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12. Project Risk Management
The document outlines the processes and methodologies involved in project risk management, including identifying, analyzing, and responding to risks. It emphasizes the importance of managing risks to improve project outcomes and introduces key terms, risk management processes, and tools like qualitative and quantitative risk analysis. The document also details strategies for addressing both negative threats and positive opportunities in risk management.
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12. Project Risk Management
- 1. 12. Project RiskManagement
- 2. Risk Management • Theprocess involved with identifying, analyzing, and responding to risk. It includes maximizing the results of positive risks and minimizing the consequences of negative events
- 3. Why Do WeManage Risk? • Project problems can be reduced as much as 90% by using risk analysis • Positives: – More info available during planning – Improved probability of success
- 4. Key Terms • RiskTolerance – The amount of acceptable risk • Risk Adverse – Someone that does not want to take risks • Risk Factors – Probability of occurrence – Range of possible outcomes – Expected timing of event – Anticipated frequency of risk events from that source
- 5. How Do WeManage Risk? • Use the six risk management processes – Plan Risk Management – Identify Risks – Perform Qualitative Risk Analysis – Perform Quantitative Risk Analysis – Plan Risk Responses – Monitor and Control Risks Plan Risk Management Identify Risks Perform Qualitative Risk Analysis Perform Quantitativ e Risk Analysis Plan Risk Responses Monitor and Control Risks
- 6. Plan Risk Management ProjectScope Statement Cost Management Plan Schedule Management Plan Enterprise Environmental Factors Organizational Process Assets Risk Management Plan Planning Meetings and AnalysisInputs Outputs Tools & Techniques Plan Risk Management Identify Risks Perform Qualitative Risk Analysis Perform Quantitative Risk Analysis Plan Risk Responses Monitor and Control Risks
- 7. What is aRisk Management Plan? • Methodology – Approach, tools, & data • Roles & Responsibilities • Budgeting – Resources to be put into risk management • Timing – When and how often • Risk Categories – Risk Breakdown Structure (RBS) • Definitions – Risk probabilities and impact
- 8. What is aRisk Mgmt Plan (Cont’d)? • Probability and Impact Matrix • Stakeholder tolerances • Reporting formats • Tracking
- 9. Risk Breakdown Structure •Lists categories and subcategories where risks may arise
- 10. Identify Risks Risk ManagementPlan Activity Cost Estimates Activity Duration Estimates Scope Baseline Stakeholder Register Cost Management Plan Schedule Management Plan Quality Management Plan Project Documents Enterprise Environmental Factors Organizational Process Assets Risk Register Documentation Reviews Information Gathering Techniques Checklist Analysis Assumption Analysis Diagramming Techniques SWOT Analysis Expert Judgment Inputs Outputs Tools & Techniques Plan Risk Management Identify Risks Perform Qualitative Risk Analysis Perform Quantitative Risk Analysis Plan Risk Responses Monitor and Control Risks
- 11. Information Gathering Techniques •Brainstorming • Delphi technique – Successive anonymous questionnaires on project risks with responses summarized for further analysis • Interviewing • Root cause identification • Strengths, weaknesses, opportunities, and threats (SWOT) analysis
- 12. Diagramming Techniques • Causeand Effect Diagrams – Also known as Ishikawa or fishbone Product Delivered Late Bad SpecsInsufficient Resources Inadequate Time Project Prioritization Testing Materials Potential Causes Effect Personnel
- 13. Risk Register • Listof – Identified risks – Potential responses – Root causes • Updated risk categories (if required)
- 14. Perform Qualitative RiskAnalysis Risk Register Risk Management Plan Project Scope Statement Organizational Process Assets Risk Register Updates Risk probability and impact statement Probability and impact matrix Risk data quality assessment Risk categorization Risk urgency assessment Expert Judgement Inputs Outputs Tools & Techniques Plan Risk Management Identify Risks Perform Qualitative Risk Analysis Perform Quantitative Risk Analysis Plan Risk Responses Monitor and Control Risks
- 15. Methodologies • Probability andImpact Matrix –Based on Failure Modes and Effects Analysis (FMEA) –From 1950’s analysis of military systems
