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R isk management process

R isk management process. Risk identification Identify project, product and business risks; Risk analysis Assess the likelihood and consequences of these risks; Risk planning Draw up plans to avoid or minimise the effects of the risk; Risk monitoring

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R isk management process

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  1. Risk management process • Risk identification • Identify project, product and business risks; • Risk analysis • Assess the likelihood and consequences of these risks; • Risk planning • Draw up plans to avoid or minimise the effects of the risk; • Risk monitoring • Monitor the risks throughout the project;

  2. Risk management process

  3. Risk management • A risk is a probability that some adverse circumstance will occur • Identify risks and draw up plans to minimise their effect. • Various risks may affect • schedule or resources • affect the quality or performance • affect the organisation

  4. Risk indicators

  5. Risk identification • A team activities or based on project manager’s experience • A checklist of common risks may be used to identify risks • Technology risks. • People risks. • Organisational risks. • Requirements risks. • Estimation risks.

  6. Examples of different risk types

  7. Risk analysis • Assess probability and seriousness of each risk. • Probability may be very low, low, moderate, high or very high. • Risk consequences might be catastrophic, serious, tolerable or insignificant.

  8. Risk types and examples

  9. Risk types and examples

  10. Risk planning • Consider each risk and develop a strategy to manage that risk. • Avoidance strategies • The probability that the risk will arise is reduced; • Minimisation strategies • The impact of the risk on the project or product will be reduced; • Contingency plans • If the risk arises, contingency plans are plans to deal with that risk;

  11. Strategies to help manage risk

  12. Strategies to help manage risk

  13. Risk monitoring • Assess each identified risks regularly to decide whether or not it is becoming less or more probable. • Also assess whether the effects of the risk have changed. • Each key risk should be discussed at management progress meetings.

  14. Communicate • The developer must systematically and continually enumerate all the possible risks related to technical capability and making the schedule. • The manager must lead the team to follow the risk management process to proactively manage the project risks. • • The customer must participate in the continual identification of risks.

  15. Risk Management Concepts and Metrics • Risk – the possibility of loss or injury • Risk exposure (RE) or risk impact (RI) • RE = Prob(UO) * Loss(UO) • Prob(UO) is the probability of an unsatisfactory outcome • Loss(UO) is the loss to the parties affected if the unsatisfactory outcome occurs.

  16. Risk Management Concepts

  17. Decision tree risk analysis& expected monetary value

  18. Scenario • The software will be developed by the experiment team. • The experiment team understands the experiment but is inexperienced in and somewhat casual about software development. • The manager has obtained an estimate that there is a probability of 0.4 that the software will have a critical error (CE). • This CE will wipe out the entire experiment and cause an associated loss of $20M.

  19. Two options for reducing risk • Convincing and helping the experiment team to apply better development methods. • This will incur no additional cost • This will reduce the CE probability to 0.1 • Hiring a contractor to independently verify and validate the software. • This incurs a cost of $0.5M • This will reduce the CE probability to 0.04

  20. Prob(UO) = 0.4 Loss(UO) = $20M RE = $8M 0.6 Loss(UO) = $0M Do nothing Prob(UO) = 0.1 Loss(UO) = $20M RE = $2M Internal 0.9 Loss(UO) = $0M External Prob(UO) = 0.04 Loss(UO) = $20.5M RE = $(0.82+0.48)M = $1.3 M 0.96 Loss(UO) = $0.5M

  21. Risk Management Case Study

  22. A Server stores some data on it. The probability of losing the data is 20%. The cost of losing such data is measured in terms of the cost of rebuilding it. This is estimated at $20,000. Probability of loss                         0.2               BEFORE Resolution Loss                                          $20,000 Exposure to data loss                   0.2 x $20,000 = $4,000 Now we provide a method of reducing the possibility of data loss. This reduces the risk to 5%. The impact on losing the data is the same since we still need to rebuild the data. However, the cost of introducing the loss reduction is $2000. Probability of loss                         0.05             AFTER Resolution Loss                                          $20,000 (Same loss in this example) Exposure                                    0.05 x $20,000 = $1000 Cost of Risk Reduction                 $2000 So using the above formula, the Risk Reduction Leverage is: Leverage                                    ($4000 - $1000) / $2000 = 1.5 

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