Project Risk Management for Senior Responsible Officers, Project Directors, and Project Managers

1.  Project Risk Management forSenior Responsible Officers, Project Directors, and Project Managers

2. Project Risk Management ‘Experience has shown that risk management must be of critical concern to project managers, as unmanaged or unmitigated risks are one of the primary cause of project failure’ P.S. Royer (Proactive Risk Management, USA) ‘Risk is the chance of something happening that will have an impact on objectives’ Australian Standard AS/NZ 4360

3. Gateway Findings

4. Gateway Findings Gateway Review teams consistently identify project risk management as an issue. Specifically in the following areas: Comprehensive identification of project/ program risks Thorough analysis and assessment of identified project/ program risks by key stakeholders Identification and development of risk treatment & strategies Effective allocation of risk roles and responsibilities

5. Continued: Regular monitoring, evaluate and update risk management plans and risk registers, and maintain risk management processes for the duration of the project/ program Understanding the risk management processes (AS/NZS4360) and application in a project management context Awareness that risk management is an iterative process throughout the lifecycle of a project, where some risks will disappear and new ones will emerge Gateway Findings

6. Project Risk Management Essentially, projects are like organisations. They have project governance, internal management systems, a number of staff, external stakeholders, an external environment and goals, objectives and deliverables. However, project delivery in the construction industry comes with a higher degree of uncertainty due to: Industrial factors complexity & changing technologies uniqueness of projects OH&S and industrial relations dynamic nature skill shortage different team compositions for each project Multiple organisational interests/goals/objectives

7. Project Risk Management Absence of sound Project Risk Management is likely to result in: Failure to keep within the cost estimate Failure to achieve the required completion date Failure to achieve the specified quality standard Failure to meet purpose or stakeholder expectations     With the potential for the following consequences: Damage to Government image and prestige Loss of ministerial support Reduced funding for future projects Failure to achieve ‘value for money’ Pressure for further investment

8. Project Risk Management Famous examples: Sydney Opera House took more than 16 years to construct, original cost estimate $50 million, final cost $102 million, due to the roof design changing a number of times, adverse relationships, with the final product not meeting the quality standard as specified. Federal Parliament Building Auditor General’s report noted that the project was not managed properly by the Parliament House Authority, the architect or the construction manager, partly due to un-clear responsibilities and lack of knowledge regarding the fast-track method.

9. Project Risk Management (PRM) Possible reasons for lack of project risk management: Informal risk management considered by SRO as sufficient Incomplete application of project management methodologies Lack of risk management skills Lack of risk management resources General lack of resources Lack of managerial support Lack of effective risk management tools No ‘risk culture’

10. Project Risk Management (PRM) "We all consider risk implicitly in our decision making and thinking. However, by discussing each step with other interested parties it becomes a conscious and formal discipline. It provides a mechanism to help ensure that the lessons of the past are taken into account." Australian Standard – Guidance Manual ‘HB436:2004 (page 22, para 3.3.2)

11. Project Risk Management Benefits of Project Risk Management: Increases likelihood of success, fewer surprises! SRO obtains greater knowledge of the inherent nature of the project Optimises project performance Provides SRO with confidence that all strategic risks to the project’s objectives have been identified, and are monitored Protects reputation of project and department Makes life more comfortable !

12. Benefits of Project Risk Management: (continued) Provides a defensible position Promotes mutual understanding of the project’s objective by all stakeholders Risks are allocated to the party which is best suited to carry/manage the risk Increases likelihood of funding approval Growing of historical data – supports ‘lesson’s learnt’ Prioritisation of risks enables effective resource allocation Project Risk Management

13. Key Messages: Australian Standard AS/ NZ4360: 2004 PMBoK and Prince2 (include project risk management process) Project risk management needs to be fully integrated into the project management methodology. Project Management methodologies have made provisions to deal with ‘known’ and ‘unknown’ risks. Project Risk Management

14. Key messages: continued Project Management methodologies absolutely require sound project risk management. Need for consistent Project Risk management across all stages of the project’s lifecycle. Capture ‘lesson’s learnt’ ! Project Risk Management

15. Further reading: Gateway Website www.gatewayreview.dtf.vic.gov.au DHS Documents and CMB Capital Project development guidelines link and processes www.capital.dhs.vic.gov.au/CapitalProjectLifecycle/ OGC - Office of Govt Commerce in the UK www.ogc.gov.uk/guidance_managment_of_risk_4441.asp 4. Performance Audit of Government funded Capital projects www.audit.vic.gov.au/speeches/agspeech_26.html#TopOfPage Project Risk Management

16. For further information, please contact: VMIA The Victorian Managed Insurance Authority (VMIA) is the statutory authority, reporting through the Department of Treasury and Finance, established to provide insurance for state assets and risks, to deliver risk management services to State departments and agencies and to monitor the effectiveness of risk management across government. www.vmia.vic.gov.au Developed for the Gateway Supervisory Committee