Risk Management Slides

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Risk Management Slides

  1. 1. Project Risk Management Sections of this presentation were adapted from A Guide to the Project Management Body of Knowledge 3 rd Edition, Project Management Institute Inc., © 2004
  2. 2. Risk Management <ul><li>“The process involved with identifying, analyzing, and responding to risk. It includes maximizing the results of positive risks and minimizing the consequences of negative events” </li></ul>
  3. 3. Why Do We Manage Risk? <ul><li>Project problems can be reduced as much as 90% by using risk analysis </li></ul><ul><li>Positives: </li></ul><ul><ul><li>More info available during planning </li></ul></ul><ul><ul><li>Improved probability of success/optimum project </li></ul></ul><ul><li>Negatives: </li></ul><ul><ul><li>Belief that all risks are accounted for </li></ul></ul><ul><ul><li>Project cut due to risk level </li></ul></ul>
  4. 4. Key Terms <ul><li>Risk Tolerance – The amount of acceptable risk </li></ul><ul><li>Risk Adverse – Someone that does not want to take risks </li></ul><ul><li>Risk Factors </li></ul><ul><ul><li>Probability of occurrence </li></ul></ul><ul><ul><li>Impact of event </li></ul></ul><ul><ul><li>Range of outcomes </li></ul></ul><ul><ul><li>Timing of event </li></ul></ul>
  5. 5. How Do We Manage Risk? <ul><li>Use the six risk management processes </li></ul><ul><ul><li>Risk Management Planning </li></ul></ul><ul><ul><li>Risk Identification </li></ul></ul><ul><ul><li>Qualitative Risk Analysis </li></ul></ul><ul><ul><li>Quantitative Risk Analysis </li></ul></ul><ul><ul><li>Risk Response Planning </li></ul></ul><ul><ul><li>Risk Monitoring and Control </li></ul></ul>Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control
  6. 6. Risk Management Planning Project Scope Statement Enterprise Environmental Factors Organizational Process Assets Project Management Plan Risk Management Plan <ul><li>Planning Meetings and Analysis </li></ul>Inputs Outputs Tools & Techniques Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control
  7. 7. What is a Risk Management Plan? <ul><li>Methodology – Approach, tools, & data </li></ul><ul><li>Roles & Responsibilities </li></ul><ul><li>Budgeting – Resources to be put into risk management </li></ul><ul><li>Timing – When and how often </li></ul><ul><li>Risk Categories – Risk Breakdown Structure (RBS) </li></ul><ul><li>Definitions – Risk probabilities and impact </li></ul>
  8. 8. What is a Risk Mgmt Plan (Cont’d)? <ul><li>Probability and Impact Matrix </li></ul><ul><li>Stakeholder tolerances </li></ul><ul><li>Reporting formats </li></ul><ul><li>Tracking </li></ul>
  9. 9. Risk Breakdown Structure <ul><li>Lists categories and subcategories where risks may arise </li></ul>Project Technical Organizational Project Management Limited Design Time Specifications Adherence Funding Prioritization Resource Availability Estimates Scheduling Communication
  10. 10. Risk Identification Project Scope Statement Enterprise Environmental Factors Organizational Process Assets Risk Management Plan Risk Register <ul><li>Documentation Reviews </li></ul><ul><li>Information Gathering Techniques </li></ul><ul><li>Checklist Analysis </li></ul><ul><li>Assumption analysis </li></ul><ul><li>Diagramming techniques </li></ul>Inputs Outputs Tools & Techniques Project Management Plan Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control
  11. 11. Information Gathering Techniques <ul><li>Brainstorming </li></ul><ul><li>Delphi technique </li></ul><ul><ul><li>Successive anonymous questionnaires on project risks with responses summarized for further analysis </li></ul></ul><ul><li>Interviewing </li></ul><ul><li>Root cause identification </li></ul><ul><li>Strengths, weaknesses, opportunities, and threats (SWOT) analysis </li></ul>
  12. 12. Diagramming Techniques <ul><li>Cause and Effect Diagrams </li></ul><ul><ul><li>Also known as Ishikawa or fishbone </li></ul></ul>Product Delivered Late Bad Specs Insufficient Resources Inadequate Time Project Prioritization Testing Materials Potential Causes Effect Personnel
  13. 13. Risk Register <ul><li>List of </li></ul><ul><ul><li>Identified risks </li></ul></ul><ul><ul><li>Potential responses </li></ul></ul><ul><ul><li>Root causes </li></ul></ul><ul><li>Updated risk categories (if required) </li></ul>
  14. 14. Risk Management Planning Risk Management Plan Organizational Process Assets Project Scope Statement Risk Register Risk Register (UPDATED) <ul><li>Risk probability and impact statement </li></ul><ul><li>Probability and impact matrix </li></ul><ul><li>Risk data quality assessment </li></ul><ul><li>Risk categorization </li></ul><ul><li>Risk urgency assessment </li></ul>Inputs Outputs Tools & Techniques Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control
