Lessons in Project Management - 4 - Risk Management

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Lessons in Project Management - 4 - Risk Management

  1. 1. International Project Management Prof. Dr. Frank Habermann Lecture 4 – Identifying and Handling Project Risks
  2. 2. © Becota GmbH | www.becota.com | 2010  Which kinds of risk would you take?  What actually is a risk?  The process of risk management – Identifying – Prioritizing – Responding  When does risk management have to happen? Content
  3. 3. © Becota | www.becota.com | 2010 No risk, no fun? http://www.hosae.ch/blog/wp-content/uploads/2009/08/Desktop-Hintergrund.bmp
  4. 4. © Becota | www.becota.com | 2010 Would you take the … Picture source: http://monkeysjumping.com/wealthy-baker/
  5. 5. © Becota | www.becota.com | 2010 Would you climb a montain? Picture source: http://www.vorsorgefachmann.info/images/risiko.png
  6. 6. © Becota | www.becota.com | 2010 Would you ride a motorbike?
  7. 7. © Becota | www.becota.com | 2010 Would you dive with a shark? Picture source: National Geographic, Photo by David Doubilet
  8. 8. © Becota | www.becota.com | 2010 Would you tease an alligator? Picture source; pix.motivatedphotos.com/2009/4/9/
  9. 9. © Becota | www.becota.com | 2010 Would you jump? Picture source: http://farm4.static.flickr.com/3306/3298473550_a9fa13ea33_o.jpg
  10. 10. © Becota | www.becota.com | 2010 With our without risk management? Without With Picture source: adapted from www.mattwardman.com/blog/ Gerald preferred the latter!
  11. 11. © Becota | www.becota.com | 2010 what actually is a risk?
  12. 12. © Becota | www.becota.com | 2010 What is a risk? Picture source: www.iamthewitness.com/books/img/Benjamin.Franklin.jpg “The only thing certain in life is death and taxes” (Benjamin Franklin)
  13. 13. © Becota GmbH | www.becota.com | 2010 What is a project risk?  Life is riskful! Illness Accidents Crime Loss etc. R R R LIFE
  14. 14. © Becota GmbH | www.becota.com | 2010 What is a project risk?  Life is riskful!  Business is riskful! -> it‘s just a special part of life with particular risks R R R R R LIFE BUSINESS
  15. 15. © Becota GmbH | www.becota.com | 2010 What is a project risk?  Life is riskful!  Business is riskful!  Business projects are riskful! R R R R R R R LIFE BUSINESS PROJECT
  16. 16. © Becota GmbH | www.becota.com | 2010 What is a project risk?  Life is riskful!  Business is riskful!  Business projects are riskful! Projects have to cope with general risks (of life and business) as well as with project-specific risks R R R R R R R LIFE BUSINESS exogenous project risks endogenous project risks PROJECT
  17. 17. © Becota | www.becota.com | 2010 and what is project risk management ?
  18. 18. © Becota | www.becota.com | 2010 Mastering the „what happens next“ machine Source: www.youtube.com/watch?v=cog2a3YeDMM
  19. 19. © Becota | www.becota.com | 2010 Project risk management is systematically dealing with project risks Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg
  20. 20. © Becota | www.becota.com | 2010 Project risk management is systematically dealing with project risks find likely events and their potential impacts Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg IDENTIFY
  21. 21. © Becota | www.becota.com | 2010 Project risk management is systematically dealing with project risks find likely events and their potential impacts Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg analyze probability of events and severity of potential damage IDENTIFY PRIORITIZE
  22. 22. © Becota | www.becota.com | 2010 Project risk management is systematically dealing with project risks find likely events and their potential impacts Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg analyze probability of events and severity of potential damage develope scenario /action plans establish reserves and monitor IDENTIFY PRIORITIZE RESPOND
  23. 23. © Becota GmbH | www.becota.com | 2010 We differentiate two major types of risks IDENTIFY PRIORITIZE RESPOND
  24. 24. © Becota GmbH | www.becota.com | 2010  KNOWN-UNKNOWNS – Something we know EXISTS but we don‘t know when it will happen and how severe the consequences will be We differentiate two major types of risks IDENTIFY PRIORITIZE RESPOND
  25. 25. © Becota GmbH | www.becota.com | 2010  KNOWN-UNKNOWNS – Something we know EXISTS but we don‘t know when it will happen and how severe the consequences will be We differentiate two major types of risks IDENTIFY PRIORITIZE RESPOND
  26. 26. © Becota GmbH | www.becota.com | 2010  KNOWN-UNKNOWNS – Something we know EXISTS but we don‘t know when it will happen and how severe the consequences will be  UNKNOWN-UNKNOWNS – Something which has NEVER HAPPENED before and thus cannot be anticipated, neither qualitatively nor quantitatively We differentiate two major types of risks IDENTIFY PRIORITIZE RESPOND
  27. 27. © Becota GmbH | www.becota.com | 2010 What are the sources of risks? IDENTIFY PRIORITIZE RESPOND Remember lecture#2: project stakeholders, team and environment Remember lecture#3: scoping and contracting Remember endogenous and exogenous risks
  28. 28. © Becota GmbH | www.becota.com | 2010 What are the sources of risks? IDENTIFY PRIORITIZE RESPOND Remember lecture#2: project stakeholders, team and environment Remember lecture#3: scoping and contracting Remember endogenous and exogenous risks Initial checklist for risk management: - Do you know all major stakeholders? - Particularly, do you know your customer(s)? - Have you organized senior management support? - Are there significant conflicts you are aware of? - Are all requirements and goals clearly defined? - Is the project scope realistic and managable? - Do you have a clear contract undersigned? - Are all agreed resources in place?
