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The Known Unknown - Importance of Project Risk Management by Mr Wissam Yaacoub

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Mr. Wissam Yaccoub delivered a talk to PMI Lebanon Chapter about The Known Unknown - Importance of Project Risk Management in March 2019.
Among the Talking Points & Agenda:

Risk tolerance and uncertainty
Risk assessment game
Risk culture in life and organizations
Project risk management processes
How to plan, identify, and analyze risk
Uplifted risk register template
Group risk exercise

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The Known Unknown - Importance of Project Risk Management by Mr Wissam Yaacoub

  1. 1. Wissam Yaacoub, PMP, PMI-RMP The Know Unknowns: Importance of Project Risk Management (PRM)
  2. 2. Because risks have the potential to cause deviations from the project plan and from pre-defined objectives. PRM encourages PROACTIVE management practices that help deliver projects successfully. Why PRM?
  3. 3. Risk Tolerance There are: 1. Risks we tolerate 2. Risks we cannot tolerate Risk tolerance is a measure of willingness to accept higher risk in exchange for higher potential returns. Risk appetite is the amount and type of risk that an organization is willing to take in order to meet their strategic objectives.
  4. 4. Risk: The Known Unknown Unknown Unknowns Known Unknowns Known Knowns No information Partial information Complete information Uncertainty Risk Certainty Spectrum of Risk time Adapted from Burke (2003) “Project Management Planning and Control Techniques” Risk is about information
  5. 5. An Example about Managing Risks
  6. 6. 1. Based on your experience, please identify the top travel risks! 2. Which of these have been previously foreseen and controlled by you? Based on your most recent leisure trip experience
  7. 7. CONCERN RISK ISSUE Uneasy feeling that an issue may arise which could affect the project’s success. No root cause or firm basis for concern yet identified. Likelihood that an issue may arise which could affect the project’s success. Root cause(s) i.e. firm basis/ justification of risk is identified. Occurrence of risk event which will affect the project’s success. Risk is not adequately addressed Concern is analyzed to identify root cause(s)
  8. 8. Risk Culture in Life and in Organizations
  9. 9. Project Risk Management Processes Adapted from PMI PMBOK 6th Edition.
  10. 10. According to PMI, a risk management plan includes some or all of the following elements: Planning Risk Management Risk Strategy Methodology: Tools and data sources Roles and responsibilities (RACI matrix) Timing: When and how often Risk Breakdown Structure (RBS) Stakeholders’ Risk Appetite Definition of the Probability and Impacts Risk register and risk report formats Tracking and auditing
  11. 11. Risk Identification Tools & Techniques 1. Expert judgment 2. Data gathering • Brainstorming • Checklists • Interviews 3. Data analysis • Root cause analysis • Assumption and constraint analysis • SWOT analysis • Document or contract analysis 4. Interpersonal and team skills 5. Prompt lists of categories: PESTLE, VUCA,… 6. Risk workshops
  12. 12. Root Cause Analysis: - The main and true cause of the risk event. - Without the root cause the risk wouldn’t have occurred. - Controlling the root cause could eliminate the problem. Identify Risk Output: Risk Register, Risk Report, Document Updates Cause-Effect Diagram
  13. 13. Risk Register Template Risk Code Risk Event Root Causes Effects RBS Impact Analysis Qualitative Rating Confidenc e Level % Risk Score Risk Level Response StrategyTime Cost ScopeQuality Impact Likelihood PD01 Failure to meet the 'Wild Air' date specified in the Contract. 1. The process of obtaining the approvals from the relevant governmental authorities is delayed. (our input is not mentioned) 2. 3rd party contractor laying cables from 132KV substation falls behind schedule; Nesma has to interface and coordinate as required with the third party contractor to ensure timely preparation and connection of the permanent power. Having to rent power or use temporary generators PD 7 5 3 1 4.7 5 60% 30 MEDIUM Mitigate Risk FN01 Loss of profit on omitted , altered, or value engineered. 1.Contractual Obligation 2. Design is still under progressive development 3. All savings in their entirety will be passed directly to the Client. Loss of highly profitable items FN 3 7 3 3 4.3 5 50% 26 MEDIUM Avoid Risk LE01 Employer's Site data inaccurate/insufficient or wrong 1. The Employer shall be discharged from all liability in connection with any claims on the grounds of lack of sufficient or probative data or information. Unclaimable and costly works in included in budget LE 5 5 3 3 4.3 7 75% 40 HIGH Mitigate Risk
  14. 14. Project Risk Management Processes Adapted from PMI PMBOK 6th Edition. Risk Analysis
  15. 15. Every Risk is analyzed in terms of its IMPACT on: Cost (Budget, Expenses, Reserves,…) Time (Schedule, Milestones, Deadlines,…) Scope (Contract, Agreement, Variations,…) Quality (Specifications, Regulations, Satisfaction,…) The second element in the risk analysis is its PROBABILITY of occurrence. Impact Minor (1) Low (3) Moderate (5) High (7) Major (9) Probability Very High (9) 9 27 45 63 81 High (7) 7 21 35 49 63 Moderate (5) 5 15 25 35 45 Low (3) 3 9 15 21 27 Remote (1) 1 3 5 7 9 Risk Analysis The Risk Matrix tool is established based on the company’s risk appetite. It defines the level of risk by considering its probability or likelihood against its impact or severity. Risk Assessment Indices Minor (10%) 1 Low (30%) 3 Moderate (50%) 5 High (70%) 7 Major (90%) 9
