PECB Webinar: Dealing with Project Risks
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We will cover: • Definition of Risk • Why Risk Management? • Project Stakeholders • Psychology of Risk • Risks on Estimation • Project Budget About the presenter: This webinar will be presented by Gilberto Costa (PMP, AGILE, PRINCE2, RMP), Senior Project Manager at GBC London. Gilberto is a value-driven project manager who has extensive business experiences in the IT industry, telecom, utilities and government affairs. Gilberto holds multiple professional certifications, including the PMP and RMP certifications from the Project Management Institute. He is also a PECB Certified Trainer for ISO 31000 Risk Management.
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PECB Webinar: Dealing with Project Risks
- 1. Dealing with Project Risks www.gbc.london 1
- 2. Dealing with Project Risks DEALING WITH PROJECT RISKS Presented by Gilberto Costa PMP, AGILE, PRINCE2, RMP, ISO31K Risk Manager, RSA-Archer Instructor gcosta@gbc.london www.gbc.london 2
- 3. Dealing with Project Risks About the presenter I am passionate about leading teams to achieve their project objectives and to deliver real value to final users aligned with the goals of the Organization and its business values. As a servant leader I focus on the project team, leading and coach them as people have been the key success factor on my past and current achievements. With more than 20 years of experience managing projects in several industries, from IT project to utilities projects. I have worked with several companies managing people, developing new processes, implementing project management methodology, implementing PMO and coaching Project Managers. I also have worked in Risk Management helping companies to deal with uncertainty on their Projects. As a value-driven project manager I have an extensive business experiences in IT industry, telecom, utilities and government affairs. I did not succeed in all endeavours I invested. Yes, I have made a couple of mistakes, but I never repeated the same mistake twice. Naturally, I will probably make other mistakes in the future. However, the lessons I have learned are the best asset I carry with me and, my extensive experience not only in project environment, but also in operational environment and at governance level have enhanced my skills and augmented my efficiency. www.gbc.london 3
- 4. Dealing with Project Risks Dealing with Project Risks The day-to-day complexity accumulated with project criticalities in a fast change world has become one of the greatest challenges for many Organizations. It is imperative to find ways to deal with uncertainties during our projects lifetime. According to ISO 31000, risk is the “effect of uncertainty on objectives” and, from our experience, we know that an effect can be either positive or negative. In this webinar we will present a simple and effective approach to deal with uncertainties that matters – risks. www.gbc.london 4
- 5. Dealing with Project Risks AGENDA • Definition of Risk • Why Risk Management? • Project Stakeholders • Psychology of Risk • Risks on Estimation • Project Budget www.gbc.london 5
- 6. Dealing with Project Risks “You want a valve that doesn’t leak and you try everything possible to develop one. But the real world provides you with a leaky valve. You have to determine how much leaking you can tolerate.” (Obituary of Arthur Rudolph , in The New York Times, January 3, 1996.) www.gbc.london 6
- 7. Dealing with Project Risks What is it that distinguishes the thousands of years of history from what we think of as modern times? The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk. (From Against the Gods, Peter L. Bernstein)
- 8. Dealing with Project Risks History of Risk Management … 1AD 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 … -In 1875, Francis Galton discovered the regression to the mean. -In 1952, Harry Markowitz developed the Modern portfolio theory (MPT) The problem was proposed to Pascal and Fermat, probably in 1654, by the Chevalier de Méré, a gambler who is said to have had unusual ability “even for the mathematics.” The correspondence which ensued between Fermat and Pascal, was fundamental in the development of modern concepts of probability 361 years
- 9. Dealing with Project Risks Definition of Risk • “a situation involving exposure to danger” • “the possibility of something bad happening” – Cambridge Dictionary • “effect of uncertainty on objectives” – ISO31000(2009)/ISO GUIDE 73:2002 • “an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives” – PMBOK 5th edition Schedule (how long we will take to complete our work) Cost (The amount we planned to spend) Scope (what we will make) Risk
