Procept Risk Workshop 2007
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This document provides an overview of project risk management presented by Keith Farndale. It discusses identifying, analyzing, and responding to risks throughout a project's lifecycle. The key processes covered include risk identification, qualitative and quantitative risk analysis, risk response planning including strategies like avoid, mitigate, transfer and accept, and risk monitoring and control. Interactive workshops are used to help participants practice applying these risk management techniques to their own projects.
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Procept Risk Workshop 2007
- 1. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 Project Risk Management v2006-1 Keith Farndale, MBA, P.Eng., PMP farndale@procept.com President Procept Associates Ltd www.procept.com 416-693-5559 Project Management Training Canada’s leader in PM training and consulting Emphasis on A/E/C Registered Education Provider with PMI A full portfolio of courses, beginner to advanced “PMP” preparation Public courses available through University of Toronto
- 2. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 Project Management Consulting Develop PM processes Project planning support Project Management Offices (PMO) Microsoft Project including Enterprise PM One-on-one coaching Portfolio Management processes ISO 9001 registered 4 Project Risk Management Workshopv2007-1
- 3. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 5 Project Risk: An uncertain event or condition that, if it occurs, has a positive or negative effect on the project’s objective PMBOK® Guide 2004, glossary 6 Project Risk Management: Systematic process of… Identifying, Analyzing, & Responding to, Risks throughout the life of the project
- 4. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 7 Risk Management Processes Risk Identification Risk Analysis • Qualitative • Quantitative • Prioritization Risk Monitor & Control • Track • Respond Risk Management Planning Total Cost of Risk Risk Response Planning Avoid Mitigate Transfer Accept Exploit Share Enhance Total Benefit of Risk Contingent Response 10 Risk Event Risk Probability (frequency) Impact LOW IMPACT HIGH PROBABILITY LOWHIGH Urgency Tolerance Describing a Risk
- 5. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 11 Risk Management Planning As part of project planning, consider… Organization’s risk practices, templates Roles and responsibilities • e.g. a risk “owner” Stakeholder risk tolerances 12 Risk Identification Use analogy - there are no totally new projects! Checklists, Interviews, Brainstorming, Delphi, Nominal Group Technique, Affinity Diagramming Test your assumptions!
- 6. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 13 A Classification of Risk Sources Project Technical Project Management OrganizationalExternal Requirements Complexity and Interfaces Technology Performances and Reliability Quality Subcontractors and Suppliers Regulatory Market Customer Weather Project Dependencies Resources Funding Prioritization Estimating Planning Controlling Communication PMBOK® Guide 2004, 11.1.3 Real Time Op'g Syst. Application Program Interface Card Subprj Computer Ass'y, Test, Integr'n DAC System Temp. Tests Vibration Tests Development Tests System Demonstr'n Test Specification Test Procedure Test Test Report Operational Qual'n Operational Tests System Test & Eval. Project Managem't Systems Engin'g Management Management Data Technical Data Operation Manual Maintenance Manual Manuals Data Operator Training Maintenance Training Training Facilities Training DATA ACQUISITION SYSTEM PROJECT Use the Work Breakdown Structure!
- 7. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 15 Identifying … Stakeholders are a Big Source of Risk ! Stakeholders: “Individuals and organizations who are involved in or may be affected by project activities” Stakeholders may be “hidden” or requirements may be unclear ! Abbreviation of PMBOK Guide, PMI, 2004 16 External and Internal Stakeholders OWNERS, EMPLOYEES TEAM MEMBERS INTERNAL CUSTOMERS OTHER USERS CONSUMER GROUPS FINANCIAL INSTITUTIONS EXTERNAL CUSTOMERS SUPPLIERS LABOUR UNIONS GOVERNMENT & REGULATORS SPECIAL INTEREST GROUPS EXTERNAL TEAM MEMBERS
- 8. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 17 Risk Identification Statement “As a result of a <definite cause>, an <uncertain event> may occur, which could lead to an <effect on the objective>.” 18 Risk Identification Statement Cause: Definite event or set of circumstances that exists in the project of its environment, and which give rise to uncertainty. Risk: Uncertain event or set of circumstances that, if it occurs, would affect the project objectives. Effect: Unplanned variations from project objectives, either positive or negative, which arise as a result of risk occurring.
