to Introduction Project Management Session 5
James Bowen, Ph.D, PMP
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AGENDA
Student Presentations Risk Change Control Discuss Assignment #5 Fun Contest
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Project Risk Definition
Risk is the chance that an undesirable event will occur and the consequences of all its possible outcomes.
Project risks are those events that, if they materialize can delay or kill a project Needs a Proactive approach to dealing with Risk Preventative process designed to reduce surprise and negative consequences
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Risk Versus Uncertainty
Analysis Under Uncertainty The Management of Risk The difference between risk and uncertainty Risk when the decision maker knows the probability of each and every state of nature and thus each and every outcome. An expected value of each alternative action can be determined Uncertainty when a decision maker has information that is not complete and therefore cannot determine the expected value of each alternative
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Negative Impacts of Risk
Increased cost on projects Tighter scheduling Less flexibility Poor performance
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The Risk Event Graph
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Risk Analysis
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Risk Management Process
Risk Management
A proactive attempt to recognize and manage internal events and external threats that affect the likelihood of a project's success.
What can go wrong (risk event). How to minimize the risk event's impact (consequences). What can be done before an event occurs (anticipation). What to do when an event occurs (contingency plans).
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Risk Management's Benefits
A proactive rather than reactive approach. Reduces surprises and negative consequences. Prepares the project manager to take advantage of appropriate risks. Provides better control over the future. Improves chances of reaching project performance objectives within budget and on time.
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Resources &Tools
Management Team participation
Questionnaires and Checklist Examination of Core Competencies Analysis of the degree of novelty: high, med.or low. WBS
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Identifying Sources of Risk
Macro Examination
Analysis of possible project hot spots/trouble areas List of core competencies
Micro Examination
WBS And deliverables
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Risk Breakdown Structure
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Risk Checklist
The following info should be developed for each identified risk
The undesirable event All the outcomes of the events occurrence The magnitude or severity of the events impact Chances/probability of the event happening When the event might occur in the project Interaction with other parts of this or other projects
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Risk Analysis and Assessment Approaches
Scenario Analysis Based on experience, gut feel and expert opinion Identifies what might go wrong. Drawback
When experts differ, assessment of risk can be inconsistent
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Risk Analysis and Assessment Approaches
Ratio/Range Analysis
Uses data from prior projects Assumes a ratio between the old and new to make a point estimate of time, cost or technology Example: in the past it has taken 10 min per line of code, therefore a constant of 1.10 (which represents a 10 % increase) would be used to project estimates for the new project
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Risk Analysis and Assessment Approaches
Hybrid Analysis
Use expert systems to track and analysis past projects and experiences Accompanied by expert opinion.
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Risk Analysis and Assessment Approaches
Probability analysis
Decision Trees are used to assess alternate courses of action NPV to access cash flow risks
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Risk Analysis and Assessment Approaches
Sensitivity Analysis
Uses different variables to assess areas that may be sensitive to problems Each assessment is based on different variables
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Responding to risks
1.
2. 3.
4.
Reducing or retaining (contingency planning) risk Transfer risk passing to another party Sharing riskallocates proportions to different parties Contingency Plans alternative planning
reserves
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Schedule Risks
Imposed duration dates must be completed by Compression of project schedules shorten project duration direct impacts on critical path. Use slack move activities nearer their late or earlier start date
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Cost risks
Time/cost dependency time is in direct relation to increase costs Price Protection risks contingency plans need to be made to protect against price changes over a long period of time.
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Technical Risks
Changes in technology can cause risk Increased costs due to technology Time constraints as a result of poor technology Design problems
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Money Risk
Funding Risks
Changes in the supply of funds for the project can dramatically affect the likelihood of implementation or successful completion of a project.
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Risk Management SUMMARY
Both Planning and Control Processes Risk: anything not in the project plan that can cause your project to be late, cost more or compromise its quality/performance. Use previous project history Identification ANTICIPATE THE RISK LIST, EVENT TRIGGERS, SYMPTOMS (recognizing) Quantification EVALUATE PROBABILITY/LIKLIHOOD, IMPACT Risk Response REDUCE Risk Control Strategy Development to ELIMINATE THE RISK, OR IMPACT Monitor Pro-active Update lists, strategies
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The Risk Management Process
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Risk Methodology
Step 1: Risk Identification
Generate a list of possible risks through brainstorming, etc.
Step 2: Risk assessment
Macro risks first, then specific events
Scenario analysis Probability analysis
Semiquantitative scenario analysis
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Decision trees, NPV, and PERT
Partial Risk Profile for Product Development Project
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Risk Assessment Form
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Risk Quantification and Response
Probability Criteria Probability Rank High Medium Low Description Greater than 66% probability occurring of 34 to 65% probability of occurring Less than 33% probability of occurring
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Risk Impact
Impact Rank Schedule High Medium Low Description Could add over 25% delay to the completion of the project Could add over 10% delay to the completion of the project Could add less than 10% delay to the completion of the project, or delays a non critical deliverable Could add more than 25% to the project budget Could add between 10 and 25% to the project budget 30 of 38
Cost High Medium
Risk Severity Matrix
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Managing Risk (cont'd)
Step 3: Risk Response Development
Mitigating Risk
Transferring Risk
Reducing the likelihood an adverse event will occur. Reducing impact of adverse event. Paying a premium to pass the risk to another party. Changing the project plan to eliminate the risk or condition. Allocating risk to different parties Making a conscious decision to accept the risk.