- 10. Dealing with Project Risks Uncertainty and Risk identification Uncertainty is caused by ambiguity or by lack of information All risks come from uncertainty, but not all uncertainties are risk Only a subset of uncertainty is risk RiskUncertainty It matters It doesn’t matter It’s uncertainty that matters
- 11. Dealing with Project Risks Uncertainty and Risk The future is full of uncertainty, including: a) Stochastic uncertainty b) Aleatoric uncertainty c) Epistemic uncertainty d) Ontological uncertainty www.gbc.london 11
- 12. Dealing with Project Risks Risk characteristics 1. The probability of an event occurring 2. The Impact it has when it occurs 1/6 1/6 Dice vs. Russian Roulette www.gbc.london 12
- 13. Dealing with Project Risks Risk characteristics (cont.) Only impact matters? No, be aware of the probabilities! Healthy vs. Unhealthy Mary John www.gbc.london 13
- 14. Dealing with Project Risks Risk Probability 𝑃𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑤𝑎𝑦𝑠 𝑜𝑓 𝑎𝑛 𝑒𝑣𝑒𝑛𝑡 𝑐𝑎𝑛 𝑜𝑐𝑐𝑢𝑟 𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑜𝑠𝑠𝑖𝑏𝑙𝑒 𝑜𝑢𝑡𝑐𝑜𝑚𝑒𝑠 Two types of probability: 1) Calculated (absolute) probability 2) Theoretical (speculative) probability - What type of probability tend to occur in your projects? www.gbc.london 14
- 15. Dealing with Project Risks Why Risk Management? It helps us to see things before they happen It allows us to be prepared Risk Management is the key driver for project success! www.gbc.london 15
- 16. Dealing with Project Risks Psychology of Risk, The Utility Statistic information will influence project stakeholders’ decision, but not only statistics and numbers Other factors that will influence decision making are: The wealthy of an individual Previous experience Individual's risk attitude www.gbc.london 16 GI Joe Original Prototype, Hasbro, 1964.
- 17. Dealing with Project Risks Psychology of Risk, The Prospect theory Project stakeholders will behave differently regarding the possibility of gain or loss. Anxiety affects risk options Possibility of gain = few/no anxiety Possibility of loss = lots of anxiety A project stakeholder will take a risk that has a potential loss coupled with a possible gain, rather than suffer a sure loss. www.gbc.london 17
- 18. Dealing with Project Risks Factors that taint risk assessment www.gbc.london 18 Probability Impact VL L M H VH VLLMHVH Air crash
- 19. Dealing with Project Risks Project Stakeholders One of the greatest source of risks in Projects are people. Project are done by people, to people and, with people! So, what are we missing? We are failing to properly identify our project stakeholders There is a misconception of what “identify stakeholders” means www.gbc.london 19
- 20. Dealing with Project Risks Project Stakeholders We are failing to properly identify our project stakeholders All the factors in the above list are related to stakeholder management Project success/failure factors User Involvement Executive Management Support Clear Statement of Requirements Lack of communication at any level Culture or ethical misalignment www.gbc.london 20
- 21. Dealing with Project Risks Project Stakeholders There is a misconception of what “identify stakeholders” means We don’t identify stakeholders to simply know who they are, but to know what we can to with them! www.gbc.london 21
- 22. Dealing with Project Risks Project Stakeholders www.gbc.london 22 Influence/powerofstakeholders interest of stakeholders Monitor •Inform via general communications, newsletters, website, mail shots. •Aim to move into right hand box. Keep satisfied •Engage & consult on interest area •Try to increase level of interest •Aim to move into right hand box Keep informed •Make use of interest through involvement in low risk areas •Keep informed and consult on interest area •Potential supporter/ goodwill ambassador Manage closely •Involve in governance/ decision making bodies •Engage and consult regularly
- 23. Dealing with Project Risks Stakeholders Be aware of the connections among the project stakeholders Use intelligence to manage project risks Gossip Intelligence www.gbc.london 23
- 24. Dealing with Project Risks Project Stakeholders Be aware of the relation among the project stakeholders Use intelligence to manage project risks www.gbc.london 24
- 25. Dealing with Project Risks Project Schedule How well are we documenting the project schedule? Draw database logical design Develop data services components Create physical tables Create user interface Mandatory (hard logic) Discretionary (soft logic) Violating a mandatory dependency results in rework. www.gbc.london 25
- 26. Dealing with Project Risks Estimating Skills The Standish Group research shows that less than 40% of organizations are skilled at estimating project costs. www.gbc.london 26 (2014) The Standish Group estimate of the skill level of people estimating project cost and budget.
