OPMA 5364 Part 7 key

OPMA 5364 Part 7 key - OPMA 5364 OPMA Project Management...

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Unformatted text preview: OPMA 5364 OPMA Project Management Part 7 Project Risk Management Topic Outline: Risk Management Project risks and risk management Identification of risks Risk assessment and risk analysis Contingency planning Time and cost padding Expected values Risk management exercise PERT analysis Computer simulation analysis Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 2 What Went Wrong? Why? Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 3 What Went Wrong? Why? Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 4 Project Risks Uncertainty a random chance that something will happen, with no way to control whether it happens happens Risk an uncertain event or condition that could negatively impact project performance could Each risk has a likelihood, or probability, of Each occurring and possible outcomes if it does occur occur Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 5 Managing Risks Since the project manager is responsible for Since project success, he or she can increase the likelihood of success by better managing risks likelihood Risk management is a proactive approach to Risk dealing with uncertainties rather than a reactive approach reactive Some risks can be disregarded and some can Some be avoided, but others should be planned for be Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 6 Project Risk Management Risk management in projects involves: Identifying risks Assessing and analyzing the likelihood and Assessing impacts of risks impacts Trying to reduce the uncertainties (by Trying gathering more information or making different decisions) decisions) Trying to lessen the impacts of risks Developing contingency plans for critical risks Monitoring risks as the project progresses Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 7 PMI’s View of Risk Management Risk management consists of 6 subprocesses: Risk Management Planning Risk Identification Qualitative Risk Analysis – How to approach and conduct risk mgmt. activities – Assessing likelihoods and possible outcomes – Computer simulations; decision tree analysis; etc. Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 8 Identification of Risks Identifying all of the possible events or Identifying conditions that might occur and may negatively impact project performance negatively A brainstorming session with the project team brainstorming can be a helpful way to ensure that all important risks are identified important Determining symptoms or warning signs that Determining indicate when the risk is about to occur indicate Determining root causes of the risk Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 9 Risk Assessment This info. should be developed for each risk: Description of risk All the possible outcomes of the risk The magnitude or severity of the outcomes Likelihood (probability) of the risk occurring, Likelihood and likelihood of each possible outcome and When the risk might occur during the project When Interaction of the risk outcomes with other Interaction parts of this project or other projects parts Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 10 Risk Assessment Matrix Risk System Crash Software Glitches Users Dissatisfied Hardware Malfunction Likelihood Low High Medium Low Severity High Low Medium Medium Detection Difficulty High Medium Low Medium When Startup PostStartup PostStartup Startup Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 11 Risk Analysis Tools Probability analysis Decision tree analysis Monte Carlo Monte simulation analysis simulation Life-cycle cost Life-cycle analysis analysis Delphi techniques for Delphi consensus consensus Technology Technology forecasting forecasting Game theory analysis PERT analysis Sensitivity analysis Expected value Expected analysis analysis Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 12 Reducing Risks Try to reduce uncertainties (collect more Try information, use more reliable vendors, design for easy production, don’t use leading edge technologies, etc.) edge Try to reduce the severity of potential Try outcomes (purchase insurance, convince customer to share the risk impacts, train employees how to respond quickly, etc.) employees Part 7 ­ Project Risk Mgmt. 13 Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Contingency Planning A contingency plan is an alternative plan used if contingency a risk event or condition occurs. risk Examples: Having a backup supplier for a key material Carrying a safety stock for a key part Having an alternate distribution channel to Having send products to China (air instead of boat) send Having hurricane evacuation plans Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 14 Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 15 Time and Cost Padding Padding is a commonly used approach to Padding address risks, since it is very easy to implement and since it protects against most minor risks minor Padding refers to inflating the original time or cost estimates for activities or for the project