OPER 576 Project ManagementProject Risk Management

Greg Magnan, Ph.D.

May 13, 2004

Last Time…Resourcing Plans

• People, Materials, Equipment, Capital• May result in new Critical Path!• Time Constrained vs. Resource Constrained

– Time: Imposed Date– Resource: Cannot exceed level of Resource

• Resource Constrained– Parallel Method

Project Life Cycle Stages

Definition Planning Execution/Impl./Control Closeout

Leve

l of E

ffort

Selection Charter Goals Specs Tasks Responsi

bilities

Estimates Schedules Sequencing Budgets Resources Risks Staffing

Status Reports Changes Quality Forecasts

Training Transfer

Documents Release

Resources Lessons

Learned

II. Project Planning10. Risk Management / Protect the Plan

• To help ensure that we meet or exceed the project objectives

• Spot areas of concern ahead of time (risks)• Brainstorming / Mindmapping• Critical path / Complex tasks / Unreliable resources

– Estimate probabilities and impact!• Rank Order

• Create contingency plans• B and C

Project Risk Management (PRM)• The more you plan the luckier you get. • A little risk management saves a lot of fan cleaning. • The sooner you get behind schedule, the more time you

have to make it up. • Schedule high risk activities earlier (Ron M.)

• The first 90% of a project takes 90% of the time the last 10% takes the other 90%

• A project gets a year late one day at a time. • Planning without action is futile, action without planning

is fatal. • Good control reveals problems early - which only means

you'll have longer to worry about them.

PRM: What is it?• Risk:

• is the possibility of suffering loss.• “An uncertain event or condition that, if it

occurs, has a positive or negative effect on a project’s objectives.” [PMI]

• Risk Management is a software engineering practice with processes, methods, and tools for managing risks in a project. It provides a disciplined environment for proactive decision-making to:

• assess continuously what can go wrong (risks). • determine what risks are important to deal with. • implement strategies to deal with those risks.

» [Software Engineering Institute]

Project Risk Books

PRM: What is it?• A process whereby decisions are made to accept

known or assessed risks and/or the implementation of actions to reduce the consequences or probability of occurrence

• Association of Project Management (UK) APMP Syllabus 2nd Edition, January 2000, Abridged Glossary of Project Management Terms (Rev. 4)

• The systematic process of identifying, analyzing, and responding to project risk. It includes maximizing the probability and consequences of positive events and minimizing the probability and consequences of adverse events to project objectives

• Guide to the Project Management Body of Knowledge, 2000 Edition, p127

PRM: What is it?• Different than “normal” lateness.

– Poor Estimating• Risk types & sources

– Link to www.risksig.com– Corporate, customer, project mgt., technical,

suppliers, environmental, regulatory, business, etc.

– Cost, schedule, scope, quality, function• Risk Event: manifestation of the risk

PRM Steps• Identify

– Categorize (by source)• Analyze (effect)• Prioritize• Plan/Resolve

– Prevention/Mitigation• Avoidance/Transfer

– Contingencies• Track and Control

– Continuous process Smith and Merritt, 2002

PRM Steps

• Identification– Which– Drivers

• Analysis– Estimation

• Likelihood• Impact

• PrioritizationSmith, 2003

Click diagram for link to article

Analysis Formula

• Expected Loss (Le) = Pe x Pi x Lt

– Pe : probability of event– Pi : probability of impact– Lt : total loss (days or weeks)

• Drivers: facts that lead you to believe event or impact could occur

10

30

50

70

90

5 10 15 25

Total Loss - workdays

Ris

k Li

kelih

ood

(Pe

* P

i) P

erce

nt

12

3 5

8

4

12

9

10

6

1113

7

(Smith & Merritt, 2002)

RISK MAP

Response to Risk (Hillson, 2003)

• Appropriate• Affordable• Actionable (window)• Achievable• Assessed (effective?)• Agreed• Allocated & Accepted