Managing Risks in Projects

1. Managing Risks in Projects

2. Risk Concepts • The Likelihood that some Problematical Event will Occur • The Impact of the Event if it does Occur • Risk = f (likelihood, impact) • Project is considered Risky if at least One Factor is large

3. Risk Identification • Risk Tolerance is a Function of Experience • PM • Stakeholders • Risk of Failure • Schedule • Budget • Technical Goals • Risk of Opportunity • Rewards • Savings • Benefits

4. Risk Identification (Continued) • Ways to Identify Project Risk • Chronology • Type of Work • High Risks • Approach is New/Unusual • Technology is New/Unusual • Staff needs Training in New Tasks/Skills • Process using New Equipment, Systems or Procedures

5. Sources of Risk • Any Factor of uncertain Probability which can affect the Outcome is of a Project is a • Risk Source • Risk Hazard

6. Sources of Risk (Continued) • Internal Risks • Market Risk • Ill Defined Market or Customer needs and Requirements • Failure to Identify Changing Needs and Requirements • Failure to identify Newly Introduced Products by Competitors • Technical Risk • Maturity • Complexity • Quality • Concurrency, or Dependency

7. Sources of Risk (Continued) • External Risks, • Market Conditions • Competitors’ Actions • Government Regulations • Interest Rates • Decisions by Sr. Mgmt or Customer • Budgets • Staffing • Priorities

8. Sources of Risk (Continued) • External Risks (Continued) • Customer Needs and Behavior • Supplier Relations • Weather • Labour Troubles • Material or Labor • External Control by Customers or Subcontractors

9. Risk Assessment • Risk Likelihood • Probability a Hazard or Risk Factor will Materialize • Numerical Value between 1.0 (Certain) and 0 (Impossible) • Qualitative Rating • High Greater than 50% • Medium 20 to 50% • Low 20% or Less • Composite Likelihood Factor (CLF) • Sum of Multiple, Independent Risk Sources

10. Risk Assessment(Continued) • Risk Impact • What Happens if a Risk Hazard Materialized • Specified in Terms of • Time • Cost • Performance Measures • Qualitative • High • Medium • Low

11. Risk Assessment(Continued) • Risk Impact (Continued) • Numerical Measure Between 0 and 1.0 • 0 not Serious • 1.0 Catastrophic

12. Risk Assessment(Continued) • Risk Consequence • Function or Likelihood and Impact • Can be Expressed as Numerical rating between 0 and 1.0 • Risk Consequence Rating (RCR) • RCR = CLF + CIF - CLF(CIF) • Can be Expressed as an Expected Value or the Average Outcome for large Tries • Risk Consequence = (Impact) x (Likelihood)

13. Risk Assessment(Continued) • PERT • Incorporates Risk through the three Estimates for Each Project Activity • a, Optimistic • m, Most Likely • b, Pessimistic • Use a larger value of b to account for Greater Risk • This Produces a larger Variance for Project Completion Time (Add buffer Time to Project) • PERT Provides a Way for Measuring the Consequences of Risk on Project Completion Times

14. Risk Assessment(Continued) • Risk Priority • PM must Define a Risk Tolerance Level • Consider Risks at that Level and Higher • Team Members Review all these Tasks and Make Recommendations • In Complex Systems Joint Failures Can Occur

15. Risk Response Planning How to Deal with the Problem • Transfer the Risk • Avoid Risk • Reduce Risk • Contingency Planning • Accept Risk (Do Nothing)

16. Risk Likelihood, Risk Impact, and Expected Value Consequences

17. Avoid Risk • Alter the Initial Project Concept • Eliminate Risky Activities • Minimize System Complexity • Reduce End-Item Quality Requirements • Change Contractors • Incorporate Redundancies • Change Safety Procedures • Better to Reduce Risk to Acceptable Level Than Eliminate Payoff Opportunity

18. Reduce RiskTechnical Performance • Reduce System Complexity to a Minimum • Reorganize Tasks • End Item Design • Decouple Activities • Contains Failure to one Activity • Use Design Margins • A Management Reserve • Design Value is Greater than Design Requirement

19. Reduce RiskMeeting Schedules • Create Master Project Schedule • Schedule Risky Tasks Early to Allow Time to Recover • Focus on Critical and Near-Critical Activities • Path • Risk • Best People on Time-Critical Tasks

20. Reduce RiskMeeting Schedules (Continued) • Incentives for OT • Compensated Salary • Compensated Time • Do High Risk Activities in the Project Network in Parallel • Organize Project Early with Adequate Staff

21. Reduce RiskMeeting Project Cost • Identify and Monitor Cost Drivers • Perform Design Alternative Reviews and Assessments • Validate System Design and Performance • Modeling • Assessment

22. Accept Risk (Do Nothing) • Not All Risks are Severe or Fatal • Cost Benefit Analysis • Not for Risks which are Potentially Severe

23. Risk Management is Project Management • Another Tool for PM • Supplements • Requirements Definition • Task Definition • Scheduling • Budgeting • Configuration Management • Change Control • Performance Tracking and Control

24. Expect the Unexpected • Do All You Can • Cannot Cover Every Contingency • Bonaparte’s Principle came along before Murphy’s Laws, i.e., “Something Surely Will Go Wrong” Plan for It to Occur

25. Risk Analysis Methods • Expected Value • Decision Trees • Uncertainty and Payoff Tables • Simulations