Dynamics of Project Risk Management Lec-1 Overview of Project Risk Management

2. Dynamics of Project Risk ManagementLec-1Overview of Project Risk Management Dynamics of Project Risk Management Lec-01 Overview of Project Risk Management By: Engr.Dr.Attaullah Shah PhD ( Civil) Engg , Mphil (Eco),MScEngg ( Strs), BScEngg ( Gold Medalist), MBA, MA ( Eco), MScEnvir Design, PGD Computer Sc. Tel: 051-9250100 E-mail: pdaiou@yahoo.com.

3. Bio details of the Instructor • Engr. Dr. Attaullah Shah • Director ( Planning and Projects AIOU) • pdaiou@yahoo.com. pd@aiou.edu.pk, www.drshahpak.weebly.com • +92-333-5729809, +92-51-9057212 • Qualification • PhD Civil Engineering ,M.Phil Eco ,MSc Structure Engg • MBA, MA Eco, MScEnvirDesign,BSc Civil Engg (Gold Medal), Post Grad Dip Comp (Gold Medal) • Professional and Field experience: • 25 Years • Research Publications in refereed journals and conferences: • 25 Journals publications+ 35 Conference publications • Areas of interests • Project Management • Sustainable built Environment • Structural Engineering

4. Some quotes about risk management • The only virtue of being an aging risk manager is that you have a large collection of your own mistakes that you know not to repeat  Donald Van Deventer • Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.  Albert Einstein • Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so.  Douglas Adams • “A good rule of thumb is to assume that “everything matters.” Richard Thaler • “The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.” Charles Tremper • Risk varies inversely with knowledge • The risk to be perceived defines the duty to be obeyed-Benjamin Crudozo

5. Risks- Everywhere

6. Decision Environments Certainty: One and Distinct outcome. Risk Where there are more than one outcomes. The probability of the outcomes can be anticipated On cloudy day, we prefer to take umbrella. Why? "A discrete occurrence that may affect the project for good or bad." NOTE: Do not forget that there can be good risks, sometimes called opportunities! Uncertainty Where there are more than one outcomes. The probability of the happening can not be anticipated War, Strikes, riots, disasters etc.

7. DEFINITIONS • RISK FACTORS: When looking at risk, one should determine: • The probability that it will occur (what) • The range of possible outcomes (impact or amount at stake) • Expected timing (when) in the project life cycle • Anticipated frequency of risk events from that source (how often) • Risk management refers to the culture, processes and structures that are directed • towards the effective management of potential opportunities and adverse effects. • The risk management process involves the systematic application of management • policies, processes and procedures to the tasks of establishing the context, identifying, analyzing, assessing, treating, monitoring and communicating risk.

8. Weather changes Different productivity (Sub)contractors are Unreliable Lack capacity to do work Lack availability to do work Unscrupulous Financially unstable Late materials delivery Lawsuits Labor difficulties Unexpected manufacturing costs Failure to find sufficient tenants Community opposition Infighting & acrimonious relationships Unrealistically low bid Late-stage design changes Unexpected subsurface conditions Soil type Groundwater Unexpected Obstacles Settlement of adjacent structures High lifecycle costs Permitting problems You can name more……. Some Risks in large construction projects

9. Facts about project risks • Every project, regardless of scope or complexity, is going to have some inherent risks • The type, number and severity of the risks will vary depending on a variety of factors, such as the project’s overall size, its related constituent pieces, the number of individuals on the project, and so forth. • Any sort of risk assessment, regardless of the situation, is always a combination of both art and science, coupled with the individual’s own personal experience and knowledge. • Risk management facilitates better business and project outcomes • Risk management provides a structured way of assessing and dealing with future uncertainty.

10. Risk Management in large projects • Large potential losses/gains due to large and complex projects • Risks in large projects are multiplying due to: • Changing economic conditions locally and globally • Technological advancements • Changing patterns of demand • Growing competition due to globalization • Varying operating requirements • Global compliance of products and services • Social and environmental impacts • Private participation in the large public/Govt. projects

11. PMBOK Perspective

12. Plan Risk Management

13. Identify Risks

14. Perform Qualitative Risk Analysis

15. Plan Risk Responses

16. Perform Quantitative Risk Analysis

17. Monitor and Control Risks

18. Project life cycle characteristics • Cost and staffing levels are low at the start, higher toward the end, and drop rapid as the project draws to a conclusion • The probability of successfully completing the project is lowest, and hence risk and uncertainty are highest, at the start of the project. The probability of successful completion gets progressively higher as the project continues • The ability of stakeholder to influence the final characteristics of the project’s product and the final cost of the project is highest at the start and gets progressively lower as the project continues

