Quick Recap

Monitoring and Controlling

Organizational Planning

• Involves identifying and documenting project roles, responsibilities, and reporting relationships.

• Outputs include:– Project organizational charts– Staffing management plans– Responsibility assignment matrixes– Resource histograms

Project Communication Management

InitiatingProcesses

PlanningProcesses

ControllingProcesses

ExecutingProcesses

ClosingProcesses

Communication Planning

Information Distribution

Performance Reporting

Administrative Closure

View Project Communication in the context of the five PM process groups.

• Lesson 7: Analyzing Risks and Planning Risk ResponsesTopic 7A: Examine a Risk Management Plan Topic 7B: Identify Project Risks and TriggersTopic 7C: Perform Qualitative Risk AnalysisTopic 7D: Perform Quantitative Risk AnalysisTopic 7E: Develop a Risk Response Plan

Project Risk Management

What is Risk?

Risk and uncertainty are equivalent

Three Definitions

• Risk– A possible future event which if it occurs

will lead to an undesirable outcome.• Project Risk

– The cumulative effect of the chances of an uncertain occurrence that will adversely affect project objectives.

• Risk Management– A systematic and explicit approach for

identifying, quantifying, and controlling project risk.

DEFINITION

Project risk management is the art and science of Identifying, assessing, and responding to projectRisk throughout the life of a project and in the Best interests of its objectives

Project risk is the cumulative effect of the chances of uncertain occurrences adversely affecting project objectives

RISK MANAGEMENT PURPOSE

Identify factors that are likely to impact the project objectives of scope, quality, cost and time

Quantify the likely impact of each factor

Give a baseline for project non-controllables

Mitigate impacts by exercising influence over project controllables

The pmbok also points out that risk management includes maximizing the results of positive events and minimizing the consequences of adverse events.

ISSUES

A risk should only be taken when the potential benefit and chances of winning exceed the remedial cost of an unsuccessful decision and chances of losing by a satisfactory margin

What will be gained?What could be lost?What are the chances of success (and failure)?What can be done if the desired result is not achieved?Is the potential reward worth the risk?

Potential frequency of lossAmount and reliability of information availablePotential severity of lossManageability of the riskVividness of the consequencesPotential for (adverse) publicityWhose money is it?

NATURE OF RISK MANAGEMENT

WHEN SPEAKING OF RISK, THINK OF ONLY HAZARDOUS ONES

EVERYDAY COMMON DAY ONES ARE IGNORED

RARELY DO WE SYSTEMATICALLY IDENTIFY ALL RISKS INVOLVED

HOWEVER, INCLINED TO CONSIDER RISK DIFFERENTLY RELATIVE TO FAMILY - VERY PRECIOUS AND LOTS OF POTENTIAL

EXAMPLES:SMALL CHILDREN - STAY AWAY FROM ROAD - RISK ID & AVOIDANCEHOW DID DAY GO? - DO MORE TO HELP THEM - INFO FEEDBACK

THESE ACTIONS ARE ESTABLISHING THE BASIC ELEMENTS OF MANAGING PROJECT RISK INTO OUR CHILDREN

PROJECT RISK MGMT IS PRO-ACTIVE

Classic systems methodology:

Input process output

Feedback loop

This process vital to effective project control, however

Risk is different - - has to do with:

Uncertainty, probability or unpredictability, and contingent planning

REACTIVE vs. PRO-ACTIVE

Crisis management -- reactive mode -- select response

Pro-active -- anticipate and plan to avoid

Risk & decision making:

Take risk if potential benefit and chance of winning exceeds cost of unsuccessful decision and chances of losing by a satisfactory margin (classic cost / benefit analysis)

Project Risk Management

R iskIdentifica tion

11.1

R iskQ uantification

11.2

R isk ResponseD evelopm ent

11.3

R isk ResponseC ontro l

11.4

P rojec t R iskM anagem ent

11.0

PMBOK Risk

• Opportunities - Positive outcome• Threats - Negative outcome

Benefits of Risk Management

• More and better information is available during planning and decision making

• Project objectives are verified• Improved communications• Higher probability of project success• Proactive approach• Project might be canceled

Why Organizations don’t doRisk Management

• Unwillingness to admit risks exist• Postpone the hard parts of the project until

later• Risk management costs money

– Up front investment of time– Can’t prove it’s necessary

• Think health insurance

Why Organizations don’t doRisk Management

• “Can Do” management style severely inhibits risk management

• Risk identification can make you look like a whiner

Ways to AvoidRisk Management

• “Managing risk is everybody’s business”• “There is only one risk: The project might

fail. And we’re managing that by working real hard to assure that doesn’t happen.”

