Project Management - Part 7
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Project Management - Part 7






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    Project Management - Part 7 Project Management - Part 7 Presentation Transcript

    • Project Management Part 5 Project Risk Management
    • Topic Outline: Risk Management
      • Project risks and risk management
      • Identification of risks
      • Risk assessment and risk analysis
      • Contingency planning
      • Time and cost padding
      • Expected values
      • Risk management exercise
      • PERT analysis
      • Computer simulation analysis
    • Project Risks
      • Uncertainty  a random chance that something will happen, with no way to control whether it happens
      • Risk  an uncertain event or condition that could negatively impact project performance
      • Each risk has a likelihood, or probability, of occurring and possible outcomes if it does occur
    • Managing Risks
      • Since the project manager is responsible for project success, he or she can increase the likelihood of success by better managing risks
      • Risk management is a proactive approach to dealing with uncertainties rather than a reactive approach
      • Some risks can be disregarded and some can be avoided, but others should be planned for
    • Project Risk Management
      • Risk management in projects involves:
      • Identifying risks
      • Assessing and analyzing the likelihood and impacts of risks
      • Trying to reduce the uncertainties (by gathering more information or making different decisions)
      • Trying to lessen the impacts of risks
      • Developing contingency plans for critical risks
      • Monitoring risks as the project progresses
    • PMI’s View of Risk Management
      • Risk management consists of 6 subprocesses:
      • Risk Management Planning
        • How to approach and conduct risk mgmt. activities
      • Risk Identification
      • Qualitative Risk Analysis
        • Assessing likelihoods and possible outcomes
      • Quantitative Risk Analysis
        • Computer simulations; decision tree analysis; etc.
      • Risk Response Planning
      • Risk Monitoring and Control
    • Identification of Risks
      • Identifying all of the possible events or conditions that might occur and may negatively impact project performance
      • A brainstorming session with the project team can be a helpful way to ensure that all important risks are identified
      • Determining symptoms or warning signs that indicate when the risk is about to occur
      • Determining root causes of the risk
    • Risk Assessment
      • This info. should be developed for each risk:
      • Description of risk
      • All the possible outcomes of the risk
      • The magnitude or severity of the outcomes
      • Likelihood (probability) of the risk occurring, and likelihood of each possible outcome
      • When the risk might occur during the project
      • Interaction of the risk outcomes with other parts of this project or other projects
    • Risk Assessment Matrix Risk Likelihood Severity Detection Difficulty When System Crash Low High High Startup Software Glitches High Low Medium Post-Startup Users Dissatisfied Medium Medium Low Post-Startup Hardware Malfunction Low Medium Medium Startup
    • Risk Analysis Tools
      • Probability analysis
      • Decision tree analysis
      • Monte Carlo simulation analysis
      • Life-cycle cost analysis
      • Delphi techniques for consensus
      • Technology forecasting
      • Game theory analysis
      • PERT analysis
      • Sensitivity analysis
      • Expected value analysis
    • Reducing Risks
      • Try to reduce uncertainties (collect more information, use more reliable vendors, design for easy production, don’t use leading edge technologies, etc.)
      • Try to reduce the severity of potential outcomes (purchase insurance, convince customer to share the risk impacts, train employees how to respond quickly, etc.)
    • Contingency Planning
      • A contingency plan is an alternative plan used if a risk event or condition occurs.
      • Examples:
      • Having a backup supplier for a key material
      • Carrying a safety stock for a key part
      • Having an alternate distribution channel to send products to China (air instead of boat)
      • Having hurricane evacuation plans
    • Time and Cost Padding
      • Padding is a commonly used approach to address risks, since it is very easy to implement and since it protects against most minor risks
      • Padding refers to inflating the original time or cost estimates for activities or for the project
      • Unfortunately, this leads to longer project durations and higher costs
    • Time and Cost Padding
      • People will generally use up as much time and money as they are allowed (if you don’t use it you lose it!)