  29. 29. © Becota GmbH | www.becota.com | 2010 What are the sources of risks? IDENTIFY PRIORITIZE RESPOND Remember lecture#2: project stakeholders, team and environment Remember lecture#3: scoping and contracting Remember endogenous and exogenous risks Initial checklist for risk management: - Do you know all major stakeholders? - Particularly, do you know your customer(s)? - Have you organized senior management support? - Are there significant conflicts you are aware of? - Are all requirements and goals clearly defined? - Is the project scope realistic and managable? - Do you have a clear contract undersigned? - Are all agreed resources in place? As long as you answer with a single „no“ or „not sure“, you better not start the project!
  30. 30. © Becota | www.becota.com | 2010 All fields of expertise are sources of risks IDENTIFY PRIORITIZE RESPOND Management risks Social risks Domain-specific risks Environmental risks RISK PROFILE
  31. 31. © Becota | www.becota.com | 2010 All fields of expertise are sources of risks IDENTIFY PRIORITIZE RESPOND Management risks Social risks Domain-specific risks Environmental risks RISK PROFILE Budget Schedule Org. Structure Methods & Tools etc. Team Motivation Communication Trust etc. Region Industry Technology Standards etc. Culture Politics Economy Corporation etc.
  32. 32. © Becota GmbH | www.becota.com | 2010  Distributed teams  Various languages  Different measures  Different technical standards  Reliability of infrastructure (technology, transport, etc.)  Ethnical and religious differences  Social violence and instability  Prejudice and nationalism  Different business practices and rules  Different feeling for time and punctuality  Different attitude towards risk in general  Divergent competency profiles and certificates  Government involvement and control  Legal basis (multiple national laws)  Different currencies, levies, and taxes  Intellectual property rights  Corruption  Environmental safety  Climate Sources of risks which are immanent to international projects IDENTIFY PRIORITIZE RESPOND
  33. 33. © Becota | www.becota.com | 2010 Methods for identifying risks IDENTIFY PRIORITIZE RESPOND
  34. 34. © Becota | www.becota.com | 2010 Methods for identifying risks IDENTIFY PRIORITIZE RESPOND THINK (ALONE) Look for risk sources Identify crucial stakeholders Develop risk categories / profiles Prepare interviews
  35. 35. © Becota | www.becota.com | 2010 Example risk profile questions Source: Verzuh, E., The Fast Forward MBA in Project Management, p. 102
  36. 36. © Becota | www.becota.com | 2010 Methods for identifying risks IDENTIFY PRIORITIZE RESPOND THINK (ALONE) INTERVIEW OTHERS (1:1) Q A Consult the key stakeholders Verify relevance /completeness Identify further interviewees Summarize results
  37. 37. © Becota | www.becota.com | 2010 Methods for identifying risks IDENTIFY PRIORITIZE RESPOND THINK (ALONE) INTERVIEW OTHERS (1:1) Q A ORGANIZE WORKSHOPS Connect people Discuss multiple perspectives Identify individual risk events Find a common understanding
  38. 38. © Becota | www.becota.com | 2010 Now that you‘ve spotted a risk – how dangerous is it? IDENTIFY PRIORITIZE RESPOND
  39. 39. © Becota | www.becota.com | 2010 Now that you‘ve spotted a risk – how dangerous is it? IDENTIFY PRIORITIZE RESPOND Picture source: www.dirjournal.com
  40. 40. © Becota | www.becota.com | 2010 The IPRA* matrix for analyzing risks IDENTIFY PRIORITIZE RESPOND Probability (likelyhood of occurence of the event) Impact (severity of the damage) low risk high risk *IPRA = International Project Risk Assessment
  41. 41. © Becota | www.becota.com | 2010 The IPRA matrix for analyzing risks IDENTIFY PRIORITIZE RESPOND Probability (likelyhood of occurence of the event) Impact (severity of the damage) You can work with a scaled approach (here 3 categories)! low medium high low medium high