- 27. Dealing with Project Risks Project Budget What is it missing here? Project Manager present this number and, luckily gets approval, then becomes accountable for the Baseline Activity Estimates Act. B1 150 € Act. B2 250 € Act. B3 300 € Act. B4 300 € Act. B5 450 € 700 € 750€ 450€ 650€ 650€1900€ 2550€ Project Estimates Control Account Estimates Work Package Estimates 2830€Cost Performance Baseline Padding Estimates 280€ www.gbc.london 27
- 28. Dealing with Project Risks Project Budget Resources to deal with the unacceptable risks must be within the project cost baseline Corporate accountability Project Manager is accountable for the Baseline Activity Estimates Act. B1 150 € Act. B2 250 € Act. B3 300 € Act. B4 300 € Act. B5 450 € 700 € 750€ 450€ 650€ 650€1900€ 2708 € Project Estimates 2958€Cost Performance Baseline Contingency Reserve 250€ Management Reserve 300$ Project Budget 3258€ Act. R1 80 € Act. R1 78 € 158€ 158€ www.gbc.london 28 Reserve for risks that you anticipate might happen [and are recorded in the risk register) Risks that you don’t know and are totally unexpected
- 29. Dealing with Project Risks Risk Identification www.gbc.london 29 “there is a risk of overspending in this project” “due to the forecast of high winds in our area, there is a risk that the roof of the barn will blow off causing our cattle feed to be ruined and loss of our livestock” it includes the root cause (high winds), the area of risk (barn roof), and the impact (loss of livestock). “there is a risk of failing the final deliverable”
- 30. Dealing with Project Risks Risk Assessment www.gbc.london 30 Probability Impact VL L M H VH VLLMHVH roof of the barn will blow off
- 31. Dealing with Project Risks Risk response strategies www.gbc.london 31 A BAvoid Mitigate Transfer
- 32. Dealing with Project Risks Risk response strategies www.gbc.london 32 Accept
- 33. Dealing with Project Risks Summary Risk is uncertainty that affect your project objectives Use intel to manage stakeholders Document activities dependencies Assume subjective probability Be aware of factors that can influence risk assessment (e.g. Utility) Create a contingency reserve based on the identified risks Create a contingency plan consistent with your project profile. www.gbc.london 33
- 34. Dealing with Project Risks Q&A www.gbc.london 34
- 35. Dealing with Project Risks For more information on how to implement a risk management methodology, contact: info@gbc.london Thanks! www.gbc.london 35
Editor's Notes
- What is it that distinguishes the thousand of years of history from what we call modern times? The answer goes way beyond the progress of science, technology, capitalism and democracy.. What defines the boundary between past and modern times is / the notion that the future / is more than a whim of the gods / and that we (men and women) are not passive before nature. The boundary between past and modern times is the mastery of risk.
- The break-point happened during the renaissance period, and after the introduction of the Arabic numerals in Europe. All the tools we use today in risk management and in the analysis of decision and choice stem from the developments that took place between 1654 and 1760 , with only a couple of exceptions: --Click Animation -In 1875, Francis Galton discovered the regression to the mean. --Click Animation -In 1952, Harry Markowitz developed the Modern portfolio theory (MPT) … and demonstrated, mathematically, why putting all your eggs in one basket is an unacceptable risky strategy. As seen in this timeline, Risk management is relatively new compared to the history of human being.
- If you ask someone to define risk, it’s likely that they will come up with something similar to the first two lines in this slide. We’ve grown up understanding “RISK” as a situation involving exposure to danger, for example: “ I risked my life to save my dog” or "do not use the stove inside a tent because of the risk of fire" So, it’s expected that people, in general, will think of risk as a threat. …You may say: - We were taught to associate risks to threats… and I don’t blame you. --Click Animation However, the ISO 31000 defines risk as…effect of uncertainty on objectives --Click Animation And the PMBOK goes even further, stating that the risk can also have a positive impact on our project objective. Everybody have objectives, you have objectives and companies have objectives, too... and to achieve objectives they buy, they sell, and they invest in projects. Therefore, no matter what type of project you’re working on, it has an objective! --Click Animation And risks can affect the project scope, project schedule, project cost, etc. But the effect that it has (or may have) on the project objectives can also be positive. So, if you are taking notes, write down that a risk can be negative or positive. --Click Animation What is important here is to highlight these two words: uncertainty and objectives. That’s why you have to have a solid project objective description in your project charter. Because if you don’t know what your objectives are, you cannot manage risks! ---- Although risk is now understood as either a threat or an opportunity, in this presentation we will be talking only about those risks that can, potentially harm our project objectives.
