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  1. 1. Project Risk Management Louis Fussell Used with permission
  2. 2. Course Content <ul><li>Risk Management Overview </li></ul><ul><li>Risk-Informed Decision Making </li></ul><ul><ul><li>Identification of Alternatives </li></ul></ul><ul><ul><li>Risk Analysis of Alternatives </li></ul></ul><ul><ul><li>Risk-Informed Alternative Selection </li></ul></ul><ul><li>Continuous Risk Management </li></ul><ul><ul><li>Identify </li></ul></ul><ul><ul><li>Analyze </li></ul></ul><ul><ul><li>Plan </li></ul></ul><ul><ul><li>Track </li></ul></ul><ul><ul><li>Control </li></ul></ul><ul><ul><li>Communicate and Document </li></ul></ul>
  3. 3. Source of Course Material <ul><li>NPR 8000.4A - Agency Risk Management Procedural Requirements </li></ul><ul><li>NASA/SP-2010-576 – Risk-Informed Decision Making Handbook </li></ul><ul><li>NASA/SP-2007-6105 – NASA Systems Engineering Handbook </li></ul><ul><li>Probabilistic Risk Assessment Procedures Guide for NASA Managers and Practitioners </li></ul><ul><li>NPR 7123.1A, NASA Systems Engineering Processes and Requirements </li></ul><ul><li>NASA/SP-2007-6105, NASA Systems Engineering Handbook </li></ul><ul><li>2008 NASA Cost Estimating Handbook </li></ul><ul><li>NASA-STD-7009, Standard for Models and Simulations </li></ul><ul><li>SEI’s Continuous Risk Management Guidebook </li></ul>
  4. 4. Risk Management Overview
  5. 5. Definition of Risk <ul><li>Risk is the potential for performance shortfalls , which may be realized in the future, with respect to achieving explicitly established and stated performance requirements . </li></ul><ul><li>Performance shortfalls may be related to institutional support for mission execution or related to any one or more of the following mission execution domains: </li></ul><ul><ul><li>Safety (e.g., avoidance of injury, fatality, or destruction of key assets) </li></ul></ul><ul><ul><li>Technical (e.g., thrust or output, amount of observational data acquired) </li></ul></ul><ul><ul><li>Cost (e.g., execution within allocated cost) </li></ul></ul><ul><ul><li>Schedule (e.g., meeting milestones) </li></ul></ul>
  6. 6. Operational Definition: Risk is a Set of Triplets <ul><li>Likelihood </li></ul>Consequence Qualitative or Quantitative Qualitative or Quantitative Risk = (Scenario, Likelihood, Consequence) Scenario Includes Evaluation of Uncertainties
  7. 7. Risk Management is the Integration of Two Complementary Processes <ul><li>Risk-informed Decision Making (RIDM) </li></ul><ul><ul><li>To inform decision making through better use of risk information in establishing baseline performance requirements for program/projects and mission support organizations </li></ul></ul><ul><li>Continuous Risk Management (CRM) </li></ul><ul><ul><li>To manage risk associated with the implementation of baseline performance requirement </li></ul></ul>
  8. 8. Risk-Informed Decision Making <ul><li>Utilizes a diverse set of performance measures along with other considerations within a deliberative process to inform decision making. </li></ul><ul><ul><li>“ Risk-informed” and not “risk-based” </li></ul></ul><ul><li>Performance measures are situation-specific, and address programmatic and technical objectives </li></ul><ul><li>An alternative is selected for implementation through the RIDM process based on the performance measures </li></ul>
  9. 9. Risk-Informed Decision Making Process <ul><li>Identification of decision alternatives ( decision context ) and considering a sufficient number and diversity of Performance Measures to constitute a comprehensive set for decision-making purposes </li></ul><ul><li>Risk analysis of decision alternatives is defined broadly in NPR 8000.4A as uncertainty analysis of performance associated with the alternative </li></ul><ul><li>Selection of a decision alternative informed by (not solely based on) Risk Analysis results </li></ul>Identification of Alternatives Identify Decision Alternatives (Recognizing Opportunities) in the Context of Objectives Risk Analysis of Alternatives Risk Analysis (Integrated Perspective) and Development of the Technical Basis for Deliberation Risk-Informed Alternative Selection Deliberate and Select an Alternative and Associated Performance Commitments Informed by (not solely based on) Risk Analysis To Requirements Baselining Risk-Informed Decision Making
