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DePaul University

Project Management I - Risk Management

Instructor: David A. Lash

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What Is Risk Management?

The means by which uncertainty is systematically identified and managed to increase likelihood of success

Risk might be obvious: – Development of a new drug to treat cancel in a

new way Or less obvious:

– Large contract requires execution of 1 or more sub-contractors (how will ensure they will deliver?)

– Turn-over in industry may result in loss of key people on project

– Departmental reorganization may disrupt project

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Why Risk Management?

Used within Insurance Companies as part of SOP Project Management Proactively understand and

manage risk of: – being late– being over budget – uncertainty – quality assurance

An iterative process to identify and manage risk throughout the project

Risks exists at business level (select right project) and project level (execute project right)

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Level Of Risk Management?

Risks exists at business level - select right project

and project level - execution of the project – For example, building a new office building on-

time and on-cost - project level responsibility– If turns out there is no demand for office space

(once done) - business level responsibility.

Project managers are most concerned with project level execution

Program managers or functional managers or senior management with business risk

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PM Should Be Defined Process

Charter – Purpose – review and publish

SOW – A. Document goals, scope deliverables HL budget

estimate– Review with Project board

Communication Plan – Document communication methods of various level – Review with project board, various stakeholders

Risk Strategy Project Plan Execute

HL Plan

LL Plan

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Risk Management Influence

Allstakeholdersauthorize theproject rules

Definition

-Statement of Work - Repsonsibilty Matric - Communication Plan

Planning

RiskManage

ment

Schedule &budget

development

Changes to scope,deliverables,

cost, & schedule,communication plan

- New Risks

- Projectdeliverables

- Developmentapproach

- responsibilities- risk monitoring

•Risk mgmt influences project plan and rules

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Risk Management Framework

Three main steps

I. Identify - find the sources of project risk

II. Develop Response - As risks are identified determine how you will mitigate them

May result in a change in change in documents that define project rules (e.g, scope change)

III. Control - Implement strategies and monitor effect of changes

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Risk Management Process

•Analyze the sourceof risks

Risk Identification

Response Development

Control

Known Risks

Risk ManagementPlan

•Define the risk & potential neg impact•Assign probability•Develop risk reduction strategy

•Implement the risk strategy•Continue to monitorfor new risks

NewRisks

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Risk Management Process

•Analyze the sourceof risks

Risk Identification

Response Development

Control

Known Risks

Risk ManagementPlan

•Define the risk & potential neg impact•Assign probability•Develop risk reduction strategy

•Implement the risk strategy•Continue to monitorfor new risks

NewRisks

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Step I - Identify Risk

• There are 4 techniques to identify risks1.Asking stakeholders2. Developing a risk profile list3. Learning from similar projects4. Focus on schedule and budget risk

•Will describe each technique

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1. Identify Risk - Stakeholders

• Two techniques to identify risks.1. Brainstorming sessions2. Interviewing

•Techniques are most useful when trying to identify what could go wrong (pessimistic).

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1. Identify Risk - Stakeholders

• Two techniques to identify risks.1. Brainstorming sessions - gather stakeholder team to:

- Include all stakeholders (possibly including customers)

- Generate a list of potential risks

(without critical evaluation)

- Concentrate on risk identification (not evaluation of response)

- After generating list, combine

similar items and order them

based on probability.

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1. Identify Risk - Interviewing 2. Interviewing - develop specific questions to think about risk aspects of the project - If a risk profile template is available could use that - Consistent, quality interviews requires preparation - Review interview questions with team - Consider a test run of interview before holding sessions

•In reality you might combine brainstorming with interviews

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Step I - Identify Risk

• There are 4 techniques to identify risks1.Asking stakeholders2. Developing a risk profile list3. Learning from similar projects4. Focus on schedule and budget risk

•Will describe each technique

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2. Identify Risk - Risk Profile • Risk profile is a defined sheet to prompt for areas of risk (example next page)•The risk profile should:

•be industry specific •be organization specific •include product and project management risk•predict the magnitude of the risk

•A risk profile (or template) might be gathered from post-mortem reviews of projects. •Develop categories of risks

•under each category develop possible risk areas•refine over time

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Risk Profile - Example(See page 84 table 5.1)

• Project Team - 1. How many people on the project?2. How many are dedicated to project?3. What percent are less then 20%? 4. What is the experience level of team?5. How many geographic locations?

• Customer - 1. How will product affect customer organization? Need to reorganize? 2. How much training is required? 3.How geographically dispersed are customers?