- Moreover, you can’t manage risks that you haven’t identified. Uncertainty is ubiquitous, and risks are everywhere! At this very moment you may be wondering about things that might happen in the next couple of days, weeks, near future in a couple of years. --Click Animation Risks come from uncertainty. However, not all uncertainties are risks. Why? -because only uncertainty that affect objectives is what matters. Is it going to rain tomorrow in Canutama(a small village in the rainforest, northwest of Brazil). Well, I don’t know, you don’t know, we don’t care. But if I ask you: Will your supplier deliver the hardware and install the software platform before your project deadline? Again, I don’t know, but you ought to know it because you’re supposed to care about it. It’s your project. In this example the uncertainty does not affect my objects, but it will affect yours! All in all, if it’s an uncertain and if it matters, then it is a risk! The essence of risk identification in projects is to ask ourselves: -What is it that matters to the project stakeholders?
- As we know, uncertainty is ubiquitous! And, more importantly is to know that not all uncertainties are the same. That’s to say, there are more than one type of uncertainty we need to be aware of. Stochastic uncertainty has one out of two possible outcomes. -Will the John (a member of your project team ) quit before the end of this project? (Yes/No) -Will the hardware (e.g. server machine) arrive on time? (Yes/No) b) Aleatoric uncertainty - is uncertainty that comes from a random process. Like throwing a dice and predicting the result. In other words, the uncertainty we are observing is random, it is part of the natural processes of what we are observing. - This type uncertainty has one out of many possible outcomes. -how many days will the shipment be delayed? It can be 1, 2, 3 or more days, even weeks! And the impact of it will be different in each of the circumstances. c) Epistemic uncertainty - is uncertainty that comes from the lack of knowledge. .. In other words we’re not sure we know it. Or we don’t have enough information about it. -This are things that aren’t clear yet Common sources of epistemic uncertainty are: Inadequate understanding of the underlying processes, incomplete knowledge of the phenomena, or imprecise evaluation of the related characteristics d) Ontological uncertainty – Are things that we can’t conceive, we cannot think of it. Therefore, these are risks that will be tackled with workarounds, using the Management reserve, obviously. --------------- Stochastic uncertainty (possible events) Aleatoric uncertainty (variability) Epistemic uncertainty (ambiguity) Ontological uncertainty (blind-spots)
- One reason why some people have difficulty to understand risks is because they don’t understand well the risk characteristics.. So, in order to help people to understand risks, I’ll take for example two different games: Playing dice versus playing a Russian roulette. The odds are one out of six. But, even though they have the same probability, the impact of those risks are totally different. So, project managers need to take into consideration not only the probability of a risk, but also its impact. Now you know this. If someone invites you to play Russian roulette, don’t forget to demand a six-chamber revolver… always use the standard! ..and never play Russian roulette with a pistol!
- Let’s imagine you have two very good java developers (Mary and John) in your XP team doing pair programing, both are very good workers and you can’t afford one of them submitting a sick leave application. Let’s assume that no matter who takes a sick leave, the impact would be the same, that’s to say it will affect your project objectives on the same way. Let’s assume they have different habits regarding food and body exercise… So, in this case what will make the sick leave risk different between Mary and John is the likelihood, one of them is more likely to have health issues. And, if it could happen during the life of your project, you need to consider it as a project risk.
- I assume you know how to work with calculated probability, 1 – Calculated probability is possible where: All possible outcomes are known, the event is fair (e.g. using a non-tempered dice / loaded dice /crooked dice) and, there is a specific formula to calculate the result. 2 – Theoretical probability occurs where: Not all outcomes are known, no formula is available to calculate the probability and, assessment of probability is subjective. (pause and ask the audience) -What type of probability do you think is common in your projects?