  15. 15. Methodologies <ul><li>Probability and Impact Matrix </li></ul><ul><ul><li>Based on Failure Modes and Effects Analysis (FMEA) </li></ul></ul><ul><ul><li>From 1950’s analysis of military systems </li></ul></ul>
  16. 16. Probability and Impact Matrix <ul><li>Define Probability Scale & Impact Scale </li></ul>Probability Scale Impact Scale >10% chance of occurrence Expected (E) 1 - 10% chance of occurrence High (H) 0.1 - 1% chance of occurrence Moderate (M) 0.01 - 0.1% chance of occurrence Low (L) <0.01% chance of occurrence Not Likely (NL) Likelihood of Occurrence (events/year) Likelihood Class No concern Negligible First aid required; or small risk of serious injury Low Lost time or injury likely; or some potential for serious injuries; or small risk of fatality Moderate Severe injury or disability likely; or some potential for fatality High Fatality or multiple fatalities expected Extreme Health and Safety Consequence
  17. 17. Probability and Impact Plots <ul><li>Rate each risk on scales then plot on matrix </li></ul><ul><li>Develop mitigation technique for risks above tolerance </li></ul>
  18. 18. Risk Register Update <ul><li>Add </li></ul><ul><ul><li>Probability and Impact Matrix results </li></ul></ul><ul><ul><li>Perform quality check on results </li></ul></ul><ul><ul><li>Categorize the risks to make them easier to handle </li></ul></ul><ul><ul><li>Perform urgency assessment to determine which risk need immediate attention </li></ul></ul>
  19. 19. Risk Register
  20. 20. Quantitative Risk Analysis Risk Management Plan Organizational Process Assets Project Scope Statement Risk Register Risk Register (UPDATED) <ul><li>Data gathering </li></ul><ul><li>Quantitative risk analysis and modeling </li></ul>Inputs Outputs Tools & Techniques Project Management Plan (Schedule & Cost Plans) Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control
  21. 21. Quantitative Risk Analysis <ul><li>Analyze numerically the probability and consequence of each risk </li></ul><ul><li>Monte Carlo analysis popular </li></ul><ul><li>Decision Tree analysis on test </li></ul><ul><ul><li>Diagram that describes a decision and probabilities associated with the choices </li></ul></ul><ul><li>Expected Monetary Value Analysis (EMV) </li></ul>
  22. 22. Expected Monetary Value (EMV) $243K Expected Value $100K 0.3 $300K Pessimistic Outcome $113K 0.5 $225K Likely Outcome $30K 0.2 $150K Optimistic Outcome Probability Building Cost
  23. 23. Decision Tree Analysis Decision Definition Decision Node Chance Node Net Path Value EMV of New Bldg Node = $41.5! EMV of Upgrade Node = $49! Build or Upgrade Plant New Plant -$120 Upgrade Plant -$50 Strong Demand Weak Demand Strong Demand Weak Demand 65% $200 35% $90 65% $120 35% $60 $80 -$30 $70 $10
  24. 24. Risk Response Planning Risk Management Plan Risk Register Risk Register (UPDATED) <ul><li>Strategies for negative risks or threats </li></ul><ul><li>Strategies for positive risks or opportunities </li></ul><ul><li>Strategy for both threat and opportunity </li></ul><ul><li>Contingent response strategy </li></ul>Inputs Outputs Tools & Techniques Project Management Plan (UPDATE) Risk-related contractual agreements Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control
  25. 25. Strategies <ul><li>Negative Risks (or Threats) </li></ul><ul><ul><li>Avoid </li></ul></ul><ul><ul><li>Transfer </li></ul></ul><ul><ul><li>Mitigate </li></ul></ul><ul><ul><li>Acceptance </li></ul></ul><ul><li>Positive Risks (or Opportunities) </li></ul><ul><ul><li>Exploit </li></ul></ul><ul><ul><li>Share </li></ul></ul><ul><ul><li>Enhance </li></ul></ul><ul><ul><li>Acceptance </li></ul></ul>
  26. 26. Risk Monitoring and Control Approved Change Requests Risk Management Plan Risk Register Work Performance Information Risk Register (UPDATED) <ul><li>Risk reassessment </li></ul><ul><li>Risk audits </li></ul><ul><li>Variance and trend analysis </li></ul><ul><li>Technical performance measurement </li></ul><ul><li>Reserve analysis </li></ul><ul><li>Status meetings </li></ul>Inputs Outputs Tools & Techniques Performance Reports Requested Changes Recommended Corrective Actions Recommended Preventive Actions Org Process Assets (Update) Project Management Plan (Update) Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control
  27. 27. Risk Management Summary <ul><li>Risk Management Planning – New </li></ul><ul><li>Risk ID – Develop categories & types </li></ul><ul><li>Risk Qualitative – Probability & Impact Analysis </li></ul><ul><li>Risk Quantitative – Decision Tree, EMV, Monte Carlo </li></ul><ul><li>Risk Response – Mitigation & contingency plans </li></ul><ul><li>Risk Monitoring and Control – Recurring evaluations </li></ul>Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control

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