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Transcript of Chapter 10- Net present value
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Chapter 10
Contemporary Project Management
Kloppenborg
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DIT0090: Project Management
Texas Medical Center
TMC is composed of 49 not-for-profit institutionsdedicated to the highest standards of patient care,
research, and education.
Currently 11 major construction projects are underway.
TMC forms the seventh largest downtown businessdistrict in the United States.
Contractors must have a plan in place detailing how they
are going to secure their construction sites in the event
of a hurricane.
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DIT0090: Project Management
At the end of this chapter
Describe risk management planning, risk identification,risk analysis, and risk response planning.
Identify and classify risks for a project.
Populate a risk register.
Describe various risk assessment techniques and tell
when each is appropriate to use. Prioritize each risk on a project using an appropriateassessment technique.
Develop and defend at least one strategy for each of thehigh priority risks on a project.
Compare and contrast the various strategies for dealingwith risks.
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DIT0090: Project Management
The purpose of risk management is to
reduce the overall project risk to a level
that is acceptable to the project sponsorand other stakeholders.
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DIT0090: Project Management
Plan Risk Management
First understand the projects objectives
Realize what project success is
Plan risk managementthe process of defining how toconduct risk management activities for a project.PMBOK Guide
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DIT0090: Project Management
Plan Risk Management
Planning requires an understanding of project success
Project success measures include:
Meeting Agreements
Cost, schedule, and specifications met
Customers Success
Needs met, deliverables used, customer
satisfied
Performing Organizations SuccessMarket share, new products, new technology
Project Teams Success
Loyalty, development, satisfaction
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Plan Risk Management
Did the project help the performing organization?
Performing organizationthe enterprise whosepersonnel are most directly involved in doing the work of
the project. PMBOK Guide
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Specific Project Stakeholder
Priorities
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Risk Management Planning and
Stakeholder Priorities
Understand what the project plan calls for
Understand in what area would the most important
stakeholders like to improve
Understand where stakeholders are willing to sacrifice to
enable improvements
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Understanding the Project Risk
A risk is anything that may impact the project teams
ability to achieve the general project success measures
and the specific project stakeholder priorities.
A negative impact poses a threat
threata condition or situation unfavorable to theprojecta risk that will have a negative impact on a
project objective if it occurs. PMBOK Guide
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DIT0090: Project Management
Understanding the Project Risk
A positive impact poses an opportunity
A project manager proactively seeks to eliminate/reduce
the impact of threats and capitalize on opportunities
opportunitya condition or situation favorable to theproject a risk that will have a positive impact on a
project objective if it occurs. PMBOK Guide
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DIT0090: Project Management
Risk Management Planning
The risk management plan is useful for communicating
with project stakeholders and for follow up analysis
Risk management planthe document describing howproject risk management will be structured and
performed on a project. PMBOK Guide
Ri k M t Pl G id f
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DIT0090: Project Management
Risk Management Plan Guidance for
an IT Consulting Company
1. Decide what level of risk premium to charge for the
project. The team must rate factors such as project size,complexity, technology, and type. The combined ratings
will dictate that a risk premium of 0, 10, or 20 percent be
added to the estimated project cost or, for very risky
projects, executive approval is mandated.
2. Mitigate risk external to the firm through contract clauses
and risk internal to the firm through agreements.
3. Manage the risk very carefully through specifically
designed weekly conference call meetings and reports.
Risk management includes guidance on how to
perform three risk management activities:
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DIT0090: Project Management
Roles and Responsibilities
Encourage wide participation in risk management
activities
The more perspectives considered, the more likely
important risks will be uncovered
Participation in project risk planning encourages buy-in
to a risk management approach
The risk management plan defines who has
responsibility for each risk management activity
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DIT0090: Project Management
Categories and Definitions
Risks may be considered by association with a specific
project life cycle stage
More project risks are uncovered early in the life of a
project
The cost per risk discovered early is less
Risks discovered late in a project can be expensive
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DIT0090: Project Management
Risks Over the Project Life Cycle
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DIT0090: Project Management
Categories and Definitions
Risks may be categorized by their impact on a project
objective (cost, schedule, scope, quality)
Risks may be classified as external/internal to the
organization
Risks may be classified by what is known about each
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DIT0090: Project Management
International Construction Project
Risk Factors
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DIT0090: Project Management
Information Systems Project Risk
Factors
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DIT0090: Project Management
Information Systems Project Risk
Factors
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DIT0090: Project Management
Information Systems Project Risk
Factors
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DIT0090: Project Management
Categories and Definitions
A known known can be planned and managed with
certainty
Knownunknowns can be identified and may or may not
happen
Identify the risk and establish contingency reserves
Unknownunknowns are true uncertainties
Negotiate a management reserve based on project
manager and key stakeholders understanding of the
project
Cement will
harden
Bad weather
will happen
100-year flood
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DIT0090: Project Management
Identify Risks
Information gathering
Reviews
Understanding relationships
Risk register
Identify risksthe process of determining which risksmight affect the project and documenting their
characteristics. PMBOK Guide
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DIT0090: Project Management
Information Gathering
A brainstorming activity considering whatcould go wrong
Use classic rules for brainstorming
Variations and extensions of possiblerisks can help to identify additional risks
Interview stakeholders
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DIT0090: Project Management
Information Gathering
Use a SWOT analysis Use the Delphi technique
Use a structured review review a variety ofproject and other documents to uncover
possible risks
SWOT analysisan information gathering technique
used to examine the project from perspectives of eachprojects strengths, weaknesses, opportunities, andthreats to increase the breadth of risks considered.PMBOK Guide
Delphi techniquean information gathering techniquesused as a way to reach a consensus of experts on asubject Responses are summarized and recirculated for
further comment. PMBOK Guide
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DIT0090: Project Management
Reviews
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DIT0090: Project Management
Understanding Relationships Learn the cause and effect relationships of risk events
Use a flow chart that shows how people, money, data, or
materials flow from one person/location to another
Consider why a certain risk event may happen through
root cause analysis
Why might this happen?