- 16. Probability and ImpactMatrix • Define Probability Scale & Impact Scale Likelihood Class Likelihood of Occurrence (events/year) Not Likely (NL) <0.01% chance of occurrence Low (L) 0.01 - 0.1% chance of occurrence Moderate (M) 0.1 - 1% chance of occurrence High (H) 1 - 10% chance of occurrence Expected (E) >10% chance of occurrence Probability Scale Consequence Health and Safety Extreme Fatality or multiple fatalities expected High Severe injury or disability likely; or some potential for fatality Moderate Lost time or injury likely; or some potential for serious injuries; or small risk of fatality Low First aid required; or small risk of serious injury Negligible No concern Impact Scale
- 17. Example Defined conditions forimpact scales of a risk on major project objectives (Examples for negative impacts only)
- 18. Example Detection difficulty isa measure of how easy it would be to detect that the event was going to occur in time to take mitigating action( how much warning would we have?) the detection scale would range from 5= no warning to 1= lots of time to react
- 19. Risk severity matrix User backlash Interface problems System freezing Hardware malfuncti oning Redzone Yellow zone Green zone Impact Likelihood Failure mode and effects analysis (FMEA) Impact × Probability × Detection = Risk Value 1 2 3 4 5 1 2 3 4 5 The risk severity matrix provides a basis for prioritizing which risks to address. Red zone risks receive first priority followed by yellow zone risks. Green zone risks are typically considered inconsequential and ignored unless their status changes. A risk with an impact in the “1” zone with a very low probability and an easy detection score might score a 1 (1X1X1=1). Conversely, a high-impact risk with a high probability and impossible to detect would score 125 (5X5X5=125). This broad range of numerical scores allows for easy stratification of risk according to overall significance
- 20. Risk Register Update •Add – Probability and Impact Matrix results – Perform quality check on results – Categorize the risks to make them easier to handle – Perform urgency assessment to determine which risk need immediate attention
- 21. Perform Quantitative RiskAnalysis Risk Register Risk Management Plan Cost Management Plan Schedule Management Plan Organizational Process Assets Risk Register Updates Data gathering and representation techniques Quantitative risk analysis and modeling Expert Judgment Inputs Outputs Tools & Techniques Plan Risk Management Identify Risks Perform Qualitative Risk Analysis Perform Quantitative Risk Analysis Plan Risk Responses Monitor and Control Risks
- 22. Quantitative Risk Analysis •Analyze numerically the probability and consequence of each risk • Decision Tree analysis – Diagram that describes a decision and probabilities associated with the choices • Expected Monetary Value Analysis (EMV)
- 23. Expected Monetary Value(EMV) Building Cost Probability Optimistic Outcome $150K 0.2 $30K Likely Outcome $225K 0.5 $113K Pessimistic Outcome $300K 0.3 $100K Expected Value $243K
- 24. Decision Tree Analysis Buildor 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 Decision Definition Decision Node Chance Node Net Path Value EMV of New Bldg Node = $41.5! EMV of Upgrade Node = $49!
- 25. Plan Risk Responses RiskManagement Plan Risk Register Risk Register Updates Strategies for negative risks or threats Strategies for positive risks or opportunities Contingent response strategy Expert Judgment Inputs Outputs Tools & Techniques Project Management Plan Updates Risk-related Contract Decisions Plan Risk Management Identify Risks Perform Qualitative Risk Analysis Perform Quantitative Risk Analysis Plan Risk Responses Monitor and Control Risks
- 26. Strategies • Negative Risks(or Threats) – Avoid – Transfer – Mitigate – Acceptance • Positive Risks (or Opportunities) – Exploit – Share – Enhance – Acceptance
- 27. Monitor and ControlRisks Risk Register Project Management Plan Work Performance Information Performance Reports Risk Register Updates Risk reassessment Risk audits Variance and trend analysis Technical performance measurement Reserve analysis Status meetings Inputs OutputsTools & Techniques Organizational Process Assets Change Requests Project Management Plan Updates Project Document Updates Plan Risk Management Identify Risks Perform Qualitative Risk Analysis Perform Quantitative Risk Analysis Plan Risk Responses Monitor and Control Risks