- I’ve worked with companies that have a risk management methodology in place and, although they have been using it quite well at the strategic level, they still fail to implement risk management effectively in projects. Make no mistake. No doubt that investing in feasibility studies, assessing potential partners and having a committee or a risk officer providing adequate information to the board, so they can use it to help those making strategic decisions is of good value. But, what about having risk management embedded in your projects activities? --Click Animation Risk Management is the key driver for project success!
- Risk management is, mainly, to help decision makers. But, despite having all good tools and process in place our decisions are always influenced by psychological factors. --- --Click Animation You probably know the story of the G.I. JOE inventor… Stan Weston had an idea that would change the lives of little boys forever He made a doll based on a soldier, gave it a plastic gun, and called it an "action figure". He named it GI Joe. He showed it to Hasbro and Hasbro made him an offer he couldn't refuse. Hasbro said, "We'll give you a license to take a piece of revenues forever OR we'll give you $75,000". After a hard negotiation, Stan Weston got them to raise that $75,000 to $100,000. He went home a happy man and put the $100,000 in his bank account. … and you know the rest of the story ---- One of the problems with risk in projects is that it is not seen the same way by all stakeholders. For example, you presented your project sponsor with project status report, project estimates and alternative plans, you know that psychological factors can [and will] interfere during the sponsor’s assessment of the available options. My 7-year old son thinks that getting a 6 when we play dice is harder than getting lower number. In other words, his assessment of probability is lowered because of the desire for that result is highest. – But, we are grown-up men, we don’t fall into this trap! Do we? In projects we do the same accessing probabilities of events depending on our utility. The point here is that - If you don’t want to think about a very nasty event, you may assess its probability very low. – you say: It will never happen! But, of course, people are much more risk taking if someone else is taking the risk (“Go ahead!, it will be all right!)
- Rational decision rules are those that say "decide according to the most advantageous expected value [or the expected utility value]". In other words, decide in favour of the maximum advantage [usually money] that is statistically predicted. The theory predicts that for certain common conditions or combinations of choice, there will be violations of rational decision rules. Prospect Theory states that: You will take a risk that has a potential loss coupled with a possible gain, rather than suffer a sure loss. When presented with the 100k Mr. Weston did not want to loose it… So he took the sure gain option instead of the possibility of loss.
- Another reason why people have difficulty to understand and to deal with risk, it’s because risk have two dimensions As we’ve seen, when people assesses probability several factors come into place. --Click Animation For example, when an air crash occurs some people start to fear flying because they think that the likelihood of another air crash has increased… Which leads them to rate the risk with a higher exposure.
- And speaking of people… One of the greatest source of risks in Projects are people. Project are done by people, to people and, with people!
- Most of the project success/failure factors are connect to people. All three tiers of the project team: executive management, project managers, and team members, need access to the right level of information as well as they need to provide information at the right time For instance, in order to get user involvement, the project manager and his team need to know who [from user group] must be invited to contribute with key insights regarding product usability from the user perspective. ------- There is also a need to identify who from the executive group are interested in the project and who can effectively provide support for it. As for the clear statement of requirement, it is only possible when the project manager establishes good communication with the people who are capable of clarifying the requirements. Good stakeholders identification will also help us to deal with the cultural differences. ------------- Poor planning and/or inadequate process – planning is central to the success of a project. It is important to define what constitutes project success or failure at the earliest stage of the process. It is also essential to drill down the big picture to smaller tasks. Inefficient way to document and track progress – this is an oversight on the part of the project manager. Tracking milestones is a crucial way to see if expectations are being met. Documentation and tracking also lets the manager identify which areas require more resources to be completed on time. Poor leadership at any level – the “leader” is usually identified as the project manager. However, the management-level executive also has a responsibility of ensuring the project’s success. He/she should work together with the manager to ensure that the company’s exact requirements are understood. Failure to set expectations and manage them – in working in a team setting, it is critical that you’re able to manage people. If and when expectations are not met, there should be clearly-defined consequences. The task should then be prioritized and possibly reassigned to a more competent individual. Inadequately-trained project managers – the project manager is taking on a heavy responsibility. It is important to assign management roles only to individuals who have the capabilities to meet requirements. In some cases, poorly-trained managers are assigned to complex projects; this is a recipe for failure. Inaccurate cost estimation – there are instances when the cost of an undertaking is grossly underestimated. When it runs out of resources, the project cannot be completed. This can be mitigated when the lack of resources is identified early by the project manager. Lack of communication at any level – communication between the management executive and the project manager, and between the latter and the team members are always important. Everyone should feel free to come forward to state their concern or give suggestions. Culture or ethical misalignment – the culture of the company must prize competence, pro-activeness, and professionalism. If it doesn’t, the team members may not have the motivation to do their best. In essence, everyone involved must be concerned about the success of their undertaking. Competing priorities – when a company’s resources are stretched, there will be competing priorities in terms of manpower and financing. Having good cost estimation at the start will eliminate this problem. Disregard of project warning signs – when a project is on the verge of failing, there will always be warning signs. Taking action immediately can save the project. Otherwise, the whole endeavour can just go down the drain.
