Five risk management rules for the project manager
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Five risk management rules for the project manager

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The top five risk management rules for the project manager

The top five risk management rules for the project manager

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Five risk management rules for the project manager Presentation Transcript

  • 1. Five rules for risk management A presentation Produced by Square Peg Consulting, LLC Orlando, Florida www.sqpegconsulting.com 1Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 2. What does PMBOK say about risk management?• Risk: Events or conditions with uncertain potential to impact project objectives• Risk management: Actions to minimize unfavorable impacts or maximize favorable possibilities 2 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 3. More than Chapter 11; More than the risk register• I want to forecast a risk (Chapter 11)• I want to take a risk (Decision policy and risk-adjusted process)• I want to be confident (Risk adjusted estimating paradigms)• I want to test my hypothesis (Risk adjusted reasoning paradigms) 3 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 4. Where’s the risk?• In the baseline: work estimates, project architecture, product architecture• Off the baseline: risk register possibilities• In the ether: stakeholders, regulators, users, customers• Friends and neighbors: portfolio and program dependencies• Among opportunities: Do this, or perhaps that ….• After it’s over: post-project adoption & support 4 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 5. 5 Rules: Begin with the end in mind1. There are no facts about the future: Facts are in the past; estimates, biases, and perception are the future2. Requirements (and tests) are never complete: No one can imagine everything3. Central tendency rules the metrics: Optimism and pessimism find a balance4. Merge bias dominates schedule risk: Confidence takes a hit when paths, work streams, or projects join5. If it’s mission critical, it often takes a model: PRA isn’t for everything 5 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 6. (Rule 1) There’s no objective estimate• Adjustment and Anchor bias: – Initial value sets anchor (Boss to Dilbert: I think it oughta cost …. ) – Anchor limits adjustment• Representative bias: – A is part of B, B caused by A, A will cause B – Because there’s progress now, there will be progress when …..• Availability: – Imaginable, retrievable comparisons, easily recalled – This is just like …… Amos Tversky and Daniel Kahneman: “Judgments under Uncertainty” 6 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 7. (Rule 1) Utility maps perceived reality• Utility maps reality to Hubris: This solves perception everything!• Hubris inflates estimated advantage and mitigating effects Utility value• Dread inflates expected impacts Objective value Dread: This is going to kill us! “Against the Gods” by Peter Bernstein 7 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 8. (Rule 1) Facts v. Future—Project balance sheet• Sponsors are more optimistic (under estimate resources)• Project managers are more pessimistic (over estimate risks) Value Risk gap Proposition for the Project Scope Time Resources Quality Management’s investment Project’s use of investment 8 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 9. (Rule 2) Requirements are never complete• Sampling errors in the V model Vision Strategy → goals Verify deliverablesSampled elicitation, Validateand elaboration design/development Iterate Requirements Correct Specification (Backlog) (refactor) errors 9 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 10. (Rule 3) Central tendency is smoothing• Asymmetrical extremes wash out• Pessimism and optimism balance Work package manager Project manager 10 Image: http://herdingcats.typepad.com/my_weblog/2011/05/deterministic-versus-probabilistic.html Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 11. (Rule 3) Antithesis to Central Tendency• Black swan: made famous by Nassim Taleb 12 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 12. (Rule 3) Extreme impact events• 3 rules of Black swans 1. An outlier, beyond realm of reasonable expectation, with nothing in the past to convincingly point to its possibility 2. Carries an extreme impact 3. After the fact, it’s “explainable” and “predictable”• 1% doctrine* – If the impact is extreme, no matter it’s probability, consider the event a certainty* Ron Suskind: “The One Percent Doctrine” 13 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 13. (Rule 4) Merge bias dominates schedule risk• Confidence degrades exponentially (geometrically) at joining paths Confidence: 80% ≤ 4 Before merge After merge Confidence: 64% ≤ 4 14 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 14. (Rule 4) Buffer to mitigate merge bias• Akin to Critical Chain method * Plan slack (buffer) in one path Eliyahu Goldratt: “Critical Chain” 15 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 15. Rule 5: It often takes a model• Probabilistic risk analysis (PRA) of large number of conjunctive constituents may be meaningless (everything has to work = success)• Model behavior, failures, and safety – Confirming (prediction & control)* – Exploratory (insight & understanding)* *Steve Phelan, The Interaction of complexity and management 16 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 16. Rule 5: Three common models1. FMEA: Failure Mode and Effects Analysis** – MilStd 1629, NASA, Others2. FTA: Fault tree analysis – Bell Telephone, Boeing, others3. Event trees; Event Logic Diagrams ** Also: FMECA, Failure Mode Effects and Criticality Analysis 17 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 17. Rule 5: FMEA is inductiveInductive: Observations Cause 18Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 18. Rule 5: FMEA Example• How would you control the loss of a nail ? 19 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 19. The author of this seminarJohn C Goodpasture, PMPProgram manager, author, coach,and instructor• PMI eSeminarsWorldsm instructor for Advanced Risk Management, and Agile Project Management• Project coach in Europe, Asia, and the United StatesPortfolio manager and business unitleader• Operations and IT professional• System engineer in the Department of Defense and the aerospace industry info@sqpegconsulting.com johngoodpasture.com 20 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 20. Read more …..• “PMBOK Risk Management Practice Standard”• “Black Swan” by Nassim Taleb• “Against the Gods” by Peter Bernstein• “Judgments under Uncertainty” by Amos Tversky and Daniel Kahneman• Probability and statistics online: Khan Academy videos (khanacademy.org)• Schedule risk analysis by David Hulett (projectrisk.com)• FMEA NASA Practice Standard, DoD MilStd 1629• Project balance sheet (http://www.slideshare.net/jgoodpas/the-project-balance-sheet)• “The Flaw of Averages” by Sam Savage 21 Copyright 2011 Square Peg Consultiing, All Rights Reserved
  • 21. All done and ready for questions! 22Copyright 2011 Square Peg Consultiing, All Rights Reserved