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PROJECT RISK MANAGEMENT. First Solar Plane Flight 19/04/2013. What is Project Risk?. Project Risk is an uncertain event or condition that, if occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost and quality. PMBOK Perspective.
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What is Project Risk? Project Risk is an uncertain event or condition that, if occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost and quality.
Some Risk Conditions • Risk conditions may include aspects of the project’s or organization’s environment that contributes to project risk: • Immature project management practices • Lack of integrated management systems • Concurrent multiple projects • Dependency on external participants who are outside the direct project control • Project manager is too optimist
Risk Attitude Depends Upon • Risk Appetite • The degree of uncertainty an entity is willing to take on in anticipation of a reward. • Risk Tolerance • The degree, amount or volume of risk that an organization or stakeholder will withstand • Risk Threshold • Below this threshold, the company will accept the risk and above it, the organization will not tolerate the risk.
Positive Risks What are positive Risks? Why they are called opportunities? Are they considered good ?
Positive Risk • Definition: Positive Risk Positive risk is the chance that your objectives will produce too much of a good thing. Positive risks are deemed as undesirable despite being positive at face value • Positive Risk As An Opportunity :Risk-taking is the process of accepting risk. Examples of risk-taking include investing, developing new products and changing business processes. Risk-taking is the basis of economic progress. It's often positive. • Positive risk is different — it's something you're trying to avoid.
Positive Risks • Being under budget is a good thing because the company saves money. However, in the context of project management it's considered a planning error. You didn't really save money — the project manager overestimated the project. • A bridge is constructed to last 50 years. The project management team carefully monitors quality risks (the risk it won't last to the 50 year target). They also manage the positive risk that the bridge will last too long. If they discover that the bridge will last 100 years — it was likely over-engineered. • Your accountant points out the positive risk that if your income rises past a certain mark then tax rules will apply that will reduce your net income. • An ambitious manager seeks important responsibilities. She manages the risk that she won't take on enough work to achieve recognition. She also manages the positive risk that the firm will trust her with so many responsibilities that she'll be unable to deliver.
Plan Risk Management Include: • Methodology: Approaches to perform Risk Management • Roles and responsibilities: Defines the lead, support and risk management team members & their responsibilities • Budgeting: Estimated Funds needed for inclusion in cost baseline and establishes protocols for application of contingency and management reserves. • Timing: How often the risk process will be performed throughout the project life cycle • Risk Categories: Categories a-z depending on the severity • Probability & Impact: a method to determine which risks will and will not be acted upon • Reporting formats: Documentation, analysis and reporting of risk whenever it will happen. • Tracking: How recording of the risk will be documented for auditing and future reporting
QUANTITATIVE RISK ANALYSIS Is a numerical analysis of the probability and consequences (amount at stake or impacts) of the highest risks on the project to: • Determine which risk events warrant a response • Determine overall project risk (risk exposure) • Determine the quantified probability of meeting project objectives - e.g., "We only have an 80% chance of completing the project within the six months required by the customer," or "We only have a 75% chance of completing the project within the $80,000 budget." • Determine cost and schedule reserves • Identify risks requiring the most attention • Create realistic and achievable cost, schedule or scope targets
QUANTITATIVE RISK ANALYSIS Risk quantification involves the following activities: • Further investigation into the highest risks on the project • Determination of the type of probability distribution that will be used - e.g., triangular, normal, beta, uniform or log normal distributions • Interviewing experts • Sensitivity analysis - determining which risks have the most impact on the project • Monte Carlo simulation (simulation) - described later • Decision tree analysis - described later
DECISION TREE • A decision tree takes into account future events in trying to make a decision today. • It calculates the expected value (probability times consequences) in more complex situations than the expected value previously presented. • It involves mutual exclusivity (previously explained in the Quality chapter.)