- 9. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 19 Risk Assessment Qualitative Assess each risk Prioritize the risks 20 Risk Mapping… PROBABILITYOF OCCURRENCE IMPACT LOW LOWMEDIUM MEDIUM HIGH HIGH LOW HIGH MEDIUM
- 10. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 21 Group Workshop # 1: Risk Identification Think of a work-related project You are in the planning phase Think of what can go wrong (some serious, some small, be specific) Express as Risk Identification Statement Plot on a Risk Map Do not solve these risks 22 Quantitative Risk Mapping… PROBABILITYOF OCCURRENCE(%) IMPACT ($ ,000) LOW HIGH MEDIUM 0 10 20 30 40 50 60 70 80 90 100 0255075100
- 11. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 23 Risk Quantification Many methods use: • probabilities • frequency histograms Sensitivity analysis (“what if”) Simulations, e.g. Monte Carlo Expected monetary value Decision tree Consider “risk tolerance” Avoid “garbage in, gospel out” 24 Exercise What is the “rational” value of the opportunity? How much are you willing to bid? Why?
- 12. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 25 There is a 1% chance that your house will burn down during the upcoming 12 months. It would cost $100,000 to rebuild it. Expected monetary value of the loss is 1% x $100,000 = $1,000. An insurance company offers a policy for $--???---. What do you do? Take into Account ... Risk Tolerance 26 Decision Tree Choose Without Clause Choose With Clause CostCost RiskRisk ScheduleSchedule RiskRisk 100 %100 % Outcome Prob’y 100 %100 % 60%60% 40%40% 58.8%58.8% 1.2%1.2% 39.2%39.2% 0.8%0.8% xx xx xx xx xx xx Outcome Value $20,000$20,000 $10,000$10,000 $25,000$25,000 $35,000$35,000 --$15,000$15,000 --$25,000$25,000 == == == == == == Expected Monetary Value $6,000$6,000 --$300$300 $14,000$14,000 $13,720$13,720 $14,700$14,700 $8,000$8,000 --$120$120 $28,000$28,000 .4.4 .6.6 .02.02 .98.98 .02.02 .98.98 .4.4 .6.6
- 13. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 27 Monte Carlo Simulation: Typical Input Variable Estimated Cost or Duration of an ElementEstimated Cost or Duration of an Element EstimatedFrequencyEstimatedFrequency High EstimateHigh EstimateLow EstimateLow Estimate Most Likely EstimateMost Likely Estimate Monte Carlo Simulation: Example
- 14. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 29 Risk Response Planning Strategies for negative risks ... • Avoid • Mitigate • Transfer Strategies for opportunities • Exploit • Share • Enhance Accept Contingent response 30 Avoid “Eliminating a specific threat, usually by eliminating the cause” Decline the project ? Change technology ?
- 15. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 31 Mitigate “Reducing the expected monetary value of a risk event by: • Lowering the probability of occurrence, or • Reducing its effect” How to do that? Trade-offs… 32 A Tool for Discussing Trade-offs TIME COST SCOPE Bates Project Management Inc.
- 16. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 33 Transfer By insurance ... • pay premium By contracting ... • pay risk premium 34 Transfer ... by Contracting Who is the source of the risk? Who can best manage it? Does client want to be involved in managing the work? Can recipient withstand consequences? Is the risk premium reasonable? Will the risk transfer lead to other risks? Max Wideman, Project and Program Risk Management, PMI, 1992.
- 17. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 35 Strategies for Opportunities Exploit (opposite of avoid) • Make it happen ! Share (similar to transfer) • Bring in a 3rd party Enhance (similar to mitigate) • Increase the probability, ... • or increase the positive impact PMBOK Guide 2004 36 Acceptance Accepting the consequences, ... Ignore ? “Contingency reserves” in budget and schedule
- 18. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 37 Contingent Response = “Contingency” plan A predetermined response plan Only do it if the “trigger”, or the threat itself, occurs 38 Risk Response Planning Depends Upon: Probability of risk event Impact ($$) Visibility of consequences (publicity!) Manageability of risk ...Output is a Risk Response Plan!
- 19. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 39 Risk Workshop Part 2 For each risk event: Estimate relative probability and impact Plot each risk event on the grid How will you respond to each risk (Avoid, Mitigate, Transfer, Accept) ? MED LOW LOWLOW MED HIGH HIGH HIGH MED LOW MEDIUM HIGH IMPACT PROBABILITY LOWHIGH 40 Risk Monitoring and Control By “risk owner” Track risks • look for triggers Respond to new potential risks: • Identify, analyse, respond Respond to actual events as they occur: • implementing contingent responses • “workarounds” (unplanned responses)
- 20. Project Risk Management November 2007 Presented by Keith Farndale. © Procept Associates Ltd., v2007-1 Thank You Keith Farndale, MBA, P.Eng., PMP farndale@procept.com President Procept Associates Ltd Professional Services Ltd www.procept.com farndale@procept.com