  42. 42. © Becota | www.becota.com | 2010 The IPRA matrix for analyzing risks IDENTIFY PRIORITIZE RESPOND Probability (likelyhood of occurence of the event) Impact (severity of the damage) 1 3 5 3 9 15 5 15 25 You can even apply weights and quantify risks low medium high low medium high
  43. 43. © Becota | www.becota.com | 2010 Example risk analysis Source: Verzuh, E., The Fast Forward MBA in Project Management, p. 106 IDENTIFY PRIORITIZE RESPOND
  44. 44. © Becota | www.becota.com | 2010 Now that you know the risk … what will you do? IDENTIFY PRIORITIZE RESPOND
  45. 45. © Becota | www.becota.com | 2010 Now that you know the risk … what will you do? IDENTIFY PRIORITIZE RESPOND Picture source: http://i.dailymail.co.uk/i/pix/2010/01/07/
  46. 46. © Becota | www.becota.com | 2010 Your attitude determines your action IDENTIFY PRIORITIZE RESPOND Whatever I do, I will always survive! Picture sources: www.beaconmultimedia.com/images
  47. 47. © Becota | www.becota.com | 2010 Your attitude determines your action IDENTIFY PRIORITIZE RESPOND Whatever I do, I will always survive! Whatever I do, This project will kill us! Picture sources: www.beaconmultimedia.com/images http://revnyou.files.wordpress.com/2008/11/
  48. 48. © Becota | www.becota.com | 2010 thinking in worst-scenarios ignoring chances neither efficient nor effective thinking in best-scenarios ignoring risks naive and/or irresponsible Your attitude determines your action IDENTIFY PRIORITIZE RESPOND Picture sources: www.beaconmultimedia.com/images http://revnyou.files.wordpress.com/2008/11/ too optimistic too pessimistic
  49. 49. © Becota | www.becota.com | 2010 thinking in worst-scenarios ignoring chances neither efficient nor effective thinking in best-scenarios ignoring risks naive and/or irresponsible Your attitude determines your action IDENTIFY PRIORITIZE RESPOND Picture sources: www.beaconmultimedia.com/images http://revnyou.files.wordpress.com/2008/11/ too optimistic too pessimistic be REALISTIC CONFIDENT MEASURED
  50. 50. © Becota GmbH | www.becota.com | 2010 TO BE KEPT IN MIND: Sometimes financial interests are stronger than honest risk assessment, particularly in politics, i.e. big money determines action, e.g. - Genetic research - Nuclear energy - Global warming, etc. In other cases people are guided by strong social, cultural and other values, e.g. - Daily routines and work habits - Equal rights for men and women, etc. … and what determines our attitude? IDENTIFY PRIORITIZE RESPOND
  51. 51. © Becota | www.becota.com | 2010 Major strategies of responding to risk Picture source: http://wilderdom.com/images/RiskPeanuts2.jpg
  52. 52. © Becota | www.becota.com | 2010 Five major response strategies 1- Accept IDENTIFY PRIORITIZE RESPOND Understand the risk but take no preparations React, if it occurs (if costs are small, solve the problem) Alternatively, just live with the damage Applicable only for minor risks! http://www.onlinemalerei.de/scherbenhaufen3.jpg
  53. 53. © Becota | www.becota.com | 2010 Five major response strategies 2- Exclude IDENTIFY PRIORITIZE RESPOND Avoid major risks by excluding those from your project Hand the riskful task over to another project Has to happen in the scoping phase Down-scaling a project has limitations! http://www.allseasonstentrental.com/fence.jpg
  54. 54. © Becota | www.becota.com | 2010 Discussion: What are the limits of down-scaling your project? Picture source: http://wilderdom.com/images/RiskNotTakingRisksCartoon.jpg „We‘ve considered every potential risk except the risk of avoiding all risks“
  55. 55. © Becota | www.becota.com | 2010 Five major response strategies 3- Transfer IDENTIFY PRIORITIZE RESPOND Externalize responsibility for potential damages by purchasing insurance, external consultants/experts, etc. Hiring externals has it‘s own risks (legal stuff, liability, etc.) Transferring risks is expensive! http://pmstudent.com/wp-content/uploads/hand-over-keys.jpg