The Uncertainty Spectrum

TOTALCERTAINTY

TOTALUNCERTAINTY

GENERALUNCERTAINTY

SPECIFICUNCERTAINTY

(Unknownunknowns) (Knowns)

NOInformation

CompleteInformation

PartialInformation

(Knownunknowns)

SCOPE OF PROJECT RISK MANAGEMENT*

*Note: in this range the information to be sought is known

Project Risk

Project Risk

Scope

IntegrationCommunication

Human Resources

Procurement

Cost

Quality

Time

INTEGRATING RISK

PROJECT MANAGEMENT INTEGRATION

SCOPE

QUALITY

TIME

COST

HUMAN RESOURCES

CONTRACT / PROCUREMENT

INFORMATION / COMMUNICATIONS

PROJECT RISK

Life Cycle and Environment Variables

Services, Plant, Materials: Performance

Cost Objectives, Restraints

Time Objectives, Restraints

Expectations Feasibility

Ideas, Directives, Data Exchange Accuracy

Requirements Standards

AvailabilityProductivity

Project Risk Management

A subset of project management that includes the processes concerned with

identifying, analyzing, and responding to project risk.

Risk Management Objectives

• Reduce the number of surprise events• Minimize consequences of adverse events• Maximize the results of positive events

Risk Classification

• Business risks vs. pure (insurable) risks• Classified by uncertainty (business risks)• Classified by impact on project elements• Classified by their nature• Classified by their source• Classified by their probability to occur and

amount at stake

Consequences of Risk Analysis

Positives• greater information is made available

during the course of planning and decision making

• project objectives are verified• better communications• better probability that project realization will

be optimal• increased chance of project success

Consequences of Risk Analysis

Negatives• belief that all risks have been accounted for• project could be shut down

Some Considerations

• Real information is the key.• The relationship between uncertainty and

information is inverse.• For the project manager, conditions of

relative uncertainty (partial information) are the rule.

• There is a natural resistance to formal risk analysis.

• Risks should only be taken to achieve a project objective.

PMBOK FIGURE 11-1

PROJECT RISK MANAGEMENT OVERVIEWRisk IdentificationInputs

Product DescriptionOther Planning OutputsHistorical Information

Tools & TechniquesChecklistsFlowchartingInterviewing

OutputsSources of RiskPotential Risk EventsRisk SymptomsInputs to other Processes

Risk QuantificationInputs

Stakeholder risk tolerancesSources of RiskPotential Risk EventsCost EstimatesActivity Duration Estimates

Tools & TechniquesExpected Monetary ValueStatistical SumsSimulationDecision TreesExpert Judgment

OutputsOpportunities to pursue, threats to respond toOpportunities to ignore, threats to accept

Response DevelopmentInputs

Opportunities to pursue, threats to respond toOpportunities to ignore, threats to accept

Tools & TechniquesProcurementContingency PlanningAlternative StrategiesInsurance

OutputsRisk Management PlanInputs to other ProcessesContingency PlansReservesContractual Agreements

Response ControlInputs

Risk Management PlanActual Risk EventsAdditional Risk Identification

Tools & TechniquesWorkaroundsAdditional Risk Response Development

OutputsCorrective ActionUpdates to Risk Management Plan

Risk Identification

R iskIdentification

11.1

R iskQ uantification

11.2

R isk ResponseD evelopm ent

11.3

R isk ResponseC ontro l

11.4

P rojec t R iskM anagem ent

11.0

Risk identification is determining which risks are likely to affect the project and documenting the characteristics of each.

