A Guide to Risk Management
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PROJECTCON | AGILECON Midwest 2019 in Indianapolis on May 10, 2019 Presenter: Bill Dow A Guide to Risk Management Most Project Managers struggle with managing risks and issues. It is a daily struggle, project managers don’t track and understand the purpose of risk management well enough, so we see them either ignore it all together or do the bare minimum. In this presentation, we will walk through the purpose and tracking of risks on projects. Key Takeaways: Learn the purpose behind Risk Management Discover the key steps in Risk Management Uncover Risk Management tools and techniques Event Website: https://projectconevent.com LinkedIn: https://www.linkedin.com/company/projectcon-llc Facebook: http://www.facebook.com/ProjectConEvent Twitter: http://www.twitter.com/projectconevent YouTube: https://www.youtube.com/channel/UCLLG1SGPs1L5YLoFndvGGhQ Instagram: https://www.instagram.com/projectconevent Presentation Slides: https://slideshare.com/projectcon Post Event Trailer: https://youtu.be/1_RzFBnZ7bo
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A Guide to Risk Management
- 1. A Guide to Risk Management – Best Practice & Techniques
- 2. Bill Dow, PMP Dow Publishing LLC A Guide to Risk Management – Best Practice & Techniques
- 3. Importance of Project Communicatio ns • 1. Project Failures & Survey’s • 2. Common Communication Problems • 3. Project Communication Planning • 4. Project Management & Social Media • 5. Project Communications & Agile Projects • 6. Project Management & Business Intelligence Agenda 1. Major Risk Events 2. Purpose of Risk Management 3. Steps to effective Risk Management (including Project Drivers & Expected Value) 4. Risk Management Methods 5. Wrap-up
- 4. Risk Events Source of graphic: www.pxhere.com
- 5. There is inherent uncertainty in every project….. In everything we do! Therefore there is Risk….. Some good, some bad Some positive, some negative.
- 6. Fire on Apollo-1 Launch Pad • January 27, 1967 • Gus Grissom - Program team leader • Ed White - 1st man to walk in space • Roger Chaffee - Newcomer Source of graphic: google images (commercial free) Source of graphic: google images (commercial free)
- 7. What Caused The Fire? “We just did not think of it.” “Failure of imagination….” Astronaut Frank Borman Apollo-1 Disaster Senate Hearing
- 8. What Caused The Fire? – Root Cause Analysis No Action Cause 1 Ability to Open the Hatch quickly Spacecraft hatch door took over 5 mins to open 2 Been clearer on contractor expectations and requirements Insulation defeated 3 Limit the amount of flammable materials on-board ship High concentration of combustible materials in cabin 4 Reduce oxygen concentration for ground operations Pure oxygen was used in spacecraft There has been may studies and reports as to what happened, and one of the reports had these findings: Source: https://www.thinkreliability.com/case_studies/root-cause-analysis-of-the-fire-aboard-apollo-1/
- 9. RISK This Photo by Unknown Author is licensed under CC BY-SA Sometimes projects just don’t do what you want them to do!
- 10. Other Reasons why we don’t do Risk Management • Fear • No Control Over the Risks • Lack of Commitment • Lack of Experience or Education • Avoidance of Risks
- 11. IMPORTANCE OF THE PROJECT RISK PLAN 1. In your best interest 2. Gets everybody involved 3. Documents decisions 4. Gives stakeholders, true expectations 5. Understand the directions the project could take 6. Identifies everyone’s role 7. Documents risks in the scope, schedule, budget, and quality processes 8. Team buy-in 9. Shows what could changed 10. Good for lessons learned
- 12. Risk Management Purpose Risk Management Purpose • The essential purpose of Project Risk Management is to improve the project’s performance by systematic: Identification Appraisal Management Control of the project’s risk Focus: Reducing possible threats Adverse outcomes Eliminate or lower potential litigation & safety issues
- 13. Planning 1 Identification 2 Quantitative Analysis 3 Risk Response Planning 4 5 6 Qualitative Analysis Risk Monitor Risk Closeout & Lessons Learned8 Risk Management Steps Risk Response Strategy7
- 14. The process of defining how to conduct risk management activities for a project. Why is it so important to plan the risk management process on a project? To ensure the level, the visibility, and the type of risk management to be applied to the project is appropriate. Planning1
- 15. Project Risk – A definition Project risk is the amount or level of uncertainty on a project. It is not sum or the average of all the risk events on the project. A risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on the project objectives.