  10. 10. NASA’s Continuous Risk Management Process <ul><li>Developed in collaboration with DoD and Software Engineering Institute </li></ul><ul><li>It provides a disciplined environment for proactive decision making to: </li></ul><ul><ul><li>Assess continually what could go wrong (risks) </li></ul></ul><ul><ul><li>Determine which risks are important to deal with </li></ul></ul><ul><ul><li>Implement action plans to deal with those risks </li></ul></ul><ul><ul><li>Assure, measure effectiveness of the implemented action plans </li></ul></ul>
  11. 11. Risk Management in the Context of Agency Decision Making Strategic Goals Decompose Objectives into Imposed Constraints and Performance Measures ARCHITECTURE ALTERNATIVES SYSTEM ALTERNATIVES Program Requirements Project Requirements Risks to Reqs Risks to Reqs Reassess Alternatives or Rebaseline Reqs Reassess Alternatives or Rebaseline Reqs SUBSYSTEM ALTERNATIVES Subsystem Requirements Risks to Reqs Reassess Alternatives or Rebaseline Reqs CRM CRM CRM
  12. 12. Performance Requirements & Performance Measures Priorities Set Top-Down Requirements Flow Top-Down Risk Reported Bottom-Up Decisions Elevated Bottom-Up
  13. 13. Risk-Informed Decision Making (RIDM)
  14. 14. Risk-Informed Decision Making <ul><li>The RIDM Process is divided into three Parts: </li></ul><ul><ul><li>Part 1 – Identification of Alternatives </li></ul></ul><ul><ul><li>Part 2 – Risk Analysis of Alternatives </li></ul></ul><ul><ul><li>Part 3 – Risk-Informed Alternative Selection </li></ul></ul><ul><li>Parts are divided into several steps </li></ul><ul><ul><li>Course addresses each step sequentially </li></ul></ul><ul><li>In practice, the RIDM process can be highly iterative </li></ul>Identification of Alternatives Step 1 – Understand Stakeholder Expectations and Derive Performance Measures from Objectives Step 2 – Compile Feasible Alternatives Risk Analysis of Alternatives Step 3 – Set the Framework and Choose the Analysis Methodologies Step 4 – Conduct the Risk Assessment and Document the Results Risk-Informed Alternative Selection Step 5 – Develop Risk Normalized Performance Commitments Step 6 – Deliberate, Select and Alternative, and Document the Decision Rationale To Requirements Baselining Risk-Informed Decision Making
  15. 15. Identification of Alternatives Overview Identification of Stakeholders Upper Level Requirements & Specifications Identification of Alternatives Step 1 – Understand Stakeholder Expectations and Derive Performance Measures from Objectives Step 2 – Compile Feasible Alternatives Requirements & Expectations Concept of Operations Performance Measures List of Alternatives
  16. 16. Performance Measures Example
  17. 17. <ul><li>Three divisions </li></ul><ul><ul><li>Orbit Insertion Package </li></ul></ul><ul><ul><ul><li>Propulsive </li></ul></ul></ul><ul><ul><ul><li>Aerobraking </li></ul></ul></ul><ul><ul><li>Science Package </li></ul></ul><ul><ul><ul><li>Low Fidelity </li></ul></ul></ul><ul><ul><ul><li>High Fidelity </li></ul></ul></ul><ul><ul><li>Launch Vehicle </li></ul></ul><ul><ul><ul><li>Small </li></ul></ul></ul><ul><ul><ul><li>Medium </li></ul></ul></ul><ul><ul><ul><li>Large </li></ul></ul></ul><ul><li>Alternatives are pruned </li></ul>Feasible Alternatives Trade Tree Example
  18. 18. Identification of Alternatives Overview Performance Measures List of Alternatives Risk Analysis of Alternatives Step 3 – Set the Framework and Choose the Analysis Methodologies Step 4 – Conduct the Risk Assessment and Document the Results Analysis Methodology Analysis of Performance Measures Performance Commitments Analysis Documentation
  19. 19. Set the Framework <ul><li>Key elements of the risk analysis framework </li></ul><ul><ul><li>Quantifies the performance measures </li></ul></ul><ul><ul><ul><li>Natural, Constructed, or Proxy </li></ul></ul></ul><ul><ul><ul><li>Point estimates or distribution functions </li></ul></ul></ul><ul><ul><li>Integrates the performance assessments </li></ul></ul><ul><ul><ul><li>Numerically </li></ul></ul></ul><ul><ul><ul><li>Graphically </li></ul></ul></ul><ul><li>Framework challenges </li></ul><ul><ul><li>Applicable to each alternative </li></ul></ul><ul><ul><li>Consistently addresses uncertainties </li></ul></ul><ul><ul><li>Preserves correlation between performance measures </li></ul></ul><ul><ul><ul><li>Higher Fidelity => Longer Schedules => Higher Costs </li></ul></ul></ul><ul><ul><li>Is transparent, traceable, and configuration managed </li></ul></ul>