      • Student syndrome  if extra padding is built into activity time estimates, some people are likely to procrastinate getting started, and then the protection against risk is lost
      • Although padding can be useful in reducing the severity of risk, it can also lead to inefficiencies and waste
    • Expected Values
      • A construction manager is trying to decide what size crew to schedule for tomorrow based on weather:
      • Weather
      • Probability: 10% 20% 30% 40% Expected
      • Alternative Nice Cold Rain Snow Value
      • Large crew $860 $710 $160 $-350 $136
      • Med. crew 520 430 190 -120 $147
      • Small crew 280 240 170 130 $179
      • sample calculation :
      • Large  .10(860)+.20(710)+.30(160)+.40(-350) = 136
    • Risk Management Exercise
      • Nelson Mandela Bridge case (25 minutes)
      • Divide into small groups
      • Read case
      • Discuss the issues and answer these questions:
        • How would you have identified the risks?
        • Using the table provided, discuss how the risks were addressed and/or how risks could have been addressed. Also, indicate any additional risks you can think of.
        • Indicate whether the risks listed are internal or external.
        • Describe how you would determine the expected values of the risks listed.
        • Do you think that risk was adequately managed in this project? Why?
    • Uncertain Task Durations
      • Probability distributions
      • Discrete, uniform, triangular, normal, beta, etc.
      • Most common way to consider task uncertainty is to estimate the most likely, pessimistic, and optimistic durations.
      • PERT analysis assumes a Beta distribution for each task
    • Estimating Task Times (with PERT)
      • Activity duration estimates :
      • a=optimistic, m=most likely, b=pessimistic time
      • Expected task duration:
        • T e = (a + 4m + b)/6
      • Variance of task duration:
        • Var = [(b – a)/6] 2
    • PERT Example
      • Task Pred. Opt. Most Likely Pess. T e Var
      • a -- 3 4 6 4.167 0.250
      • b -- 2 3 4 3.000 0.111
      • c a 3 3 5 3.333 0.111
      • d a 2 2 2 2.000 0.000
      • e b 4 6 11 6.500 1.361
      • f b 3 4 4 3.833 0.028
      • g c,d 1 1 2 1.167 0.028
      • h e 4 4 4 4.000 0.000
      • i f 3 5 8 5.167 0.694
      • j e,g 3 6 10 6.167 1.361
      • k h,i 1 1 2 1.167 0.028
      • T e = (a + 4m + b)/6 Var = [(b – a)/6] 2
    • PERT Example
      • Use T e values for task durations on project network to compute slack values.
      • The results of the new computations still shows path b-e-j as the critical path, with an expected project duration of
        • T cp = 3.000 + 6.500 + 6.167 =
        • Var cp = 0.111 + 1.361 + 1.361 =
        • StdDev cp = sqrt(2.833) =
      • MS Project with 3 task durations
    • Goldratt’s Critical Chain
      • Assuming that an activity duration is known leads to underestimating project durations
      • Because of this, people tend to pad their time estimates
      • This may result in the “student syndrome”
        • What is that?
      • This in turn leads to procrastination, which can then result in missing the finish date
    • Goldratt’s Critical Chain
      • Add safety time buffers at strategic points in the project network
      • Safety time buffer at end of critical path is called a project buffer
      • Safety time buffer just before where noncritical paths feed into the critical path is called a feeding buffer.
    • Computer Simulation Analysis
      • General purpose simulation software can model how many products flow through all the machines in a factory and on to the warehouse. This capability is much more than what is needed to simulate projects.
      • Monte Carlo simulation is much simpler type of simulation analysis that we can use to model the uncertainty of task durations and costs.
      • Crystal Ball and @RISK are two such packages.
    • Crystal Ball and Project Analysis
      • Crystal Ball allows you to specify any type of probability distribution for each task.
      • You specify all precedence relationships.
      • It then “shoots” random numbers into your probability distributions to simulate thousands of completions of the project.
      • The result is a probability distribution of the total duration of the project, from which you can answer the what-if questions about how long the project might actually take.