cost Unfortunately, this leads to longer project Unfortunately, durations and higher costs durations Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 16 Time and Cost Padding People will generally use up as much time and People money as they are allowed (if you don’t use it you lose it!) you Student syndrome if extra padding is built into activity time estimates, some people are likely to procrastinate getting started, and then the protection against risk is lost protection Although padding can be useful in reducing the Although severity of risk, it can also lead to inefficiencies and waste inefficiencies Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 17 Expected Values A construction manager is trying to decide what size construction crew to schedule for tomorrow based on weather: crew Weather Weather Probability: 10% 20% 30% 40% Expected Alternative Nice Cold Rain Snow Value Large crew $860 $710 $160 $-350 $136 Med. crew 520 430 190 -120 $147 Small crew 280 240 170 130 $179 sample calculation: Large .10(860)+.20(710)+.30(160)+.40(-350) = 136 Large Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 18 Risk Management Exercise First Technology Equipment case (25 minutes) Divide into small groups Read case Discuss the issues and answer 2 questions: – Use expected value to decide if it’s economically Use better to make or buy the component? better – Why might management opt for other than the most Why economical choice? economical Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 19 Uncertain Task Durations Probability distributions Discrete, uniform, triangular, normal, beta, etc. Most common way to consider task uncertainty Most is to estimate the most likely, pessimistic, and optimistic durations. optimistic PERT analysis assumes a Beta distribution for PERT each task each Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 20 Estimating Task Times (with PERT) Activity duration estimates: a=optimistic, m=most likely, b=pessimistic time Expected task duration: Te = (a + 4m + b)/6 Variance of task duration: Var = [(b – a)/6]2 Var Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 21 PERT Example Task Pred. Opt. Most Likely Pred. Opt. Most a -3 4 b -2 3 c a 3 3 d a 2 2 e b 4 6 f b 3 4 g c,d 1 1 h e 4 4 i f 3 5 j e,g 3 6 e,g k h,i 1 1 Te = (a + 4m + b)/6 Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Pess. Te Var Pess. 6 4.167 0.250 4 3.000 0.111 5 3.333 0.111 2 2.000 0.000 11 6.500 1.361 4 3.833 0.028 2 1.167 0.028 4 4.000 0.000 8 5.167 0.694 10 6.167 1.361 2 1.167 0.028 Var = [(b – a)/6]2 22 Part 7 ­ Project Risk Mgmt. PERT Example Use Te values for task durations on project network to compute slack values. network The results of the new computations still The shows path b-e-j as the critical path, with an expected project duration of expected Tcp = 3.000 + 6.500 + 6.167 = 15.667 days. days. Varcp = 0.111 + 1.361 + 1.361 = 2.833 StdDevcp = sqrt(2.833) = 1.683 days MS Project with 3 task durations Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 23 Computer Simulation Analysis General purpose simulation software can model how many products flow through all the machines in a factory and on to the warehouse. This capability is much more than what is needed to simulate projects. needed Monte Carlo simulation is much simpler type of simulation analysis that we can use to model the uncertainty of task durations and costs. uncertainty Crystal Ball and @RISK are two such packages. @RISK Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 24 Crystal Ball and Project Analysis Crystal Ball allows you to specify any type of Crystal probability distribution for each task. probability You specify all precedence relationships. It then “shoots” random numbers into your It probability distributions to simulate thousands of completions of the project. of The result is a probability distribution of the The total duration of the project, from which you can answer the what-if questions about how long the project might actually take. long Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 25 Goldratt’s Critical Chain Goldratt’s Critical Assuming that an activity duration is known leads to underestimating project durations Because of this, people tend to pad their time estimates This may result in the “student syndrome” – What is that? This in turn leads to procrastination, which can then result in missing the finish date Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 26 Goldratt’s Critical Chain Goldratt’s Critical Add safety time buffers at strategic points in the project network Safety time buffer at end of critical path is called a project buffer Safety time buffer just before where noncritical paths feed into the critical path is called a feeding buffer. Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 27 Copyright 2004, Dr. Greg Frazier Copyright 2004, Dr. Greg Frazier Part 7 ­ Project Risk Mgmt. 28 ...
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This note was uploaded on 12/21/2010 for the course BUSA 5364 taught by Professor Greg during the Spring '08 term at UT Arlington.

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