- 16. The process of determining which risks events may affect the project and documenting their characteristics. • Identify as many risk events that might occur during the life of the project. Note: This also includes looking at the other Project Management Knowledge areas for risks. Identification2
- 17. The process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact. Tools: Risk Assessment form Risk impact/probability matrix Project risk model 3 Qualitative Risk Analysis
- 18. The process of numerically analyzing the effect of identified risk on overall project objectives. This process will associate time, budget and schedule impacts to our risk events. The main objectives of quantitative risk analysis are to: 1. Identify realistic and achievable cost, schedule, quality and scope goals. 2. Determine the probability of achieving a specific project objective. 3. Quantify the risk exposure of the project. 4. Determine the size of cost and schedule contingency that may be needed. 5. Identify risk events that require the most attention. Tools: Decision Tree Diagram Monte Carlo Simulation Expected Value Quantitative Risk Analysis4
- 19. This is the process of developing options and actions, to enhance opportunities, and to reduce threats to the project objectives. Tools: Decision Tree Diagram Expert Judgement Risk Response Planning5
- 20. The process of implementing risk response plans, tracking identified risks, monitoring residual risks, identifying new risks, and evaluating risk processes effectiveness throughout the project. The major purpose of risk monitoring and control is to answer the following questions: 1. Have risk responses been implemented as planned? 2. Are risk response actions as effective as expected? 3. Should new risk responses be developed? 4. Are the project assumptions still valid? 5. With the analysis of trends, has risk exposure changed from its prior state? 6. Has a risk trigger or warning occurred? 7. Are policies and procedures being followed? 8. Have risks and changes occurred that were not previously identified? 6 Risk Monitor
- 21. A new risk process (Implement Risk Response) in the Executing process group has been added with the new version of the PMBOK® for Positive Risks (i.e. Opportunities) and Negative Risks (i.e. Threats). The goal of this process is to develop options and strategies to address overall project risk exposure. Inputs to this Response Strategy: • Project Management Plan • Project Documents • Enterprise Environment Factors Actions/Updates from Response Strategy: • Perform Integrated Change Control • Update Project Management Plan • Update Project Documents Risk Response Strategy7
- 22. The purpose of risk closeout is the verification of the risk plan and how well the monitoring and control was performed. Another element is to make certain all portions of the project contract have been completed and closed with minimum litigation pending, and all risk documentation is complete. Risks still pending at project closeout: • Warranties • Liabilities • Liens against the project • On going litigations Tools: Risk Register Lessons learned document Risk Closeout & Lessons Learned8
- 23. Project Drivers – Effecting the Risk Process Source of graphic: www.pxhere.com
- 25. The effect of changing a Project Driver It will have an effect on at least one of the other drivers, most likely both. It will create a risk. Known as an unintended consequence. A simple example: Lets shorten the project schedule by a month Possible effects (risks): • Increase in the budget • Over time required • Additional resources required • May effect all subcontractor and suppliers • Key equipment not delivered on time. • Some material can’t meet the new delivery dates • Major impact of the purchasing department • Most training sessions and class will have to reschedule • Testing equipment may not be ready • Quality of the project will be lowered • and on and on and on.
- 26. TOOLS(Including Manual calculations & Software) This Photo by Unknown Author is licensed under CC BY This Photo by Unknown Author is licensed under CC BY-NC-ND
- 27. • Expected Value Calculations • Convergence (Schedule Convergence) • Critical Path Method (Problems with using) Lets take a look at some of the tools used in supporting Risk Analysis The three most popular include:
- 28. Risk Management – Expected Value How long does it take you to drive to work? This Photo by Unknown Author is licensed under CC BY-NC-ND
- 29. Driving time to work 45 60 120 f Time (mins) O ML P
- 30. The Magic Formula (Expected Value) Expected Value = O + 4*ML + P 6 O = Optimistic estimate ML = Most likely P = Pessimistic estimate
- 31. Expected Value = 45 + 4*60 + 120 6 Expected Value = 67.5 The Magic Formula (Expected Value) O = Optimistic estimate ML = Most likely P = Pessimistic estimate
- 32. Driving time to work 45 60 120 f Expected Value 67.5 minutes Time
- 33. 8, 10, 18 days 8, 10, 18 days 8, 10, 18 days Finish day 10? 8 + 4*10 + 18 = 66 = 11 days 6 6 Convergence Method (Schedule Convergence)
- 34. Does not take Risk into Consideration Based on a single point estimate Near critical activities are not included Ranges are neglected Highest Risk task may not be on critical path Does not take convergence into consideration Critical Path Method(Problems Using)
- 35. Risk Management Methods (including software) This Photo by Unknown Author is licensed under CC BY-ND
- 36. Monte Carlo Simulation (Risk Management) Lots of companies selling Risk Management software! Source of graphic: www.pxhere.com
- 37. Lets find out by doing a little Risk Analysis What are the odds of finishing on time?
- 39. Applying Automated Risk Software (Odds of finishing on time?) Using Automated software will allow you to analyze your schedules quick!