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Avoiding Risk
Sharing Risk
Retaining Risk
Contingency Planning
Contingency Plan
An alternative plan that will be used if a possible foreseen risk event actually occurs. A plan of actions that will reduce or mitigate the negative impact (consequences) of a risk event. Having no plan may slow managerial response. Decisions made under pressure can be potentially dangerous and costly.
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Risks of Not Having a Contingency Plan
Risk Response Matrix
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Contingency Funding and Time Buffers
Contingency Funds
Funds to cover project risks--identified and unknown. Budget reserves
Size of funds reflects overall risk of a project
Management reserves
Are linked to the identified risks of specific work packages. Are large funds to be used to cover major unforeseen risks (e.g., change in project scope) of the total project.
Time Buffers
Amounts of time used to compensate for unplanned delays in the project schedule.
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Contingency Fund Estimate (000s)
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Managing Risk (cont'd)
Step 4: Risk Response Control
Risk control
Execution of the risk response strategy Monitoring of triggering events Initiating contingency plans Watching for new risks Monitoring, tracking, and reporting risk Fostering an open organization environment Repeating risk identification/assessment exercises Assigning and documenting responsibility for managing risk
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Establishing a Change Management System
Risk Quantification and Response
Risk Description (Subsequently the Risk Log): Rank: 1 Title: Client Uncooperative Description: 99/06/01: At this stage (Proposal) the Client is only willing to provide one user contact, George Hyers. Mr. Hyers has many other responsibilities and he is reluctant to set aside a specific timeframes for interviews. We also question his knowledge of the requirements, as well as his authority to make decisions on behalf the organization. Strategy: 99/06/01: Emphasize in Proposal the importance of having access to a more reliable user. If we get the project, and this is still a risk, AE and PM to meet with Project Sponsor and recommend access to users John Doe and Jane Smith for 2 days per week during the Definition phase. If risk is still unresolved, escalate to Steering Committee. Probability: 99/06/01 Medium (define the criteria) Impact: 99/06/01 Medium (define the criteria) Rank: 2 Title: Can't get company to finalize architecture strategy Probability: 99/06/01 Low Impact: 99/06/01 Medium
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APPENDIX Risk
TECHNICAL FACTORS On the bleeding edge of technology Bad requirements We lack knowledge of end user (business, sophistication) Developing wrong solution Invisible work (It already exists; all we want is a little change...) Complex deliverables Refit: worn equipment, hazardous material Weather FINANCIAL FACTORS Unfair pricing formulas (too little profit) Too many documents involved: methodology complex Unrealistic schedules/budgets Crash project
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Risk Continued
MAKE YOUR OWN! Talk to PM's of similar past projects. Look at status reports, problem logs, post project audit reports. Call a meeting of experts and brainstorm all possibilities.
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Appendix: Risk Plan
TABLE OF CONTENTS 1. INTRODUCTION Page 2 1.1 History Page 2 1.2 Definitions Page 2 1.3 Source of Information Page 3 1.4 Associated Documents Page 3 2. SCOPE OF RISK MANAGEMENT Page 3 2.1 The Four Steps of Risk Management Page 3 2.1.1 Risk Identification Page 4 2.1.2 Risk Assessment Page 4 2.1.2.1 Assigning Probability and Impact Page 4 2.1.2.2 Risk Tabulation Page 5 2.1.3 Risk Mitigation Page 5 2.1.4 Risk MonitoringPage 5 3. RISK DATABASE AND SUMMARY REPORT 4. LESSONS LEARNED Page 6 5. SUMMARY AND CONCLUSION Page 6
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APPENDIX : Risk Log
Risk Log (Update of Risk Description): Rank: 1 OPI: Title: Client Uncooperative Description: 99/06/01: At this stage (Proposal) the Client is only willing to provide one user contact, George Hyers. Mr. Hyers has many other responsibilities and he is reluctant to set aside a specific timeframes for interviews. We also question his knowledge of the requirements, as well as his authority to make decisions on behalf the organization. Strategy: 99/06/01: Emphasize in Proposal the importance of having access to amore reliable user. If we get the project, and this is still a risk, AE and PM to meet with Project Sponsor and recommend access to users John Doe and Jane Smith for 2 days per week during the Definition phase. If risk is still unresolved, escalate to Steering Committee. 99/07/01 At this stage (Initiation) this is still a risk. Meetings with Project Sponsor Scheduled. 99/08/01 Users John Doe and Jane Smith have been assigned to the project. 99/09/01 Users input is reliable. Risk item closed. Probability: 99/06/01 Medium 99/07/01 - Medium 99/08/11 - Low Impact: 99/06/01 Medium 99/07/01 - Medium 99/08/01 - Low Rank: 2 Title: Can't get company to finalize architecture strategy ...
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