An introduction to the Risk Management discipline of project management for early career engineers. This lecture was presented to students of Engineering Projects in Community Service (EPICS) classes at Purdue University in fall 2008.

1. Project Risk Management Carrie Kendrick Mitigation of Risks to Project Schedule and Cost EPICS Skill Session Purdue University College of Engineering 10 September 2008

2. Project Risk Management Agenda Introduction to the Speaker: Carrie Kendrick Introduction to Risk Management Terminology Assessing and Planning for Risk Assessment Tool Example Common Risk Areas to Consider Controlling and Responding to Risk © Copyright Carrie Kendrick 2008

3. Who am I to talk? BSME 2001, Purdue University MBA 2004, Purdue University Sr. Project Manager in Global Strategy for Supply Chain at Honeywell Aerospace, based in Phoenix, AZ Define and Execute projects that change manufacturing footprint of the company and make it more competitive Leading transition projects currently in Czech Republic, Germany and Canada In 2008, responsible for relocating manufacturing and repair business of $100M in annual revenue, project NPV of $50M © Copyright Carrie Kendrick 2008

4. What is Risk Management? Defining the terms and context for project management Risk Management is identifying, planning for then making informed decisions on how to deal with that threat Goals of Managing Risk Identify specific hazards to your project schedule and/or cost Assess risks’ likelihood and impact to your project Decide to accept or reject each risk Rejecting a risk means you choose to take action to prevent consequence The action to prevent the risk is called Risk Mitigation Maximize the positive outcomes and minimize the negative A basic tool in the PM toolbox © Copyright Carrie Kendrick 2008

5. Defining Project Risk The process of identifying threats to success and how to deal with them Two dimensions to every risk Probability Effect on Objectives Assessment process focuses on qualifying these dimensions to objectively compare Risks cause very human emotional responses – need to remove the heart to make best decisions Mitigation can plans focus on reducing one dimension or both – clearly define expected benefit of actions Make the abstract more concrete © Copyright Carrie Kendrick 2008

6. Defining Project Risk The process of identifying threats to success and how to deal with them Three types of risk Known You can identify, analyze and plan specific mitigation actions Example: Only one person knows how to build a certain product… Known-Unknown Common/likely occurrences, based on prior experiences of you or others You can identify the area affected, but cannot predict the exact nature of the issue, so plan risk responses instead of specific actions Example: You might get in to a car accident some day… Unknown-Unknown (aka “unknowable”) Could not have reasonably foreseen, so can’t plan for When they arise, you create “workaround” or utilize contingency reserves Example: N/A - You only know after the fact! Type of risk determines mitigation options © Copyright Carrie Kendrick 2008

7. Defining Project Risk The process of identifying threats to success and how to deal with them Attitudes toward risk Stakeholders’ risk tolerance (caveat: know your stakeholders) Project champion(s) attitude should guide decisions to accept/reject risk Cost – Benefit assessments based on who pays, who benefits Attitude alters the sensitivity to certain risks Tolerance may differ for various project elements Perception can change based on prior performances Gauge benefits and losses from stakeholder perspective Benefits worth the risk? Are the odds in your favor? What happens if the risk mitigation fails? Cost of mitigation must be worth benefits © Copyright Carrie Kendrick 2008

8. Risk Planning and Identification The process of identifying threats to success and how to deal with them A Team planning process The more complex the project, the more opinions should be sought from inside and outside the core project team Necessary Planning inputs: Project scope statement Project management draft plan (schedule, budget, team, etc.) Any existing organizational process info (such as a ‘lessons learned’ from prior projects) “Organizational environment” knowledge (primarily the attitudes and risk tolerance of stakeholders) Project detail will determine risk detail © Copyright Carrie Kendrick 2008

9. Risk Planning and Identification The process of identifying threats to success and how to deal with them Upfront Team Risk Assessment Meeting Goal is to understand what risks the project faces, then establish a mitigation plan (with budget and schedule) Meeting leader’s responsibility is to guide a brainstorm Involve whole team (if small project) or a subset of key knowledge holders of different functions on project Capture any and all possible risks at the time (the ‘known’ and ‘known-unknown’) Keep the discussion moving – Have a meeting plan to ensure whole project is assessed (multiple approaches exist) Question the team around any Technical complexity, resource scarcity, high cross-functional coordination, “common risks”* Utilize FMEA or similar tool, customize for your project* © Copyright Carrie Kendrick 2008 * Further examination of common risks and a risk assessment organization tool to follow

10. Risk Planning and Identification The process of identifying threats to success and how to deal with them Some Common Sources of Risk Include: Project deliverables/objectives lack clear definition Technical data is missing or inaccurate Applicable regulations are insufficiently identified Several alternatives are possible throughout project Performance standards (for timing, budget, workloads) are unrealistic Project objectives change during execution Unrecognized errors from design phase of product/process Cost estimates are inadequate or unrealistic Staff members lack the skills or resources to complete Categorize the Risks to Facilitate planning © Copyright Carrie Kendrick 2008

11. Risk Planning and Identification The process of identifying threats to success and how to deal with them Example of Assessment Qualification: Create a scale that works for you © Copyright Carrie Kendrick 2008

12. Risk Planning and Identification The process of identifying threats to success and how to deal with them Example of Output Risk Register: © Copyright Carrie Kendrick 2008 What the possible failure mode looks like Who owns the fix The impact to success if left alone What the team agrees to do about the issue by when The impact to success when the agreed to plan is done

13. Risk Planning and Identification The process of identifying threats to success and how to deal with them Example of Risk Assessment or Mitigation Plan Summary: Use to visualize total risk © Copyright Carrie Kendrick 2008

14. Risk Planning and Identification The process of identifying threats to success and how to deal with them Option whether to discuss possible mitigation strategies during the identification process or after Separating issue from resolution is often more efficient Some plans will be “free” to implement – no incremental cost to the project – but others will require more resources For those requiring additional resources, analyze cost-benefit with respect to stakeholder tolerance Some risks are too vague to identify mitigation – result is a Watch List, with triggers for action Take Action to make assessment valuable © Copyright Carrie Kendrick 2008

15. Controlling Risk The process of managing changing threats Revisit Risk Register routinely as part of MOS Prioritize Risks based on their immediacy and time required to mitigate Not all risks will make the cut for immediate action, but keep them documented in case circumstances change. Follow through with mitigation plan owners on their assigned actions (add to master project plan and/or action items list) When project scope or objectives change, reconvene risk assessment team or key experts to identify what is new/changed for risks, change mitigation plan as needed Audit to determine if mitigation worked as intended Risks change and new risks arise © Copyright Carrie Kendrick 2008

16. The Payoff The results of well managed project risk Every project encounters unforeseen issues How your team responds to problems makes all the difference in how leaders perceive project success A team, confident that their fears are being listened to and addressed, will: Have a more positive outlook and believe in success Be more proactive in identifying additional barriers Use the spared energy to focus on completing tasks well and on time, and responding to the unexpected Managing risks conserves resources © Copyright Carrie Kendrick 2008

17. Questions and Further Discussion Contact Carrie: carrie.kendrick@honeywell.com © Copyright Carrie Kendrick 2008