- 40. Summary 1 2 Risk Management is one of the most complex aspects of managing your projects. Many Project Managers take this task to lightly and don’t dedicate the time and effort to it. Spend time and actively track your project risks! 3 The more effective you manage your risks, the less likely you will have major project problems. Be proactive in your risk management! Summary
- 41. Bill Dow, PMP Dow Publishing LLC 425-736-7171 billdow@dowpublishingllc.com www.dowpublishingllc.com
Editor's Notes
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- Quote says – If we die, we want people to accept it, We are in a risky business, and we hope that if anything happens to us, it will not delay the program. The conquest of space is worth the risk of life! Gus Grisson Jan, 1967
- The essential purpose of project risk management is to improve the project's performance by using systematic identification, appraisal, management and control of project risk. Not only should the focus be on reducing the possible threats and adverse outcomes, but especially on construction projects there should be a concentrated focus and effort to eliminate or at least lower any potential litigation and safety issues.
- We think there should be 8 major processes for the best practices of managing project risk (One more than PMI). Which one is not a PMI process? Although the list of processes is shown here as discrete, in practice they will overlap and interact with each other. They also interact with all the other areas of a project. Risk like communication is an integral part of all processes being preformed on any project
- It is important to plan the risk management processes to ensure the level, the visibility, and the type of risk management to be applied on the project is appropriate. These elements have to match with the risk level and importance of the project. It makes no sense to incorporate a lot of risk effort and processes if the project is of a low risk nature and visa-versa.
- An individual project risk is an uncertain event that generally has a negative effect on the project’s objectives and goals, although some risks can have a positive effect on the project (CC Myers and the Northridge earthquake or a light drizzle on curing concrete).
- During this stage of the risk management process you should be involved in identifying which risk events might affect the project and determining their impact on the project's objectives and outcome. Almost every stakeholder needs to be involved to some extent in risk identification. Risk identification is an iterative process that lasts throughout the life cycle of the project. We has found even simple and effective risk responses can be developed and implemented as soon as the risk event is identified.
- This is one of our specialties. The process of assessing the impact and the probability of a risk actually happening on the project, can be used as a major team building experience. It allows risk events to be prioritized according to their potential impact on the project. Qualitative risk analysis requires the probability and the impact of the risk event to be evaluated using the established qualitative-analysis tools. One of the tools used in this process is the probability/impact risk-rating matrix.
- Not all risks need to be analyzed in detail. The quantitative risk analysis process uses the information gathered from the identification and qualitative processes. This step aims to analyze numerically the probability of each selected risk and the consequence on the project. This process uses tools and techniques such as sensitivity analysis, decision analysis and Monte Carlo simulation. The main objectives of quantitative risk analysis are to: 1. Identify realistic and achievable cost, schedule, quality and scope goals. 2. Determine the probability of achieving a specific project objective. 3. Quantify the risk exposure of the project. 4. Determine the size of cost and schedule contingency that may be needed. 5. Identify risk events that require the most attention.
- The effectiveness of risk response planning will directly determine whether risk decreases or increases for the project. The process of risk response planning is to develop alternatives to determine actions to reduce threats to the projects goals and objectives. Among other things it identifies and assigns individuals to take responsibility for each agreed upon risk response. This process assures that selected risks will be appropriately handled. Choosing the best risk response from several options is often required.
- By the time this process is implemented the project is underway. Risk monitoring and control is the process of keeping track of selected risk events, continue monitoring on going risks, and identifying new ones. It also makes sure the risk event plans are being executed along with the evaluation of their effectiveness in reducing the over all project risk. This process records information that leads to the implementation of contingency plans and workarounds. Risk monitoring and control is a continuous ongoing effort through out the life of the project and sometimes beyond (warranties). As the project matures risks change, new risks are discovered and anticipated risks disappear. Best practices in risk monitoring and control provide information that will assist with the making of effective decisions in advance of risks occurring, thus working in a proactive environment instead of a negative, reactive environment. The major purpose of risk monitoring and control is to answer the following questions: 1. Have risk responses been implemented as planned? 2. Are risk response actions as effective as expected? 3. Should new risk responses be developed? 4. Are the project assumptions still valid? 5. With the analysis of trends has risk exposure changed from its prior state? 6. Has a risk trigger or warning occurred? 7. Are policies and procedures being followed? 8. Have risks and changes occurred that were not previously identified? Risk control involves implementing contingency plans, taking corrective action, possibly choosing alternative strategies or even replanning the remaining portion of the project.
- This is a brand new process in the latest PMBOK, that we really do need to get better at.
- Risk project closeout and lessons learned process is sometimes called the risk review process. The major element of the risk closeout is the verification of the risk plan and how well the monitoring and control was performed. Another element is to make certain all portions of the project contract have been completed and closed with minimum litigation pending. One of the concerns at project closeout for the risk process is the warranties, liabilities and liens against the project that will carry on after the project has closed. They must be identified. A documented risk audit should be performed to enhance the lessons learned. Most lessons will be obvious. But a systematic study to draw out lessons that were not obvious is important. Missing important lessons means mistakes will be made again. We have found, if short risk lessons learned are documented each week during the execution of the project, the final document is simple to compile and rewarding for the next similar project.
- Tons of software companies such as: GoldSIM @Risk Tamara