PM00.7 Project Management Preparation for Success * Manage Risk *

1. PM00.7Project Management Preparation for Success * Manage Risk *

2. Risk Management Definition Master Sun-tzu: “So the rule of military operations is not to count on opponents not coming, but to rely on having ways of dealing with them; not count on opponents not attacking, but to rely on having what cannot be attacked” “If you can always remember danger when you are secure, and remember chaos in time of order, watch out for danger and chaos while they are still formless, and prevent them before they happen. This is best of all” The Art of War, 6th Century B.C. translated by Samuel B. Griffith

3. Risk Definition Risk is the probability of an undesirable event occurring and the significance of the consequence of that occurrence.

4. Risk Characteristics • A definable event that may occur in the future • A probability of occurrence (future) • A consequence of occurrence (impact + or -) Risk is almost always associated with a loss; however, positive risk can also be viewed as an “opportunity”

5. Opportunity Risks • A definable event • Probability of success • Benefit of Success Question: Why should you take a risk? Answer: To gain a reward (This aspect of risk is not covered in this training)

6. Is a Risk a Problem? No, a risk is not a problem…a problem is a risk whose time has come Problems - existing conditions and circumstances Risk - future events and conditions

7. What Affects Risk Perceptions? Control One can be placed at risk by oneself or another (flying vs. driving) Information available Inadequate, unfamiliar, unreliable, unpredictable Time The further into the future the more uncertainty, but more time to identify risk and manage (future social security solvency) Some risks are small, but the consequences so dire, that it is hard to know what actions to take (space shuttle risks)

8. Project Risk Management Perception of risk needs to be fact-based Take control Use logic, not emotion Analyze the risks All projects have risks (maybe only small ones) Your client does not demand zero risk

9. Risks Vs. Assumptions(Refined from Define the Project) A future event that may have a negative impact on the project Risk. The combination of probability and impact are not acceptable (too high) Assumption. The combination of probability and impact are acceptable A future event that needs to occur for the success of the project Risk. The combination of probability and impact are not acceptable (too low) Assumption. The combination of probability and impact are acceptable

10. Risk Management Approach • Risk Management is theprocess of: • Identifying risks • Analyzing the risk – qualitative • Analyzing the risk - quantitative • Responding to the risk • Monitoring known risks and looking for new risks

11. Risk Management Process Identify the risks - Initial risk assessment during project definition • Identify risks • Analyze the risk – qualitative • Analyze the risk - quantitative • Risk response • Risk control • Project size • Project structure • Effect on the organization • Staffing • Project management experience • Hardware and software

12. Identify the Risks Look for general inherent project risks Brainstorm additional specific risks Involve clients and sponsor Discussion of risk with client may result in their avoidance i.e. Multiple-site implementation is listed as a high-risk. Sponsor might agree to limit implementation to a single site

13. Qualitative Risk Analysis Analyze the risks - Qualitative Method for prioritizing risks to determine which should be resolved “Qualitative” implies some subjectivity applied Evaluate each risk event based on impact and likelihood Factor in the quality of the information you have as input • Identify risks • Analyze the risk – qualitative • Analyze the risk - quantitative • Risk response • Risk control

14. Qualitative Risk Analysis High negative impact to project / Highly likely to occur – High High negative impact to project / Medium likely to occur - High High negative impact to project / Not likely to occur - Medium / Low Medium negative impact to project / Highly likely to occur - Medium Medium negative impact to project / Medium likely to occur - Medium / Low Medium negative impact to project / Not likely to occur - Low Low negative impact to project / Highly likely to occur - Low Low negative impact to project / Medium likely to occur - Low Low negative impact to project / Not likely to occur - Low

15. Qualitative Risk Analysis

16. Qualitative Risk Analysis • Likelihood (example) • High .8 • Medium .5 • Low .2 • Impact (example) • High .9 • Medium .6 • Low .3 • Overall numerical risk is (Likelihood * Impact)

17. Quantitative Risk Analysis • Identify risks • Analyze the risk – qualitative • Analyze the risk - quantitative • Risk response • Risk control • Analyze the risks - Quantitative • Uses more sophisticated techniques to arrive at more objective risk analysis • Allows overall risk to be quantified in terms of cost, schedule and effort • Helps identify projected target dates and budget based on risk

18. Quantitative Risk Analysis Examples • Risk surveys and interviews with a wide variety of stakeholders • Simulations, i.e. Monte Carlo • Three point probabilities for each risk (high, medium, and low) to come up with overall risk probability • Other more sophisticated statistical techniques

19. Quantitative Risk Analysis • Cost implications can be determined for overall risk contingency budget • Risk probability is 30%, impact is $10,000. Risk contingency is $3,000. ($10,000 * .30) • Add overall risk contingency to the budget • Schedule implications can be determined • Risk probability is 30%. Schedule impact is 5 days. Schedule contingency is 1.5 days (5 days * .30) • Add overall risk contingency to schedule

20. Risk Management Process Risk Response High level risks - create a plan to ensure that a risk response is in place Medium level risks - determine if the impact is severe enough that they should have a risk plan created Low level risk - see whether they should be listed as assumptions Move the activities associated with the risk plans to the project workplan • Identify risks • Analyze the risk – qualitative • Analyze the risk - quantitative • Risk response • Risk control

21. Risk responses Leave it Monitor the risk Avoid the risk Move the risk Mitigate the risk Weigh the cost of the risk response against the consequences Risk Management Process

22. Develop Contingent Actions Identify actions to take if a risk actually occurs (issues management) Add the contingency actions to the workplan Worst case - the project may need to be stopped Example Risk - hardware may not be available in time at a remote pilot test site Contingent action - hold the pilot test in a site that already has the hardware

23. Risk Management Process Risk Control Monitor the risk plans to ensure they are being executed successfully Assess risks at the end of each major stage / milestone, or on a scheduled basis • Identify risks • Analyze the risk – qualitative • Analyze the risk - quantitative • Risk response • Risk control

24. Poor Alternatives to Risk Management Add unjustified padding to your estimates Prepare ahead of time for whom to blame if things go wrong Be prepared to beg forgiveness by stating you were too busy focusing on delivering results to worry about future events Discuss how you are not a fortune teller, and that the risk could not be foreseen Act casual and say that 'risk happens' - there is nothing you can do about it Eliminate other project management or team infrastructure items to make up for having to solve the problems when they arise

25. Risk Management Tools • Risk Management Plan • Risk Factors • Risk Strategies • Project Definition • Project risks

26. Case Study #10 - Risk Management • Review the case study project • Identify four project risks • Prepare risk management plan and contingency actions for two of the identified risks

27. Manage the Project • Manage workplan • Manage issues • Manage scope • Manage communication • Manage risk • Manage documentation • Manage quality • Manage metrics

28. Learning Objectives By the end of class, each participant should be able to: • Understand the value of project management processes • Review the various aspects of defining a project • Build and maintain an appropriate project workplan • Identify and manage issues, scope and communication • Identify and manage project risks • Determine methods to manage project documentation • Identify and manage to the appropriate level of quality • Identify metrics to improve processes and declare success

29. Questions??