  20. 20. Analysis of Performance Measures <ul><li>Often performance measure values are uncertain </li></ul><ul><ul><li>Modeled using probability distribution functions </li></ul></ul><ul><li>Cannot simply add distributions together </li></ul><ul><ul><li>Must consider probability distribution parameters </li></ul></ul><ul><ul><li>Must consider correlation between performance measures </li></ul></ul><ul><li>Integrating accomplished through Monte Carlo analysis </li></ul>? = PM 2 PM 2 PM 3 PM 4 + + +
  21. 21. Develop the Technical Basis for Deliberation <ul><li>The Technical Basis for Deliberation (TBfD) contains the information needed to risk-inform the selection of a decision alternative. </li></ul><ul><ul><li>A statement of the top-level objectives and imposed constraints </li></ul></ul><ul><ul><li>The objectives hierarchy and performance measures </li></ul></ul><ul><ul><li>A summary description of the compiled decision alternatives, indicating pruned alternatives </li></ul></ul><ul><ul><li>A summary of the risk analysis framework and models </li></ul></ul><ul><ul><li>Scenario descriptions </li></ul></ul><ul><ul><li>Marginal performance measure pdfs and a summary of significant correlations </li></ul></ul><ul><ul><li>A tabulation of risk with respect to imposed constraints </li></ul></ul><ul><ul><li>Identification of significant risk drivers with respect to imposed constraints </li></ul></ul><ul><ul><li>Candidate performance measure risk tolerances </li></ul></ul>
  22. 22. Identification of Alternatives Overview List of Alternatives Technical Basis for Deliberation Risk-Informed Alternative Selection Step 5 – Develop Risk Normalized Performance Commitments Step 6 – Deliberate, Select and Alternative, and Document the Decision Rationale Decision Decision Rationale Risk-Informed Selection Report
  23. 23. Performance Commitments for Imposed Constraints <ul><li>Some performance measures have imposed constraints </li></ul><ul><ul><li>Performance measures must remain within desired limits </li></ul></ul><ul><ul><li>This imposed constraint is the performance commitment </li></ul></ul><ul><ul><li>For example, spacecraft mass must be within launch vehicle capability </li></ul></ul><ul><li>Performance measures for alternatives can be compared based on probability that imposed constraint will not be met </li></ul><ul><li>Difficult to choose when probability distribution functions overlap </li></ul><ul><ul><li>More analysis may be required to reduce uncertainty </li></ul></ul>
  24. 24. Performance Commitments for Non-Imposed Constraints <ul><li>Many performance measure do not have imposed constraints </li></ul><ul><ul><li>Risk analysis can help determine performance commitments </li></ul></ul><ul><li>Determining a risk-normalized performance commitment </li></ul><ul><ul><li>Determine probability distribution function of performance measure for each alternative </li></ul></ul><ul><ul><li>Obtain risk tolerance as a probability of failure from decision maker </li></ul></ul><ul><ul><li>Value of performance measure at the given risk tolerance is obtained from the probability distribution </li></ul></ul><ul><ul><li>This value is the risk-normalized performance commitment for that performance measure </li></ul></ul><ul><ul><ul><li>Value is different for each alternative, but risk tolerance is the same </li></ul></ul></ul>0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
  25. 25. Deliberation <ul><li>Deliberate contending alternatives are those remaining after pruning </li></ul><ul><ul><li>May be iterative process </li></ul></ul><ul><li>Rationales for elimination of non-contending alternatives include: </li></ul><ul><ul><li>Infeasibility – Imposed constraints cannot be met within the risk tolerance of the decision maker </li></ul></ul><ul><ul><li>Dominance – Other alternatives exist that have superior candidate performance commitments on every performance measure </li></ul></ul><ul><ul><li>Inferior Performance in Key Areas – Alternatives that are markedly inferior in terms of their candidate performance commitments in key areas can be eliminated on that basis </li></ul></ul><ul><li>Also consider potential for exceptionally high or poor performance </li></ul><ul><ul><li>Reflecting stakeholder and decision-maker risk attitudes </li></ul></ul>