  16. 16. Risk Register Template Risk Code Risk Event Root Causes Effects RBS Impact Analysis Qualitative Rating Confidence Level % Risk Score Risk Level Response StrategyTimeCost Scope Quality Impact Likelihood PD01 Failure to meet the 'Wild Air' date specified in the Contract. 1. The process of obtaining the approvals from the relevant governmental authorities is delayed. (our input is not mentioned) 2. 3rd party contractor laying cables from 132KV substation falls behind schedule; Nesma has to interface and coordinate as required with the third party contractor to ensure timely preparation and connection of the permanent power. Having to rent power or use temporary generators PD 7 5 3 1 4.7 5 60% 30 MEDIUM Mitigate Risk FN01 Loss of profit on omitted , altered, or value engineered. 1.Contractual Obligation 2. Design is still under progressive development 3. All savings in their entirety will be passed directly to the Client. Loss of highly profitable items FN 3 7 3 3 4.3 5 50% 26 MEDIUM Avoid Risk LE01 Employer's Site data inaccurate/insufficient or wrong 1. The Employer shall be discharged from all liability in connection with any claims on the grounds of lack of sufficient or probative data or information. Unclaimable and costly works in included in budget LE 5 5 3 3 4.3 7 75% 40 HIGH Mitigate Risk Risk Assessment Indices Minor (10%) 1 Low (30%) 3 Moderate (50%) 5 High (70%) 7 Major (90%) 9
  17. 17. Risk Breakdown Structure - Types of Risk in Project Management Type Description and Examples Financial Risk Typically escalation of project costs due to poor cost estimating accuracy and scope creep, mistakes in cost estimations, bankruptcy, and insurance costs. Schedule Risk Risk that activities will take longer than expected. Slippages in schedule typically increase costs and, also, delay the receipt of project benefits, with a possible loss of competitive advantage. Quality Risk Risk that the project will fail to produce results consistent with project specifications. Governance Risk It relates to management performance with regard to ethics, social responsibility, and company reputation. Technical Risk Result from errors or incompleteness in design, technological obsolescence, and inefficiency. Operational Risk It includes risks from poor implementation and process problems such as procurement, production, and work distribution. Market Risk It includes competition, foreign exchange, commodity markets, and interest rate risk, as well as cash flow and credit risks. Legal Risk Arise from legal and regulatory obligations, including contract risks and litigation brought against the organization. Nature Risk It includes storms, floods, earthquakes, fire, and archaeological discovery. Political Risk Government policy, public opinion, change in legislation, sabotage, and terrorism; labor strikes; and civil unrest.
  18. 18. 1 2 3 4 5 Risk Response Strategy Description Example 1) Avoid Eliminate the root cause and thus, eliminate the project risk. Design change, or shutting down a construction site in bad weather 2) Transfer Transfer the risk to some other party. Insurance purchases, warranties, guarantees, sub-contracting, etc. 3) Mitigate Reduce the probability and/or impact of the risk To reduce risk of injuries, contractor install temporary lighting, signs, and handrails. 4) Accept Passive acceptance leaves action to be determined as needed, in case of a risk event. Active acceptance involves allocation of contingency reserves to the project. Exchange rate fluctuation for imported goods 5) Escalate Risks which cannot be monitored and handled by the project are escalated to the upper level, for example to program management. Lack of workforce for the project
  19. 19. Residual & Secondary Risk Residual Risk is the remaining level of risk following the development and implementation of the risk response strategy. The residual risk should always be less than the inherent risk, otherwise there would be no justification for selecting the risk response. Secondary Risk is a new risk caused by the response plan. If the risk response was not taken, the secondary risk would not exist. In some cases, secondary risks can be worse than primary risks. The residual or the secondary risk is also evaluated for its severity and may require a new treatment if it is not within the risk tolerance; otherwise it will be kept on the watch list.
  20. 20. The Case of Boeing 737 MAX Jet Cause: Engine is placed higher and farther out on the wing than previous models Risk: Plane could pitch upward in certain conditions Effect: High likelihood of a plane stall Response: Mitigate the risk by installing a computer software called MCAS that automatically brings the nose of the plane down Secondary Risk 1: Faulty sensors can make the MCAS work when it shouldn’t Secondary Risk 2: Pilots (Trip PM) are not educated about the new MCAS Effect: Plane crash / Ruin of company image
  21. 21. The Balance of Knowledge When making a decision in our risky world, we should be careful not to place too much weight on what we think we know because what we don’t know may be more important !!!!
  22. 22. Identify and analyze at least 5 top risks from any HOME REMODELING project. Use the distributed template! a. Describe each risk event and its root cause b. Identify the RBS associated with each risk c. Propose a risk response strategy Group Risk Exercise
  23. 23. Lack of Project Risk Management = Surprises + Crisis Management = Failure to meet project objectives Jal el Dib New Bridge Planners and estimators tend to underestimate costs and difficulties during the planning of projects. Many projects develop baseline programs without adequately considering risk.
  24. 24. Bring up Lessons Learned from previous projects Risk Communication Make project risks part of every meeting agenda Let project leaders make decisions on top risks Communicate the big risks Create time to deal with opportunities 90% of a project manager’s job is communication. And one of the most important things to communicate is project risk. Don’t be fragile in front of Risk! Talk about it, learn from it, and challenge it.
  25. 25. “The process of discovery (or innovation, or technological progress) itself depends on antifragile* tinkering, aggressive risk bearing rather than formal education.” Nassim N. Taleb *Antifragile: Things that benefit from shocks, risk, and uncertainty.
  26. 26. Risk Management Professional Exam: Preparation Course is 30 to 40 Contact Hours to be eligible for the PMI Exam. The certification exam has 170 multiple-choice questions and you have 3.5 hours to complete it. PMI Risk Management Professional (PMI-RMP)®c
  27. 27. THANK YOU Wissam Yaacoub, PMP, PMI-RMP Mobile: 03-595764 Email: wissam@stormconsults.com

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