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Step I - Identify Risk

• There are 4 techniques to identify risks1.Asking stakeholders2. Developing a risk profile list3. Learning from similar projects4. Focus on schedule and budget risk

•Will describe each technique

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3. Identify Risk - Historical Records

• You may be able to find historical records on:

•planned and actual performance records showing how accurate estimates were•problem logs showing areas of unexpected events•Postproject reviews•Customer satisfaction records•Your own personal experiences or experiences of other project managers

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Step I - Identify Risk

• There are 4 techniques to identify risks1.Asking stakeholders2. Developing a risk profile list3. Learning from similar projects4. Focus on schedule and budget risk

•Will describe each technique

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4. Identify Risk - Budgets & Schedules

• For each task will need to develop time & cost estimates

•How accurate do you believe estimates are? •How definite are estimates?

•What parts are uncertain?•How can you shore those up?

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Risk Management Process

•Analyze the sourceof risks

Risk Identification

Response Development

Control

Known Risks

Risk ManagementPlan

•Define the risk & potential neg impact•Assign probability•Develop risk reduction strategy

•Implement the risk strategy•Continue to monitorfor new risks

NewRisks

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Step II - Risk Response Strategy

• Not all risks are equally important and/or likely likely.•Need a plan that will

1. Identify the severity of risk 2. Identify the probability of the risk3. Develop strategy to deal with the risk

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1. Defining the Risk Severity • For each risk need to identify the:

•Condition - description of the risk situation•Consequence - what are possible negative outcomes

The more specific the better•The project requires the use of technology that is new to team•The state agency requires that all diagrams developed with new software tool that our technical writers have not used. In addition, the only boring machine for soil conditions is a complex product and only been used before a couple times.

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1-2. Risk Severity - Probability • Condition - soil conditions require a complex boring machine with which we have little experience•Consequence - Improper use of machine may damage machine and/or riverbed.

•Machine damage could be from 50-250K•Riverbed damage may prevent future contracts

•Probabilities- •75K of equipment damage - 20%•200K of equipment damage - 20%•no damage at all 60%•Probable cost of damage - 55K

( 200*.2 + 75*.2 = 55k )

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3. Defining the Risk Strategy • Strategy - Hire operator from equipment provider for estimated cost of 10K. (any damage by their operator paid by them).

•Adds 10K to cost of project but reduces possible additional cost and schedule risk

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Another Example • Condition - required that all diagrams be developed with a tool that tech writers don’t know.•Consequence - Document generation and management tasks will take longer. Possibly causing rework. •Probabilities-

•Work may be 25% slower. (Since everyone new to tool would work at junior level VS senior.)•Probable labor cost: 1.25*20=25•Probable schedule: 1.25*4 mon = 5 mon

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Another Example - 2 • Strategy - Send all technical writers to 2 day course on new tool.

•Costs: $2,200 and will reduce training factor to 1.1.•Make 1 tech writer a tool expert to exercise tool and create templates for others to reduce productivity factor to 1.0.

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Possible Format Example • Might organize material in a table

# Risk Risk Risk Risk Cond Consequence Prob Strategies

(H,M,L)1. Loss of Late Project H Increase project Staff documentation. Require formal

reviews.However estimation of risk costs can be very useful

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Risk Management Process

•Analyze the sourceof risks

Risk Identification

Response Development

Control

Known Risks

Risk ManagementPlan

•Define the risk & potential neg impact•Assign probability•Develop risk reduction strategy

•Implement the risk strategy•Continue to monitorfor new risks

NewRisks

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Step Three: Control Risk Control - not a 1-shot step•Monitor risks like monitor project execution

•periodic risk review with Project Board•evaluate status of identified risks•identify new risks

•Create a risk control log •Someone responsible for each risk •Rank risks by severity •Update periodically

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Risk Control Log

Id Pr

Who Descript Strategy Status

7 1 J. Yoa Design requires O/S notyet released. Venodr haspoor track record

1. Get on beta testteam.2. Assess probabilityof risk by 6/1/013. Develop a alt design

1. Beta versions areunpredictable. New releasedue 6/15/01. RISK HIGH2. Meeting scheduled3. Identified alt software.Design will be ready 7/15/01

5 2 T. Chang All diagrams need to usesoftware tool that is newto tech writers.

1. Send everyone totraining2. TC will completestds and templates3. TC Will completeDoc mgmt strat

1. Completed. Helpedlearning curve2. Completed. Helpedeffectiveness3. Trouble will merging olddocuments. Working withvendor. RISK MED

12 3 T. Smith Require complex boringmachine that we coulddamage.

Equipment prodiverwill supply operatorfor 100k

Operator and equip arescheduled. RISK LOW.

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Risk Management Process

•Analyze the sourceof risks

Risk Identification

Response Development

Control

Known Risks

Risk ManagementPlan

•Define the risk & potential neg impact•Assign probability•Develop risk reduction strategy

•Implement the risk strategy•Continue to monitorfor new risks

NewRisks

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Risk Management

Risk Issues - For each selected project:

a. develop a risk management plan.

- Should include conditions, consequences, strategies

b. develop a risk control log.