Project Risk Management_intro

Project Risk Management
Basic Introduction

Definitions
Project
Temporary endeavor with a defined beginning and end
Risk
A possible future event which if it occurs will lead to an undesirable outcome.
Management
Art and science of planning, organizing, securing and managing resources
Project Risk
The cumulative effect of the chances of an uncertain occurrence that will
adversely affect project objectives.
Risk Management
A systematic and explicit approach for identifying, quantifying, and controlling
project risk.
Project Risk Management
The art and science of –identifying, assessing, and responding to project–risk
throughout the life of a project and in the –best interests of its objectives

The processes concerned with conducting:
PROJECT RISK MANAGEMENT
The objectives is:
• To decrease the probability
and impact of events
adverse to the project, and
• To increase the probability
and impact of positive
events
PMBOK :
• Risk management planning
• Risk identification
• Risk analysis
• Responses to risks
• Risk monitoring and control
ISO 3100:
• Establishing the Context
• Identify risks
• Analyze & Evaluate risks
• Treat risks
• Monitor and Review
• Communication and
Consult

SCOPE TIME COST QUALITY
Deliverables
REPUTATION
Penalty
REPUTATION
Additional Cost
LOWER PROFIT
Reject
REPUTATION
PROJECT RISK
• Effect or uncertainty on objectives (ISO),
• Uncertain event or condition that, if it occurs, has a positive or
negative effect on a project’s objectives (PMBOK)

Establishing the context
External
• To ensures that the relevant externally generated threats, and
opportunities are properly taken into account and the risk management
framework is appropriate to the requirements of the Project
• To ensures that all Stakeholders and their objectives are considered
when developing risk management criteria, – this helps to establish
policies for communication with these parties.
Internal
Requires the Project Team to consider, and align the risk management
process with the:
• Corporate risk management policy
• Corporate and team culture
• Internal stakeholder structure and capabilities (resource and skill
availability, etc.)
• Project systems and processes (either available or planned)
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• Identify risks
• Treat risks
• Communication and Consult

Establishing the context
In short - Establishing the Context
includes of the activity of Risk
Management Planning, Alignment of
Project Objectives & Decision,
Frameworks, Fact & Constraint
and Communication to related
stakeholders External and Internally Policy
Decisions
Strategic
Decisions
Tactical
Decisions
Decisions that have
made
Decisions that need to be
included the analysis
Decisions that can
be made later
• Identify risks
• Treat risks

TECOP
FRAMEWORKS
Risk Identification
Risk Register issues
generated by
multi-disciple team
Project
Allowances
(Contingency)
Technical
Commercial
Economical
PoliticalGovernment
Community
Agreements
Drilling
Subsurface
Insurance
Valuation
Financing
Infrastr.
Brainstorming
Organizational
Systems
Partners
• Identify risks
• Treat risks

RISK IDENTIFICATION
Risk Statement: Cause – Risk / Event – Consequence
What is Cause?
• Reason for ; result in ; the reason why something happened
What is Risk?
• Effect or uncertainty on objectives (ISO),
• Uncertain event or condition that, if it occurs, has a positive or negative effect on a
project’s objectives (PMBOK)
What is Event?
• Occurrence or change of a particular set of circumstances
What is Consequence?
• Outcome of an event
As a result of a <definite cause>, an <uncertain Event / Risk > may occur,
which would lead to < consequences for the project objective(s)>
• Identify risks
• Treat risks

The Uncertainty Spectrum
TOTAL
CERTAINTY
TOTAL
UNCERTAINTY
GENERAL
UNCERTAINTY
SPECIFIC
UNCERTAINTY
(Unknown - unknowns) (Knowns)
NO
Information
Complete
Information
Partial
Information
(Known - unknowns)
SCOPE OF PROJECT RISK MANAGEMENT*
*Note: in this range the information to be known
• Identify risks
• Treat risks
ISSUE
BLACK
SWAN

RISK AND ISSUE
What is the different ?
• Risk is an event that may occur on a project that will have a negative impact. Risk is
not a certainty. It may occur and have less than 100% probability of occurring.
• An issue is an event that the project will or currently faces that will/does have a
negative impact. An issue has a 100% probability of occurring.
What is the similarity?
•Both risk and issue management require planning.
•A risk generally has a mitigation strategy and contingency plan.
Risk and uncertainty are equivalent
A project risk that has occurred can also be considered an issue (PMBOK)