  26. 26. Continuous Risk Management (CRM)
  27. 27. Continuous Risk Management <ul><li>Six process steps </li></ul><ul><ul><li>Identify </li></ul></ul><ul><ul><li>Analyze </li></ul></ul><ul><ul><li>Plan </li></ul></ul><ul><ul><li>Track </li></ul></ul><ul><ul><li>Control </li></ul></ul><ul><ul><li>Communicate & Document </li></ul></ul>
  28. 28. Risk Identification Activities Overview <ul><li>Identify </li></ul><ul><li>Capture statement of risk </li></ul><ul><li>Capture context of risk </li></ul>Statement of Risk Context List of Risks __________ __________ __________ __________ Group/team Uncertainties Problems, Issues, and Uncertainties Project Data
  29. 29. Components of a Risk Statement <ul><li>Condition: a single phrase briefly describing current key events, circumstances, situations, etc. that are causing concern, doubt, anxiety, or uncertainty </li></ul><ul><li>Deviation: a single phrase that describes a possible change from a baseline plan </li></ul><ul><li>Asset: an element of the organizational or system element </li></ul><ul><li>Consequence: a single phrase or sentence that describes the adverse event and negative outcomes </li></ul>Condition Deviation there is a possibility of Given the adversely impacting Asset thereby leading to Impact
  30. 30. Example Risk Statement <ul><li>Given that development of the spacecraft requires some as yet unavailable new technology and long-lead time components </li></ul><ul><li>there is a possibility of components will not being ready in time , </li></ul><ul><li>adversely impacting spacecraft development </li></ul><ul><li>thereby leading to a launch slip </li></ul>
  31. 31. Risk Analysis Activities Overview Master List of Risks ________________ ________________ ________________ ________________ Top N Risk Risk Risk Risk Risk Risk Class 3 Risk Class 1 Class 2 <ul><li>Analyze </li></ul><ul><li>Evaluate </li></ul><ul><li>Classify </li></ul><ul><li>Prioritize </li></ul>List of Risks __________ __________ __________ __________ Classification Statement of Risk Context Likelihood Consequence Timeframe Classification Rank Statement of Risk Context
  32. 32. Quantitative Risk Analysis Schedule Analysis Mission Risk Analysis Bad Thing X Fails Y Fails Z Fails A project … … produces a product … … and a process that operates the product. Model : Integrated Master Schedule Method: Monte Carlo Schedule Simulation Tool: @Risk for Project Model: Functional Flow Block Diagrams Method: Monte Carlo Process Simulation Tool: ARENA Model: Fault Trees Method: Probabilistic Risk Analysis Tool: SAPHIRE … that generates values. WBS Task 100 Task 101 Task 102 Task 103 Task 104 Task 105 Task 106
  33. 33. Risk Planning Activities Overview Action Plans Project Goals & Constraints Resources <ul><li>Plan </li></ul><ul><li>Assign responsibility </li></ul><ul><li>Determine approach </li></ul><ul><li>Define scope and actions </li></ul>Master List of Risks ________________ ________________ ________________ ________________ Top N Risk Risk Risk Risk Risk Risk Class 3 Risk Class 1 Class 2 Classification Statement of Risk Context Likelihood Consequence Timeframe Classification Rank Statement of Risk Context Likelihood Consequence Timeframe Classification Rank Plan Approach
  34. 34. Risk Planning Decisions <ul><li>Negotiate with the next higher organization level elevation triggers </li></ul><ul><li>Feedback to RIDM risk handling plans which may lead to reconsideration of alternatives </li></ul>Risk(s) Close Accept Mitigate Watch Research Elevate Assign Risk Owner Assign Risk Owner Assign Risk Owner Assign Risk Owner Mitigation Plan Tracking Plan Research Plan Document Decision in Risk Management Database N N N N N Y Y Y Y Y
  35. 35. Risk Tracking Activities Overview Status Report Risk Action plans <ul><li>Track </li></ul><ul><li>Acquire </li></ul><ul><li>Compile </li></ul><ul><li>Report </li></ul>Action Plans Resources Project Data Statement of Risk Context Likelihood Consequence Timeframe Classification Rank Plan Approach Statement of Risk Context Likelihood Consequence Timeframe Classification Rank Plan Approach Status Metrics
  36. 36. Risk Waterfall Chart Example Risk: Given that the Star Tracker is a new technology and may not perform to expectations, there is a possibility that the schedule may be impacted to allow time to fix shortfalls in performance Risk Exposure Time High Moderate Low 8/98 10/98 2/98 4/98 6/98 8/99 New ACS Selected Integration Testing Planned Tasks Actual Tasks Exit Criteria Met
