05 Project Planning - Risk Management

8/6/2019 05 Project Planning - Risk Management

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Principles of Project Management

Hisham Rafik,MBA, PMPPresented By:


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Principles of Project Management 2 Knowledge 2008

Course Outline1. Project Management Framework

2. Project Initiation3. Project Planning - Scope Definition

4. Project Planning - Schedule Development5. Project Planning - Risk Management6. Project Planning - Budgeting


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Section 5

Managing Risk in projects


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Project Planning Process

Scope Definition

Schedule Development

Risk Management Plan

BudgetingPlan Compilation and Approvals


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Risk = An uncertain event or condition that, if it

occurs, has a Positive or Negative effect on aproject objective

The severity of any risk can be defined in terms oftwo parameters:

Likelihood (Probability): The extent to whichthe risk effects are likely to occur.Impact (Consequence): The effect that a risk

will have on the project if it occurs.

Risk defined


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Is the systematic process of Identifying, Analyzing,

and Responding to project risks

Maximizing the probability and consequences of

positive events (Opportunities ) to ProjectObjectives

AND

Minimizing the probability and consequences of

adverse events ( Threats ) to Project Objectives

Project risk management


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Project Risk Management Processes

11.3

QualitativeRisk Analysis

11.4QuantitativeRisk Analysis

11.2Risk Identification

11.5Risk ResponsePlanning

Planning Controlling

11.6Risk Monitoring& Control

11.1Risk ManagementPlanning


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11.1. Risk Management PlanningThe process of deciding how to approachand conduct the risk management activitiesfor a project

Should be completed early during projectplanning


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Risk Management Planning

Inputs1. Enterprise

environmental

factors2. Organizations

process assets

3. Project scope

statement

4. Project

management plan

Tools &Techniques

1. Planned meetings

& analysis

Outputs1. Risk Management

Plan


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Risk Management PlanningDescribes how risk identification, qualitative

and quantitative analysis, response planning,monitoring, and control will be structured and

performed during the project life cycle


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Risk Management PlanMethodology

Approaches, tools, and data sources that might be used to perform risk management

Roles & ResponsibilitiesLead and support roles for each type of action in the plan

Budgeting:Established budget for Risk Management

TimingWhen and how often risk management process will be performed

Definitions of risk probability & impact

Reporting FormatsDescribes contents and format of Risk Response Plan

Tracking

Describes how risk activities will be recorded for current project and lessons learned


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11.2. Risk IdentificationInvolves determining which risk events might affect

the project and documenting their characteristics.

Everyone should be involved in risk identification


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Risk Identification

Inputs Enterprise

environmental factors

Organizationsprocess assets

Project scope

statement Risk Management Plan

Project management

plan

Tools & Techniques1. Documentation reviews

2. Information-gathering

techniques3. Checklists analysis

4. Assumptions analysis

5. Diagramming technique

Outputs1. Risks register


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Risk Identification Tools &

Techniques: Information-Gathering TechniquesThe Company Experience

Lessons LearnedPersonal experience

PM and project teamInterviews with:

Project managers in and out of theorganizationExperts: Technological, regional

Delphi techniqueCollect and manipulate inputs fromexperts located in different places


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Risk Identification Tools &

Techniques: Information-Gathering TechniquesBrain Storming sessions

PM, team and stakeholdersThe most frequently used

SWOT Analysis

(WT) Mitigation(ST) stabilityThreats (T)

(WO) Cooperate(SO) GrowthOpportunities (O)

Weaknesses (W)Strengths (S)External factors

Internal Factors

Ri k Id ifi i


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Risk Identification

More Tools & TechniquesChecklists analysis

Sample of high level risks (or risk areas) based on historical

information and knowledge that has been accumulated fromprevious similar projects.Actual risks should be more specific and clear

Assumptions analysisBased on a set of Hypotheses, Scenarios and Assumptions.What assumptions have been made and if they are valid

Diagramming techniqueCause and effect diagramSystem or process flow charts.

Influences diagram


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Risk SourcesSchedule

Tasks on the critical/near-critical path

Optimistically estimated tasksTasks reliant on external dependenciesResources

Tasks with one individual working alone or many people

Tasks using scarce resources or Under-skilled peopleIllness and turnover

BudgetUncertainty of fundsShifts in budget prioritiesUncertain resource costs

ScopeUncertainty of new product developmentDynamics of customer requirements


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Risk Sources (another view)INTERNAL

FinancialResearch andDevelopmentProductionHuman ResourcesAdministrative

Strategic Preference

EXTERNAL

EconomicalCompetition

Social/Cultural

RegulatoryPolitical

Project Risk Management


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Risk registerList of identified riskList of potential responses

Root causes of riskUpdated risk categories (for use of future

projects)

Project Risk Management

Risk Identification, Outputs

11 3/4 Qualitative and


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Method for prioritizing the identified risks for

further actions.