Typical Life Cycle ProfilesRisk versus Amount at Stake

Total project life cycleINCREASING

RISK

$

VALUE

TIME

Plan AccomplishPhase 1

ConceivePhase 2Develop

Phase 3Execute

Phase 4Finish

Opportunity & Risk

Amount at Stake

(period when highestrisks are incurred)

(period of highestrisk impact)

Inputs to Risk Identification

• Product description– Specification– SOW– Contract

• Other planning outputs– WBS– OBS– Cost and Schedule estimates

Inputs to Risk Identification

• Historical information– Commercial databases– Corporate memory– Corporate database (lessons learned)– Websites

Inputs to Risk Identification

• Assumptions– Explicit– Implicit

• Critical success factors

PHASE 1: RISK IDENTIFICATIONIdentify all possible risks which may significantly impactThe success of the project -- can do this by:

Cause-and-effect analysis (what could happen é what ensues)

Effect-and-cause analysis (what outcomes to avoid é how they might occur)

Bring in the experts on the program and question them

Brainstorm

Wbs - individual work packages plus combinations thereof

Willoughby templates, sei taxonomy and charellet checklistRisk typically examines possibility of suffering harm or loss; however, Risk Identification is also concerned with opportunities (positive outcomes) and threats (negative outcomes).

TYPES OF RISK

• Business vs. Insurable Risk

• Risk Sources– External Unpredictable– External Predictable– Internal Non-Technical– Technical– Legal

TYPES OF RISK (2)• Knowns

– An item or situation containing no uncertainty• Known Unknowns

– Things which we know exist but do not know how they will affect us. These can be identified and evaluated.

• Unknown Unknowns– Those risks that cannot be identified and

evaluated (unexpected needs). These can be handled via contingency allowances.

TYPES OF RISK (3)• Risks can also be classified as:

– External Unpredictable– External Predictable– Internal Non-Technical– Technical– Legal

EXTERNAL UNPREDICTABLE • Regulatory• Natural Hazards• Postulated Events• Unexpected Side Effects of the Project• Failure to Complete Project Due to

Uncontrollable External Events

EXTERNAL PREDICTABLE• Market Risks• Operational• Environmental Impacts• Social Impacts• Currency Risk• Inflation• Taxes

INTERNAL, NON-TECHNICAL

• Management• Schedule• Cost• Cash Flow• Loss of Potential Benefit or Profit

TECHNICAL

• Changes in Technology• Performance Uncertainty• Risks Associated with Project’s

Technology • Design• Sheer Size or Complexity

LEGAL• Licensing• Patent Rights• Contractual Difficulties• Outsider Suits• Insider Suits• Force Majeure (PMI’s Word)

OTHER RISK ID SOURCES• Overly Aggressive Cost Estimates• Overly Aggressive Duration Estimates• Staffing Plan - Personnel With Special

Skills• Procurement Management Plan• Historical Project Files & Project Team

Knowledge• Commercial Databases

KEEP IN MIND

• How can you assess risks?– Break things down into individual elements and

determine their relationships• What risks should you assess?

– All of them– Concentrate on those with greatest impact and

most likely probability of occurrence

RISK FACTORSALL PROJECT RISKS ARE CHARACTERIZED BY THE FOLLOWING

THREE RISK FACTORS

RISK EVENT: PRECISELY WHAT MIGHT HAPPEN TO THE DETRIMENT OF THE PROJECT

Write it as an “If - Then” Statement

RISK PROBABILITY: HOW LIKELY THE EVENT IS TO OCCUR

AMOUNT AT STAKE: THE SEVERITY OF THE CONSEQUENCES

WITH THIS DATA, THE RISK EVENT STATUS ("CRITERION VALUE" ORRANKING) OF A GIVEN RISK EVENT CAN BE DETERMINED BY:

RISK EVENT STATUS = RISK PROBABILITY X AMOUNT AT STAKE

RISK EVENT vs. RISK SYMPTOM

RISK EVENT ARE DISCRETE OCCURRENCES

RISK SYMPTOM Þ TRIGGERS

THESE ARE INDIRECT MANIFESTATIONS OF ACTUAL RISK EVENTS

EXAMPLES OF RISK SYMPTOMS:

POOR MORALE = EARLY WARNING SIGN OF SCHEDULE DELAY

EARLY PROJECT COST OVERRUN = POTENTIAL POOR PROJECT OVERALL ESTIMATING

Risk IdentificationTools and Techniques

• Checklists– Project Healthcheck

• Flowcharting– Cause & Effect (fishbone or Ishikawa charts

• What could happen What ensues– Effect & Cause

• Outcomes to avoid How they occur– System or Process flowcharts

Risk IdentificationTools and Techniques

• Interviewing• Brainstorming