Project Management IV1021Fö5

1. Project Management IV1021Fö5 Risk Management

2. Agenda • Project • Risk • Project Risk Management • The Risk Management Process • Goal: get an understanding of basic project risk management

3. Project • A project is a temporary organisation, separate from, but strongly dependent of the organisation, (the ordinary organisation). A project has a fixed, well defined and controllable objective. A project has its own resources (time, money, personal etc). • All projects have three interrelated objectives: to 1 meet the budget, 2 finish on time, 3 meet specifications that satisfy the client.

4. Project Objectives A PROJECT is an organisational form with a defined objective limited in resources and time. Resources Time

5. Uncertainty • ”It must be expected that something unexpected will happen” Arisotle (384-322 BC)

6. Risk • The chance that something happens that will have an impact on objectives. It is measured in consequence and likelihood. The consequences may be positive or negative There is no human activity which does not have risks.

7. Types of risks • Dynamic risks: positive or negative outcome. Example marketing. • Static risks: negative outcome. Example fire, flood, computer virus.

8. Risk Management • Risk Management: refers to the way in which risks faced by the business are dealt with. Risks may arise from the nature of the business operations and/or the way in which the business is financed. • The purpose of (Project) Risk Management is to minimize the risk of not achieving the objectives of the project.

9. After 9/11 • Increased focus on Risk Management and Security Management. • Enterprise Risk Management (ERM) is a system of managing risk across an entire company.It should be an integral part of the governance and management of the business.

10. Project Risk Management • Risk Management assists project managers in setting priorities, allocating resources and implementing actions and processes that reduce the risk of the project not achieving its objectives. • Risk Management facilitates better decision making and better project outcomes.

11. Project Risk Management • The Project Manager must ensure that: • All significant risks are identified • Identified risks are understood (likelihood and consequences) • Assessment is undertaken of individual risks relative to other risks • Strategies for treating risks are established • The process itself and the risk treatment strategies are implemented cost-effectively

12. The Risk Management Process AS/NZS 4360

13. Establish the context • The context is a framework in which all activities of a project takes place. • Strategic Context • Relationship between the organisation(s) and their environment. • Organisational Context • What is the organisation all about? • Risk Management Context • This level focus on the project which the Risk Management Process is being applied. Do we understand the project (goals, time frame etc.)? • Summary: Do we clearly understand what should be the role of risk management in the project?

14. Risk Identification • The process of determining: • What could happen? • How could it happen? • Why can it happen? • A risk which is not identified can not be treated

15. Risk Identification Make a list of all potential risks and classify, for example: • Financial: inflation, currency deflation • Legal: contracts (SLA), liability claims • Technical: computer virus, hacking, loss of data • Personnel: accident, death, illness, resignation • Organisational: theft, property, ignorance • Political: taxes, war, legislation, terrorism • Natural: earth quaque, flood, storm

16. Risk Identification • Methods: • Brainstorming • Examination of previous similar projects • Standard Questioners and Surveys (sources: insurance companies) • Scenario analysis • Checklists • Interviews and focus group discussions • Personal inspections • Work Breakdown Structure analysis

17. Risk Assessment • Risk assessment is the overall process of risk analysis and risk evaluation. Its purpose is to develop agreed priorities from identified risks.

18. Risk Analysis • The systematic use of available information to determine how often specific events may occur and the magnitude of their likely consequences. • Determine likelihood and consequence • Two types of methods: • Qualitative: expresses in word form or in descriptive scales the likelihood and consequences of an event • Quantitative: using numerical values to determine likelihood and consequences

19. Risk Analysis • Likelihood • How likely is the loss to occur? Rare Remote Likely Certain • What is the probability of this loss? .0 .1 .8 1.0

20. Risk Analysis • Consequence: the outcome of an event or situation expressed quantitatively or qualitatively, being a loss, injury, disadvantage or a gain. • If the loss occurred, how would it affect the project? • Financially? • Operationally? • The ability of the project to meet its objectives? Insignificant Minor Moderate Major Catastrophic

21. Risk Evaluation Consequence Low High Likelihood High Medium risk High risk Medium risk Low Low risk

22. Risk Evaluation Consequence Likelihood

23. Risk Treatment • Identify the options for reducing the likelihood or consequence for each risk • Determine potential benefits and costs of the options • Select the best options for the project • Develop and implement a detailed Risk Treatment Plan • Make appropriate provisions in project budgets

24. Risk Treatment • Risk avoidance • Possible? • Loss control options • Reduce likelihood • Reduce the expected consequence • Transfer the risk to another entity • Contractual • Insurance • Joint ventures

25. Monitoring and review • Continuous monitoring and review of risks ensures new risks are detected and managed, and that treatment plans are implemented and progressed effectively. • Method • Implement a review process as part of the regular management meeting cycle. • Undertake major reviews at significant project phases and milestones.

26. Communication and reporting • Senior managers need to understand the risks they face, and risk reports provide a complement to other project reports in developing this understanding. • Method • Submit reports on a regular basis or as required, as part of standard project reporting.

27. Summary • How do we define a project? • What is a risk? • How can we analyse risks? • How can we treat risks? • Questions?