The process of assessing the impact and

likelihood of identified risks.

Should be revised during the project life cycle.

11.3/4. Qualitative and

Quantitative Risk Analysis


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Inputs

1. Organizationsprocess assets

2. Project scope

statement3. Risk Management

Plan

4. Risk register

Tools & Techniques1. Risk probability &

impact assessment

2. Probability & impact

matrix

3. Risk data quality

assessment4. Risk categorization

5. Risk urgency

assessment

Outputs1. Risk register

(updated)

Qualitative Risk Analysis


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Qualitative Risk Analysis - Example

Vendor does not ship order

Vendors ships more thanordered

Vendor order is incomplete or

misses critical parts

Vendor Ships early

Risk Event

HL

LL

HH

LM

ImpactProbability

Pl tti g Ri k E t th


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Plotting Risk Events on the

Risk Event Matrix

Risk Probability

Risk Impact

L M H

L

H

M


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Risk register (updates)

Relative ranking or priority list of project risks.

Risks grouped by categories.

List of risks requiring response in the near-term.

List of risks for additional analysis and response.

Watch lists of low priority risks (residual risks).

Trends in qualitative risk analysis results.

Qualitative Risk Analysis, Outputs


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Quantifying project riskImpact

value $$

Total risk value

Risk event

$

Risk value

$$

Prob.

%


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Inputs1. Riskmanagement

plan2. Risk register

Tools & Techniques1. Strategies for negative

risk or threats

2. Strategies for positive

risk or opportunities3. Strategies for both

threats and opportunities

4. Contingent responsestrategy

Outputs1. Risk management

plan

2. Risk register

3. Risk-related

Contractual

agreements

Risk Response Planning


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Risk Response Planning Tools & Tech.Strategies for Negative risks (Threats)

Avoidance

MitigationTransferAcceptance (valid for threats and opportunities)


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Response Strategies for ThreatsAvoidance :

Risk preventionChanging the plan to eliminate a risk by avoiding thecause/source of risk

Protect project from impact of riskExamples:

Change the implementation strategy

Do it ourselves (do not subcontract)Reduce scope to avoid high risk deliverablesAdopt a familiar technology or product


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Response Strategies for ThreatsMitigation

Seeks to reduce the impact or probability of the riskevent to an acceptable thresholdBe proactive: Take early actions to reduce

impact/probability and dont wait until the risk hits yourprojectExamples:

Staging - More testing - PrototypeRedundancy planningUse more qualified resources


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Response Strategies for ThreatsTransfer

Shift responsibility of risk consequence to another partyDoes NOT eliminate riskMost effective in dealing with financial exposure

Examples:Buy/subcontract: move liabilitiesSelecting type of Procurement contracts: Fixed PriceInsurance: liabilities + bonds + Warranties


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AcceptanceUsed when it is not possible to change project plan orunable to use other risk response strategy (i.e. when it is notpossible to avoid/mitigate/transfer a risk)Active Acceptance

Develop a contingency plan to execute if the risk occurContingency plan = be ready with Plan B

Passive AcceptanceDeal with the risks as they occur = No Plan B prepared

Contingency allowance/ reserveEstablished amount of reserve (e.g.: time and/or money) toaccount for the identified known risks that couldn't beavoided, mitigated or transferredAmount is decided based on probability and impact

Response Strategies for Threats


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Outputs of Risk Management1. Risk response plan

List of critical risks and the plan towards them

Budget required to mitigate/transfer/avoidContingency plans and the needed contingency reserve

2. List of residual risksThose neglected risks will be reviewed throughout theproject execution (in case impact/probability increases)

3. Secondary risksThose new risks that arise from implementing a riskresponse.They should be revisited and re-incorporated in the risk

response plan


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Risk Response Plan (process output)Riskresponse

cost

Riskvalue Risk Response

Early WarningSignsProb.

ImpactRisk event


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Risk reservesContingency ReserveKnown unknowns expectable risks

Accounts for:Amounts dedicated for contingency plans identified in the riskmanagement processResidual risks that we decided to put aside when developing the

risk management plan

Management ReserveUnknown Unknowns un-expectable risksAccounts for items that we did not or could not identify in the riskmanagement process


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Risk register (updates)Identified RiskRisk ownerResults from qualitative and quantitative riskanalysis processes

Agreed responseSpecific action to implement the chosen responsestrategy

Residual and secondary riskBudget and time of responsesContingency plan and triggers

Risk Response Planning, Outputs


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Risk Management: SummaryProcess: Identification, Assessment, ResponseDevelopment and ControlRisk Sources: Internal and externalRisk Event Plotting; Risk Matrix

Threat Responses: Avoid, Mitigate, Transfer andAcceptContingency Planning

Risk planning Outputs Risk Response Plan + listof residual risks + secondary risks

05 Project Planning - Risk Management

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