- But, some project mangers misunderstand the process of identifying people in projects. Most of the project managers, I know, are happy with the idea of simply having the stakeholders’ contact information in their phonebook, so they can quickly call them when need them. Actually, some project managers sometimes use the contact list to filter [or block] incoming calls , anyway… --Click Animation We don’t identify stakeholders to simply know who they are, the reason we record stakeholders information is to know what we can to do with them! If you think that having a spreadsheet, or even a centralized record of all project stakeholders contact information is sufficient. I tell you: it is not!
- Project managers need to study and record stakeholders’ profile with relevant information. Not only individual’s information, but also related information, such as where a stakeholder is connected to other project stakeholder. As a professional Project Manager you know well and have already used this matrix and, you know that some stakeholders have different levels of interest and power. Generally speaking, the Project Manager rarely can change the power level of a stakeholder. However, for the sake of the project, you must workout the level of interest of some stakeholders. --Click Animation So, be proactive! Try to raise their level of interest. In other words, while managing stakeholders you aim to move them to the right side of this matrix!
- So, be aware of the connections among the project stakeholders. I know that, we need to preserve some level of privacy, but some times information that seems to be irrelevant to the project becomes of great importance within the sphere of risk management. I remember few years ago, while I was the project manager for a Baggage Handle System of an International Airport in south America. One of the internal stakeholders issued a change request, which was favourable for us. We get approval from the client,… so far so good…and we moved to redesign of the conveyor belt, and.…. Few days later my boss called me and told me that the requested change document wasn’t valid because that kind of change would require a contract change…. However, the client’s architect, who approved it, did not have authority to change the contract… Consequently, we would need to get a valid formal approval. But, the problem was that we had already made the changes… To make a long story short: The requested change document should be signed by the stakeholder who had signed the contract. I was then running against the clock to avoid rework. That man was very busy man in this world. It was really hard to schedule an appointment with him…. However, because someone have had documented that he happened to be the husband of one less-important project stakeholder. I used the less-important stakeholder to get instant access [like a proxy]. No need to arrange meetings, etc.. She just knocked his door, jump to his desk got the signature and return it to me. Having that specific information about the connection between those two people was very helpful for me. --Click Animation While respecting people’s privacy, you can use some intel to manage project risks
- The way I do this, is by simply adding two extra columns where I record project pertinent relationship among stakeholders – not gossip! -Click Animation Another functionality I have in this document is the matrix rate. As we know, having just a four quadrant grid is very high level information and quite limitative. -Click Animation So, I break down the X & Y axis into a 1-10 scale to have a more accurate assessment and it enriches the communication among the project team leaders. Moreover, I also use conditional format with colours which is useful, especially where you have hundreds of lines in your spreadsheet.
- Another source of risks in projects come from the lack of information regarding project schedule. Do you reserve time to document project activities relationship? Most of us take for grant that we know how to develop a project schedule. But, we often neglect to document activities dependency and the relationship among them... I need to confess it….. In the beginning of my career, I made this mistake several times because I believed that a simple network diagram displaying the activity sequence and highlighting the critical path was enough. Learning from experience good as well as very expensive…, Reality is that if we don't adequately document the activity properties, then our team will be prone to make wrong decision regarding plan execution. I don’t mean to write everything in a 5-page word document. You can use your creativity to have this information and to spread it in a simple and effective way, such as information radiators (e.g. A network diagram that identifies dependencies (i.e. Mandatory vs. Discretionary) The Standish Group research shows that less than 40% of organizations are skilled at providing consistent and timely needed resources for the life of their projects. But, I think that the bottom line here is that, the project team need to be aware of the actual dependency among activities, so they can make adjustments on the go…. It also allows them to make quick and good decisions without wasting time. -Click Animation One common cause of rework/scrap is the violation of a mandatory dependencies. So, try to avoid it!