Root cause analysisan information gatheringtechniques used as a way to reach a consensus ofexperts on a subject Responses are summarized and
recirculated for further comment. PMBOK Guide
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DIT0090: Project Management
Understanding Relationships
Understand triggers
A trigger may be specific to an individual risk
Triggers can be general indications of problems for the
project as a whole
Triggersindications that a risk has occurred or is
about to occur. PMBOK Guide
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DIT0090: Project Management
Triggers for a Project as a Whole
Project manager displays lack of self-esteem.
Team members do not show enthusiasm for project. Project was started with inadequate time for planning.
Communications are overly general, with little focus.
Reports yield little information about true project status.
Little effort has been given to risk management.
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DIT0090: Project Management
Risk Register
The primary output of risk identification is the riskregister
The risk register includes risk categories, identified risks,
potential causes, potential responses
The risk register is a living document
Risk registerthe document containing the results of thequalitative risk analysis, quantitative risk analysis, and riskresponse planning. The risk register details all identifiedrisks, including description, category, cause, probability ofoccurring, impact(s) on objectives, proposed responses,
owners, and current status. PMBOK Guide
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DIT0090: Project Management
Partial Risk Register
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DIT0090: Project Management
Risk Analysis
Perform qualitative risk analysis
Perform quantitative risk analysis
Risk register updates
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DIT0090: Project Management
Qualitative Risk Analysis
How likely is a risk to happen?
How big will the impact be?
When is the risk likely to occur?
How easy will it be to notice and correctly interpret thetrigger?
Perform qualitative risk analysisthe process ofprioritizing risks for subsequent further analysis or action
by assessing and combining their probability andimpact. PMBOK Guide
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DIT0090: Project Management
Qualitative Risk Assessment
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DIT0090: Project Management
Qualitative Risk Analysis
Determine cause and effect relationships
Part of root cause analysis
It may be easier to change the effect by changing the
underlying cause
Use a cause and effect diagram (fishbone diagram)
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DIT0090: Project Management
Cause and Effect Diagram
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DIT0090: Project Management
Cause and Effect Diagram
List the risk as the effect in a box at the head of the fish
Name the big bones
Complete the smaller bones as responses to asking
why the big bones may be a problem
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DIT0090: Project Management
Perform Quantitative Risk Analysis Bigger, more complex, riskier, more expensive projects
may benefit from the rigor of quantitative structured
techniques
Use when it is critical to predict the probability of
completing a project on-time, on-budget, at the agreed
upon scope and/or agreed upon quality
Quantitative risk analysisthe process of numericallyanalyzing the effect of identified risks on overall project
objectives. PMBOK Guide
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DIT0090: Project Management
Common Quantitative Risk Analysis
Techniques
Criteria for Selecting a
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DIT0090: Project Management
Criteria for Selecting aQuantitative Risk Technique
Methodology Use the explicit knowledge of the project team members. Allow quick response.
Help determine project cost and schedule contingency.
Help foster clear communication.
Easy to use and understand.
Ri k R i t U d t
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DIT0090: Project Management
Risk Register Updates
Add the probability of each risk occurring and its impact
to the register
Document results of quantitative risk analysis in the risk
register
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DIT0090: Project Management
Plan Risk Responses Strategies for Responding to Risks
Risk Register Updates
Plan risk responsesthe process of developingoptions and actions to enhance opportunities and
reduce threats to project objectives. PMBOK Guide
St t i f R di t Ri k
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DIT0090: Project Management
Strategies for Responding to Risks
Project risk response strategy decisions must be made
with a thorough understanding of the priorities keystakeholders have for cost, schedule, scope, and quality
Common Project Risk Strategies
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DIT0090: Project Management
Common Project Risk Strategies
Ri k R i t U d t
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DIT0090: Project Management
Risk Register Updates
The project manager sees that the risk register is
updated with the results of the response planning
For each risk the response strategy is noted
Assign a single person as the owner of each risk
Include any changes to the project schedule, budget,
resource assignments and communications plan
S
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DIT0090: Project Management
Summary
All projects have some risks
Risk planning should use an appropriatelevel of detail to plan for major risks
Risk planning begins with an
understanding of project success Risk management planning is part of the
overall project management plan
Risk identification includes gatheringinformation on potential risks
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DIT0090: Project Management
Summary
Identified risks are documented in a riskregister
Identified risks are next analyzed
Risk response planning involvesdetermining how to respond to each of the
major risks
Risk response strategies include avoid,transfer, mitigate, accept, research, and
exploit
Ri k M t
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DIT0090: Project Management
Risk Management on a
Satellite Development Project
Planning
Establish the process fordealing with risk and
change
Day-long clinic
Criteria for evaluatingprobabilities of
occurrence
Compared methods to
industry standards
Execution
Integrated approach toidentification, analysis,
and response to risks
Using a risk management
database tool to log each
risk as a record in the
database
PMnAoEampe
Systematically working with the risks of the project allowed usto prepare responses to the risks if and when they occurred.
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DIT0090: Project Management
Risk Management WorksheetPMnAoEampe
Ri k M t S t llit
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Risk Management on a Satellite
Development Project
Risk management reviews
Review logged risks, actions and impacts of risks
Review prioritized report of all projects risks
Avenue to resolve high-priority risks of the project Identification of potential risks for related projects
PMnAoEampe