze the effect of risks on overall project objectives.
• Plan Risk Responses: Develop options and action plan to enhance opportunities and reduce threats to project objectives
• Monitor & Control Risks: Implement risk response plans, track identified risks, monitor residual risks, identify new risks & evaluate risk process effectiveness
Project Risk Management
17
• Risk Management is iterative process carried out throughout the life of the project.• Existing risks need to be assessed
and any new risks need to be identified periodically.
18
Plan Identify
AnalyzePlan Risk
Response
Monitor &
ControlCreate Risk Management Plan• Risk Tolerance
Threshold• Tools & techniques to
be used• Risk Categorization &
Severity• Roles & Responsibilities
of Stakeholders• Outline of contingency
budget• Review & Escalation
plan
Identify risks• Document risks in
Risk Register• Likely cause & Effect
Qualitative Analysis• Prioritize project
risks for assessment based on probability and impact
Quantitative Analysis• Assign numeric
rankings to risks and highlight for further management
• Continuous monitoring of existing risks for • Any triggers for their
occurrence• Taking proactive measures
for handling them• Assessment for change in
scores – and hence any update required for risk responses
• Identification of any new risks • Closure of risks which are past or
which have not occurred
Develop options for enhancing opportunities & reducing threatsIncorporate in project plan
Project Stakeholders:Senior ManagementCustomerProject team Employees
Effective Risk Management
Role of Project Manager
External Entities:SMEsOther PMsExternal knowledge centers
19
• https://youtu.be/WHGoCybrX1k• https://youtu.be/bTbonpb6hZE
On lighter note…