MONTE-CARLO SIMULATION • Evaluates the project, not the tasks • Provides the probability of completing the project on any specific day, or for any specific amount of cost • Provides the probability of any task actually being on the critical path • Provides a percent probability that each task will be on the critical path
RISK RESPONSE PLANNING During this step: • Strategies are agreed upon in advance by all parties • Primary and backup strategies are selected • Risks are assigned to individuals or groups to take responsibility • Strategies are reviewed over the life of the project for appropriateness as more information about the project becomes known
STRATEGIES FOR Negative Risks and Threats The choices include: • AVOID - Eliminate the threat by eliminating the cause. Changing the Project Plan to eliminate the threat entirely. Most radical avoidance strategy is to shut the project entirely. • MITIGATION – Project team acts to reduce the probability of occurrence or impact of a risk and bring it down to within threshold limits.
STRATEGIES FOR Negative Risks and Threats • ACCEPT - Do nothing and say, "If it happens, it happens." Active acceptance may involve the creation of contingency plans and passive acceptance may leave actions to be determined as needed. A decision to accept a risk must be communicated to stakeholders. • TRANSFER - Make another party responsible for the risk through purchasing of insurance, performance bonds, warranties, guarantees or outsourcing the work.
Exercise • For each strategy described, determine the name of its strategy. Remember to include mitigate probability and mitigate impact.
Sample Exam Questions • What do you do with non-critical risks? • Answer: Document and revisit periodically. • Would you select only one risk response strategy? • Answer: No, you can choose a combination of choices. • What risk management activities are done during the executing phase of the project? • Answer: Watching out for non-critical risks that become more important.
Sample Exam Questions • What is the most important item to address in project team meetings? • Answer: Risk. • How would risks be addressed in project meetings? • By asking, "What is the status of risks? Any new risks? Any change to the order of importance? "
Strategies for Positive Risks or Opportunities • Exploit: This is a point where the organization wishes to ensure that the opportunity is realized. The strategy seeks to eliminate the uncertainty associated and ensures that opportunity has happened • Enhance: • Increase the positive impacts of the opportunity • Share • With other teams and projects / portfolios • Accept • Recognition but not pursuing it further
Contingent Response Strategies • Alternate ways of doing things • Create sufficient warning to implement plan
RISK MONITORING AND CONTROL This step involves managing the project according to the risk response plan and may include the following activities: • Keeping track of the identified risks • Implementing risk responses • Looking for the occurrence of risk triggers • Monitoring residual risks • Identifying new risks • Ensuring the execution of risk plans • Evaluating the effectiveness of risk plans • Developing new risk responses
Change Requests • Recommended Corrective Actions • These are activities that realign the performance of the project work with the project management plan. This includes contingency plans and workarounds • Recommended Preventive Actions • These are activities that ensure that future performance of the project work is aligned with the project management plan.
1 The Three attributes of project risk are _________, ___________ and ___________. • What might happen, who it happens to, and how much will it cost • Notification, frequency of relevant events, probability of occurrence • Risk cost, quality, control • Quality, risk planning, total number of risk events • Risk event, probability occurrence, the amount at stake
2: A risk is defined as what might happened to the ____________ of the project • assessment • detriment • schedule • cost • scope
3: When is the project's amount at stake the lowest • conceptual • design • close-out • implementation
4: What is the most accurate method of obtaining project information that can reduce the amount of risk? • Observations on the current project • Determining the risk by using brainstorming techniques • The use of historical data from previous projects that were similar in nature • Sensitivity analysis • Delphi technique.
5: Which of the following fit the category of external risks? • Project delays, budget under-runs, movement of city utilities • Regulatory, currency changes, taxation • Natural disasters, regulatory, design • Inflation, design, social impact
6: Decision trees are best used for • Determining the interaction of the amount at stake and the expected value • Association of the probabilities with the risk events • An illustration of how to see the interactions between decisions and the associated events • A flow chart which determines the standard deviation of the risk event
7: The total amount of risk that is calculated for a project is found by • Multiplying the sum of each the risk times the amount at stake • Calculating the cumulative sum of the probability for each risk and multiplying this value times the consequence of occurrence of the risk events • Cannot be calculated since all risks are not known • The amount of project reserves available
8: A situation in which one of two or more risk events will follow an act, but the precise nature of these events may not be known and the probabilities of their occurring cannot be objectively assigned, is the definition of • certainty • uncertainty • risk • risk adversity • None of the above.