  56. 56. © Becota | www.becota.com | 2010 Five major response strategies 4- Prepare alternative action IDENTIFY PRIORITIZE RESPOND Consider alternative courses and remedy Have a plan B for important risks (contingency plan) Install project buffer (extra time and money) Continuously monitor the project‘s main risks! Picture source: http://picture.funnycorner.net/funny-pictures/5179/In-case-of-fire.jpg
  57. 57. © Becota | www.becota.com | 2010 Five major response strategies 5- Mitigate IDENTIFY PRIORITIZE RESPOND Any feasible action to minimize or eliminate the risk, intensively involving all available technological, human and organizational resources Reasonable for highly critical solutions! Picture source: http://desktopwallpaper-s.com/wallpapers/19/Rain_Umbrellas.jpg
  58. 58. © Becota | www.becota.com | 2010 When does risk management have to happen?
  59. 59. © Becota | www.becota.com | 2010 Risk management takes place during the entire projectRISKMANAGEMENTEFFORT TIME Pre-Project Main Project
  60. 60. © Becota | www.becota.com | 2010 Risk management takes place during the entire projectRISKMANAGEMENTEFFORT TIME Pre-Project Main Project Kick-off Plan approved Testing/Piloting completed 3 crucial situations (points of no return … -> or „expensive“ return)
  61. 61. © Becota | www.becota.com | 2010 Risk management takes place during the entire projectRISKMANAGEMENTEFFORT TIME Pre-Project Main Project Kick-off Testing/Piloting completed Plan approved
  62. 62. © Becota | www.becota.com | 2010 Risk management takes place during the entire projectRISKMANAGEMENTEFFORT TIME Pre-Project Main Project Kick-off Testing/Piloting completed continuous project risk management extra effort (planning) extra effort (releasing) extra effort (shaping the business case) Plan approved
  63. 63. © Becota | www.becota.com | 2010 Why do we spend these extra efforts? COST/EFFORT TIME Crucial decision („point of no return“) effort put in risk management Cost of changes / corrections
  64. 64. © Becota GmbH | www.becota.com | 2010 Estimating means forecasting the project future (time & money) „Projects are unique – uniqueness means entering unknown fields“ Questions you should ask yourself:  Do you, as the project manager, know all the team members?  Have you worked with them before?  Do they know each other and have they worked together before?  Which project risks have you identified and to which extent do these risks impact your estimates regarding project time and resources?
  65. 65. © Becota | www.becota.com | 2010 Over the time estimating becomes easier … TIME Pre-Project Main Project KNOWLDGE GAINED
  66. 66. © Becota | www.becota.com | 2010 Over the time estimating becomes easier … TIME Pre-Project Main Project KNOWLDGE GAINED ballpark figures
  67. 67. © Becota | www.becota.com | 2010 Over the time estimating becomes easier … TIME Pre-Project Main Project KNOWLDGE GAINEDRFI/RFP figures ballpark figures
  68. 68. © Becota | www.becota.com | 2010 Over the time estimating becomes easier … TIME Pre-Project Main Project KNOWLDGE GAINED Planning details ballpark figures RFI/RFP figures
  69. 69. © Becota | www.becota.com | 2010 Finally, even risk management is riskful… Picture source: http://wilderdom.com/images/RiskSharpEdgesSign.jpg
  70. 70. © Becota | www.becota.com | 2010 … but your project is your baby … and timely precautions are better than late therapies Picture source: www.siloah.de/siloah/content/kliniken_und_institute/frauenklinik/
  71. 71. Thank you very much! presentation by Frank Habermann founder of Becota and Professor of Business http://de.linkedin.com/in/frankhabermann/en
  72. 72. If you have enjoyed this presentation, please let us know! You can download this file from the Berlin Consulting Forum -> join the forum at http://consultingforum.becota.org -> visit our corporate website at http://www.becota.com

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