19. Cost and staffing level Intermediate phase Final phase Initial phase time Generic Life Cycle

20. Cost of changes Intermediate phase Final phase Initial phase time Generic Life Cycle

21. Main Step of Project Life cycle • The project life cycle often consists in four phases: • Conceptual development • Definition • Implementation • Closure

22. Full operation PLANNING and DESING Base design Cost and schedule Contract terms and condition Installation substantially complete 100% TURNOVER and STARTUP Final testing Maintenance FEASIBILTY Project formulation Feasibility studies Strategy design and Approval Percent complete Major contracts let Project “GO” decision STAGE I STAGE II STAGE III STAGE IV Representative Project Life Cycles CONSTRUCTION ( MORRIS REPRESENTATION) CONSTRUCTION manufacturing Delivery Civil Works Installation Testing

23. Process Development Preclinical IND Workup Screening Lead Identified Formulation stability File IND File NDA Post registration Activity Drug sourcing PH I PH II PH III Metabolism Patent process Toxicology Preclinical development Discovery Screening Registration Workup Postsubmission Activity IND = Investigation New Drug Application NDA= New Drug Application Representative Project Life Cycles PHARMACEUTICAL ( MURPHY REPRESENTATION) APPROVAL Ten plus years

24. evaluate identify construct design Representative Project Life Cycles SOFTWARE ( MUENCH REPRESENTATION) Deploy Unit requirements Subsystem requirements system requirements business requirements test evaluation evaluation risk analysis Proof of concept first build second build Final build Conceptual design logical design physical design final design

25. Representative Project Life Cycles PLANT PROJECT Investment Life Cycle Strategic Plan Needs Identification Feasibility Investment Return End of Investment Basic Dsign Acquisition Production End of Production Plant Life Cycle Conceptual Design Planning Executing Delivery Project Plant Life Cycle

26. Risk management in project life cycle • Risk and the associated cost to address the risk, varies over the project life cycle • For initial phase there is high chance of risk events, but low cost impact • For final phase there is low chance of risk events, but cost impact is high • Risk management can be applied usefully at all stages of a project or procurement • Identifying and managing risks greatly affect project success

27. Need for Risk management in project phases • Economic viability assessment-Feasibility studies • Corporate governance and accountability • Contractual purposes, to assess alternative contractual and legal frameworks for the project • Tendering, when deciding whether or not to bid, or accept a bid • Regulatory purposes, for legislative, judicial or licensing agencies • Communication purposes, to provide information for owners, sponsors, users, contractors, joint venture partners

28. Examples Project phases and Risk management application

30. Risks in Public sector (Govt.) projects • New project delivery methods adopted: • BOOT ( Build Own Operate and Transfer) • BOT ( Build Operate and Transfer) • PPP ( Public Private partnership) • BLT ( Build Lease and Transfer) • PFI ( Private Financing Initiatives) • Risk management is an important part of the drive to improve the overall quality and standard of government procurement activities. • In the government procurement arena, risk management is important in that it supports: • Consistent and justifiable public decision-making, generating an audit trail of the available • information and a documented method that demonstrates how this information was used to form effective decisions.

31. Risk Management Approaches • Project Management Institute (PMI), USA (2003), Project Management Body of Knowledge, Chapter 11 on risk management; • Association for Project Management, UK (1997), PRAM Guide; • AS/NZS 4360 (2004), Risk Management, Standards Association of Australia; • IEC 62198 (2001), Project Risk Management—Application Guidelines; • Office of Government Commerce (OGC), UK (2002), Management of Risk; and • Treasury Board of Canada (2001), Integrated Risk Management Framework.

32. A Practical Case Study Of Risk Management for Strategic Partnership in Local Council

33. The Partnership • The Vision • To improve significantly the quality of life for the people by working together • Responsible to Public Service Board – Chaired by DG • Management group have executive responsibilities • 4 Main Areas of Service • Children and Young People • Safer and Stronger Communities • Healthier Communities and Older People • Sustainable Communities –

34. Case Study – County CouncilLocal Strategic Partnership Situation • The Local Govt desire to achieve their objectives and goals through Local strategic partnership • The Local Strategic Partnership has developed its’ Local Area Agreement and prior to implementation wished to use risk management as the common thread for all Partner organisations to:- • Have a consistent definition of, a shared appetite for and a consistent process of identifying / managing risk • To create a single risk register of the Partnership’s significant risks, prioritised for risk improvement planning and a platform for future monitoring of such risks / action plans

35. Case Study : Local Strategic Partnership Project Methodology The project activity was subdivided into a number of key stages as follows:

36. Case Study : Local Strategic Partnership • Timescales of the project • Proposal drafted 15th May 2011 • Risk Workshop Briefing Note and Questionnaire issued 26th May 2011. • Workshops on 12th July 2011. • Report and Recommendations issued 24th August 2011 after consultation and agreement with the Client. • Presentation to Local Council Board on 4th September 2011

37. Case Study : Local Strategic Partnership Phase 1. Pre-workshop Study Risk Questionnaire These established an up-to-date ‘snapshot’ of the material risk exposures, and led to the production of a risk “long-list” that formed the basis of the risk assessment workshops. The main objectives of the Questionnaire were: - • To capture respondents’ perceptions of the particular risks to the delivery of proposed partnership ,expected outcomes; and • To begin to capture details regarding any controls or counter-measures currently in place to manage such risks.

38. Phase 1. Pre-workshop Study (contd.) – all participants, representatives of the 4 key Service Groups within the Strategic Partnership were issued with a briefing document to set the risk context for the ensuing workshops The objectives of these workshops were to: 1. To introduce a common and consistent approach to risk management for all delivery groups; 2. In the context of the objectives of the partnership vision and aims, to identify potential risks to the achievement of relevant expected outcomes for respective delivery groups 3. To assess and prioritize risks in terms of potential impact and likelihood; 4. To identify and prioritize key risks; and • Begin to develop action-plans to address the risks identified

39. Phase 2. Service Group workshops Our consultants facilitated a series of four risk identification and assessment workshops, one for each of the following Service Groups (Blocks):- • Healthier Communities and Older People Partnership (7 delegates) • Safer and Stronger Communities (6 delegates) • Children and Young People (14 delegates) • Sustainable Communities (20 delegates)

40. Phase 2 (contd.) Workshop Agenda • Introduction and Explanation of Objectives. • A risk management training/refresher session: on key risk management theory and the methodology being used in the workshops. • Risk Identification and assessment of the impact and likelihood. • Risk prioritisation. • Summing up and the next steps.

41. Case Study – County CouncilLocal Strategic Partnership Number of Risks per Service In total 136 Risks were identified

42. Top 5 Risks • Mainstream budget reductions in NHS and National Treatment Budgets. • That District Councils fail to develop planning policies which adequately support the requirements of the LAA • Expected uplift funding not provided by the Department of Health/Home Office to support the delivery of the National Drug Strategy • Restructuring – Police, Probation, Local Government or review of Crime and Disorder Act – individually. • Withdrawal of local bus services by commercial operators.

43. Phase 3 – Analysis & Reporting • The potential impact and likelihood of these risks were assessed against meaningful definitions / criteria and captured in a risk register in order to prioritize the outputs for risk improvement planning. • Risk improvement planning measures were then applied to the 32 risks deemed to be critical, according to their combined impact and likelihood score. Block leads, in conjunction with target lead officers, were subsequently asked, through the appropriate partnerships, to review the critical risks and • amend the delivery plans for these targets detailing how the risks are to be managed / addressed. • amend the relevant delivery plans where appropriate. In doing this, priority was given to the targets on the list.

44. Case Study – County CouncilLocal Strategic Partnership • Recommendations • Fill in the Gaps • Identify the Strategic Risks • Prioritise • Actions • The Risk Register • Risk Management Schedule

45. Outcome (I) • 47 delegates bought-in to the risks to the partnership through active participation in the workshops, • All 12 different organizations within the Strategic Partnership were represented, and were able to overcome individual cultural differences in approach to risk tolerance / assessment • They jointly identified some 136 risks to the successful implementation of the Local Area Agreement, not risks to themselves nor their own organizations, but to the partnership • These findings were then presented to the Public Service Board for sign-off and have been maintained under subsequent review as part of the Strategic Partnerships monitoring and review process

46. Case Study – County CouncilLocal Strategic Partnership Outcome (II) The risk management process has given:- • the Management Group a better understanding of the risks to successful implementation, • the Public Service Board assurance that risks are being managed and • external government stakeholders confidence that modernisation reforms can be made to work effectively across the various stakeholder organisations in the County.

47. Applying Good Practice in Your Organization Class Discussions • What partnerships are your organizations involved in? • Who is leading them? • How are you involved? • What are the particular challenges? • How does risk management support these partnerships? • How can you become involved? • What skills / further support would you find helpful?

48. Assignments:1 • Please visit research paper titled as Managing risk in software development projects: a case study By Prasanta Kumar Dey, Jason Kinch, Stephen O. Ogunlana at http://www.emeraldinsight.com/journals.htm?articleid=1597801 Download the complete article and explain risk management process in the software development projects.