Common of Risk Management Process
Brainstorm Risk Identification
Risk
Register
Risk Analysis
Risk Evaluation
& Treatment
•Eliminate
•Mitigate
•Transfer
•Accept

RISK EVALUATION
Points of scales
Consequences
• Consequences are rated in term of potential impact to on objective
(Cost , Schedule, Health, Enviro, External / Company Image)
• Consequences are rated from slighted to massive.
• Where risk has several consequences, the highest consequence is used
to generate the rating.
Likelihoods
• Likelihoods are rated in terms of percentage / likely of occurrence.
• Likelihoods are rated from Improbable/Rare to Frequent/Very Likely
(to be happened).
• Identify risks
• Treat risks

SETTING THE PRIORITIES
Rationale
Agreed priorities are used to determine where the greatest
attention, planning and detail risk assessment should be
focus.
• Using the control effectiveness
• (High Risk without control, High risk with control that are not fully
effective, etc.)
• Using the potential exposure
• Using Milestones
Using the level of risk
• Identify risks
• Treat risks

Risk Treatment
Risk Treatment / Response defines steps for :
 Enhancing opportunities
 Responding to threats
Risk Response Type:
 Avoidance - eliminate
 Mitigation
 Reduce EMV by reducing probability
 Reduce Impact
 Transfer
 buy insurance
 Acceptance
 Active: develop plan to deal with risk if it occurs
 Passive: Accept risk (e.g., lower profit
• Identify risks
• Treat risks

Where is the Contingency Plan allocated in the Risk
Management Process ?
CONTINGENCY
PLAN
• Identify risks
• Treat risks

CONTINGENT PLANNING
Contingent planning:
a means to address risks to the project through a formal
process and provide resources to meet the risk events.
It is the establishment of management plans to be
invoked in the event of specified risk events
Examples:
 The provision and prudent management of a
contingency allowance in the budget
 The preparation of alternatives work areas and work-
arounds.
• Identify risks
• Treat risks

What is Contingency Plan
• A Contingency plan is a plan devised for a specific situation when things
could go wrong. Contingency plans are often devised by governments or
businesses who want to be prepared for anything that could happen. They
are sometimes known as "Back-up plans", "Worst-case scenario plans",
"Scrap Situation" or "Plan B" .
• Contingency plans include specific strategies and actions to deal with
specific variances to assumptions resulting in a particular problem,
emergency or state of affairs. They also include a monitoring process and
“triggers” for initiating planned actions. They are required to help
governments, businesses or individuals to recover from serious incidents
in the minimum time with minimum cost and disruption.
http://en.wikipedia.org/wiki/Contingency_plan
• A Contingency Plan is fallback position, or workaround in the event of
an adverse occurrence, or risk event, on the project.
• A plan that identifies key assumptions beyond the project manager's
control, and their probability of occurrence. The plan identifies
alternative strategies for achieving project success.
http://www.maxwideman.com/pmglossary/PMG_C07.htm

Probabilistic Planning
• P10 Estimate – a 10% chance that the project cost/schedule will
be less than or equal to the estimate total and a 90% chance that
the project cost/schedule will be greater than the cost
estimate total.
• P50 Estimate – a 50% chance that the project cost/schedule will
be less than or equal to the estimate total and a 50% chance that
the project cost/schedule will be greater than the cost
estimate total.
• P90 Estimate – a 90% chance that the project cost will be less
than or equal to the estimate total and a 10% chance that the
project cost/schedule will be greater than the cost/schedule
estimate total.

Typical Life Cycle Profiles
Total project life cycleI
N
C
R
E
A
S
I
N
G
R
I
S
K
$
V
A
L
U
E
TIME
Plan Accomplish
Phase 1
Conceive
Phase 2
Develop
Phase 3
Execute
Phase 4
Finish
(period when highest
risks are incurred)
(period of highest
risk impact)
Risk versus Amount at Stake

COST ESTIMATE & CONTIGENCY
• LEVEL PROBABILITY VS COST ESTIMATE
A D B CE
P90
P70
P50
P35
P10
A : Value P10
B : Value P50
C : Value P90
D : Deterministic Estimate
E : Deterministic By PM
Deterministic
Estimate
(Including
Allowance)
Contingency
P50 –
Deterministic
Estimate
COST
P
Sample

AACE COST ESTIMATE CLASSIFICATION
http://www.aacei.org/technical/rps/17r-97.pdf

Sample of Schedule Risk Assessment Result

Project Risk Management_intro

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