- Project cost estimates is also a source of risks in projects. The project budget relies on the skill of the estimator and negotiations with the project sponsor; and it is ultimately dictated by the financial department. The Standish group research shows that less than 40% of organizations are skilled at estimating project costs. As for the project schedule it relies on the skill of the planners, negotiations with the project sponsor, and the availability of resources. Again, Managing to the triple constraints is hard. The ironic thing is, even when you get it right, it does not mean you also get value.
- Project budget - this is one of my favourites! Whether applying top-down or bottom-up estimate to estimate project budget, project managers usually add some a sort of budget padding… --Click Animation But it has its drawbacks. It may unintentionally cause project managers to unreasonably underestimate or overestimate costs/ effectively padding a budget with the so-called budgetary slack. A budgetary slack is the difference between what you believe about a budget and what it actually gives as projections. A budgetary slack does not necessarily reflect genuine risk considerations used in contingency planning, but rather is the result of likely unethical management behaviours. By padding a budget, the project manager hopes to make a budget easier to achieve, which could decrease business value for your organization or, even worse, it could reduce your chance of successfully achieve the project objectives.
- With risk management in place, we define activities to respond to the unacceptable risks and we include those activities in our project management plan. --Click Animation Well… to carry on activities we will need resources, which must be included in our project estimates – it’s not an option. --Click Animation As for the contingency reserve, allocate must be justified with the risk register. This is not budget padding. As a project manger you are accountable for the project baseline. So, don’t mess up with the rule which will be used to measure your performance. Contingency reserve is the cost reserve that is used to manage identified risks or “known-unknown” (known=identified, unknown=risks). Contingency reserve is neither a random reserve nor a budged padding. It is an estimated reserve based on various risk management techniques, such as Expected Monetary Value (EMV) and the Decision Tree Method. This reserve is controlled by the project manager. The project manager has full authority to use it whenever any identified risk occurs. He can also delegate this authority to the risk owner who will use this reserve at the time of risks occurring. The project manager can be updated on later stages. --Click Animation In the begin of this presentation we mentioned the ontological uncertainty – Things that we can’t conceive, we cannot think of them. Those are risks we call unknown-unknown and they would be tackled with workarounds. So, where does the resource come from for we to tackle those unpredictable risks? Well… it comes from the Management reserve ---- Researchers like Itzhak Wirth (1996) started providing an Uncertainty profile from different industry projects through the gap of the original budget values and final costs/time with team complexities. Those deviations could be used to establish an Uncertainty rating on a current project. Later in1999, J.Rodney Turner, in his book on project based management, categorised projects by their level of Uncertainty based on the detail of the goals and work methods.. It is important to realise that Management Reserve can also be calculated or used for items unrelated to Uncertainty, Risk or Variation, such as New or Unplanned Scope Changes and is typically calculated from the Cost/Benefit Analysis. --- To wrap-up it: Reserves are for risks! Contingency reserve and management reserve are kept to manage the risks. Contingency reserve is used to manage identified risks, while management reserve is used to manage unidentified risks. A project manager has the authority to use the contingency reserve, while for management reserve, he needs management’s permission.
- Risk assessment is the determination of quantitative or qualitative value of risk related to a concrete situation. If we assess its probability and its impact , then we will have the right risk exposure, which is the combination of risk probability and its impact. It will help us to develop the best response strategy to deal with the risk.
- If we identified a risk, calculated its probability and determined its impact, then we can start to work on the response strategy. According to ISO31000 there are 3 different types of response we can use to address a risk that may harm our project objectives. -We can avoid it by changing our previous plan -We can work to reduce its impact. But, we must be aware of the residual risks associated to the response we plan to apply. -Another alternative is to transfer the to a third part, for example by contracting a insurance. Accept: Retaining the risk by informed decision • Taking or increasing the risk in order to pursue an opportunity
- For those risks with very low probability and very low impact, we can accept them. Accept: Retaining the risk by informed decision • Taking or increasing the risk in order to pursue an opportunity