  37. 37. Risk Control Activities Overview <ul><li>Control </li></ul><ul><li>Evaluate </li></ul><ul><li>Decide </li></ul>Status Report Risk Action plans Project Data Statement of Risk Context Likelihood Consequence Timeframe Classification Rank Plan Approach Status Metrics Statement of Risk Context Likelihood Consequence Timeframe Classification Rank Plan Approach Status Metrics Control decision Decision Re-plan Close Invoke contingency Continue tracking
  38. 38. What Is Effective Risk Control? <ul><li>Monitoring the quality of plan execution </li></ul><ul><li>Assessing the effectiveness of mitigation plans </li></ul><ul><li>Assessing significant changes in risks and trends </li></ul><ul><li>Determining appropriate responses </li></ul><ul><li>Executing the plan of attack </li></ul><ul><li>Communicating the above information </li></ul>
  39. 39. Communication and Documentation Takes Place Throughout CRM Risk Statements Risk Attributes Action Plans Metric Reports Decisions
  40. 40. Communication Attention <ul><li>Elevate decision-making on particular “risks” to the next higher organizational level when: </li></ul><ul><ul><li>They cause performance measures to exceed pre-defined thresholds </li></ul></ul><ul><ul><li>They can no longer be managed by the current-level organizational unit because: </li></ul></ul><ul><ul><ul><li>Resources are not available </li></ul></ul></ul><ul><ul><ul><li>Decision authority is lacking </li></ul></ul></ul><ul><li>Ensure that cross-cutting risks and interdependencies between risks are properly identified as cross-cutting and either managed within the unit or elevated. </li></ul>
  41. 41. Risk Management Process
  42. 42. Information Flow in RIDM <ul><li>Technical Authorities </li></ul><ul><li>Engineering </li></ul><ul><li>Safety & Mission Assurance </li></ul><ul><li>Health & Medical </li></ul>Decision Maker <ul><li>Stakeholders </li></ul><ul><li>Internal </li></ul><ul><li>External </li></ul>Risk Analysts <ul><li>Subject Matter Experts </li></ul><ul><li>Safety </li></ul><ul><li>Technical </li></ul><ul><li>Cost </li></ul><ul><li>Schedule </li></ul>Deliberation Decision (incl. risk acceptance) Risk Concurrence Consultation Objectives Values Objectives Values Performance Models Contending Alternatives Pros/Cons Analysis Results
  43. 43. Information Flow in CRM <ul><li>Risk-Informed Selection Reports </li></ul><ul><li>Selected Alternative </li></ul><ul><li>Risk List </li></ul><ul><li>Risk Analysis of Selected Alternatives </li></ul><ul><li>Mitigation </li></ul><ul><li>Risk-driving Uncertainties </li></ul>Performance Requirements <ul><li>Analyze I </li></ul><ul><li>Baseline RIDM Risk Analysis, Performance Measure Distributions & Performance Commitments </li></ul><ul><li>Analyze and Incorporate New Risks & Data </li></ul><ul><li>Risk-driving uncertainties </li></ul><ul><li>Control </li></ul><ul><li>Periodically Decide on Control Action </li></ul><ul><li>Track </li></ul><ul><li>Continuously Acquire & Compile Data </li></ul><ul><li>Run Risk Analysis Models w/ Current Data </li></ul><ul><li>Periodically Issue Tracking Reports </li></ul><ul><li>Plan </li></ul><ul><li>Baseline Mitigations </li></ul><ul><li>Handle Risk (Accept, Mitigate, Watch, Research, or Close) </li></ul><ul><li>Negotiate RIsk Thresholds </li></ul><ul><li>Analyze II </li></ul><ul><li>Assess Timeframe </li></ul><ul><li>Prioritize Risks According to Performance Measure Distribution Drivers </li></ul><ul><li>Develop Prioritized Risk Lists According to Mission Execution Domains </li></ul><ul><li>Identify </li></ul><ul><li>Baseline the Risk Database </li></ul><ul><li>Identify Implementation/New Risks </li></ul><ul><li>Translate & Document Risks </li></ul><ul><li>Communicate & Document </li></ul><ul><li>Maintain Risk Database </li></ul><ul><li>Decide & Implement Communication Methods </li></ul><ul><li>Report Risks to Higher Org Level as Necessary </li></ul><ul><li>Provide Feedback to Affected Units </li></ul>Update RIDM Risk Analysis? Inability to Control Risks? Develop New or Revise Mitigation Plans? New Risks with No Mitigation Available? RIDM Systems Engineering CRM RIDM RIDM RIDM RIDM Yes Yes Yes Yes No No No Re-Plan if Needed
  44. 44. Please Take the 1-Day Course Check SATERN for Dates

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