Proj Risk Mgt
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Transcript of Proj Risk Mgt
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Risk Management
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Risk Definitions
Risk
Uncertain event that has a positiveor negative effect on at least one of
the project objectives (scope,schedule, budget, quality).
A general definition of project risk is an
uncertainty that can have a negative orpositive effect on meeting project
objectives.
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Negative Risk
Negative risk involvesunderstanding potential problemsthat might occur in the project andhow they might hold back projectsuccess.
Negative risk management is like a
form of insurance; it is aninvestment.
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Risk Can Be Positive
Positive risks are risks that result ingood things happening; sometimes
called opportunities.
The goal of project risk management is
to minimize potential negative risks
while maximizing potential positive
risks.
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Risk Definitions
Opportunity
A project risk that has a positive
effect.
Project Managers will look for waysto enhance, exploit, or share the
effects of an opportunity.
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Risk Utility
Risk utility orrisk tolerance is the amount of
satisfaction or pleasure received from a
potential payoff.
Utility rises at a decreasing rate for peoplewho are risk-averse.
Those who are risk-seeking have a higher
tolerance for risk and their satisfactionincreases when more payoff is at stake.
The risk-neutral approach achieves a
balance between risk and payoff.
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Risk Utility Function and Risk
Preference
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Risk Definitions
Risk Management
The practice of dealing with project
risk. It includes planning for risk,assessing risk, developing riskresponse strategies, and monitoring
risk throughout the project life cycle.
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Risk Definitions
Project risk management is the artand science of identifying, analyzing,and responding to risk throughoutthe life of a project and in the bestinterests of meeting projectobjectives.
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Risk Planning Process
Risk Management Planning
The objectives of Risk Management
Planning are to increase theprobability and impact of positiveevents (opportunities) and decrease
the probability and impact of adverseevents (threats) to project objectives.
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Common Sources of Risk in
Information Technology Projects Several studies show that IT projects share some
common sources of risk.
The Standish Group developed an IT success
potential scoring sheet based on potential risks.
Other broad categories of risk help identify
potential risks.
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12 INSE 6230
Information Technology Success
Potential Scoring SheetSuccess Criterion Relative Importance
User Involvement 19
Executive Management support 16
Clear Statement of Requirements 15
Proper Planning 11
Realistic Expectations 10
Smaller Project Milestones 9
Competent Staff 8
Ownership 6
Clear Visions and Objectives 3
Hard-Working, Focused Staff 3
Total 100
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13 INSE 6230
Risk Breakdown Structure
A risk breakdown structure is a hierarchy
of potential risk categories for a project.
Similar to a work breakdown structure but
used to identify and categorize risks.
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Sample Risk Breakdown Structure
IT Project
Business Technical OrganizationalProject
Management
Competitors
Suppliers
Cash flow
Hardware
Software
Network
Executive
support
User support
Team support
Estimates
Communication
Resources
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15 INSE 6230
Project Risk Management Processes
Risk management planning: Deciding how toapproach and plan the risk management activitiesfor the project.
Risk identification: Determining which risks are
likely to affect a project and documenting the
characteristics of each.
Qualitative risk analysis: Prioritizing risks
based on their probability and impact of
occurrence.
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16 INSE 6230
Project Risk Management Processes
(contd)
Risk monitoring and control: Monitoring
identified and residual risks, identifying new
risks, carrying out risk response plans, andevaluating the effectiveness of risk strategies
throughout the life of the project.
Quantitative risk analysis: Numerically
estimating the effects of risks on project
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Risk response planning:Taking steps to
enhance opportunities and reduce threats to
meeting project objectives.
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18 INSE 6230
Risk Identification Risk identification is the process of
understanding what potential events mighthurt or enhance a particular project.
Risk identification tools and techniques
include:
Brainstorming
The Delphi Technique
Interviewing
SWOT analysis
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Brainstorming
Brainstorming is a technique by which agroup attempts to generate ideas or find a
solution for a specific problem by amassing
ideas spontaneously and without judgment.
An experienced facilitator should run the
brainstorming session.
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Be careful not to overuse or misuse
brainstorming.
Psychology literature shows thatindividuals produce a greater number of
ideas working alone than they do through
brainstorming in small, face-to-facegroups.
Group effects often inhibit idea
generation.
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Delphi Technique
The Delphi Technique is used to derive a
consensus among a panel of experts who
make predictions about future
developments.
Provides independent and anonymous input
regarding future events.
Uses repeated rounds of questioning and
written responses and avoids the biasing
effects possible in oral methods, such as
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Interviewing
Interviewing is a fact-finding technique for
collecting information in face-to-face,
phone, e-mail, or instant-messaging
discussions.
Interviewing people with similar project
experience is an important tool foridentifying potential risks.
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23 INSE 6230
SWOT Analysis
SWOT analysis (strengths, weaknesses,
opportunities, and threats) can also be used
during risk identification.
Helps identify the broad negative and
positive risks that apply to a project.
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24 INSE 6230
Risk Register The main output of the risk identification process
is a list of identified risks and other information
needed to begin creating a risk register.
A risk register is:
A document that contains the results of variousrisk management processes and that is often
displayed in a table or spreadsheet format.
A tool for documenting potential risk events
and related information.
Risk events refer to specific, uncertain events that
may occur to the detriment or enhancement of the
project.
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25 INSE 6230
Risk Register Contents
An identification number for each risk
event.
A rank for each risk event.
The name of each risk event.
A description of each risk event.
The category under which each risk event
falls. The root cause of each risk.
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Qualitative Risk Analysis
Assess the likelihood and impact ofidentified risks to determine their
magnitude and priority.
Risk quantification tools and techniquesinclude:
Probability/impact matrixes
The Top Ten Risk Item TrackingExpert judgment
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27 INSE 6230
Probability/Impact Matrix A probability/impact matrix orchart lists the
relative probability of a risk occurring on oneside of a matrix or axis on a chart and the
relative impact of the risk occurring on the
other.
List the risks and then label each one as high,
medium, or low in terms of its probability of
occurrence and its impact if it did occur.
Can also calculate risk factors:
Numbers that represent the overall risk of
specific events based on their probability of
occurrin and the conse uences to the ro ect
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40
Risk Management Planning Step 3
Impact/Probability Matrix
A common method/tool to determine
whether a risk is considered low,moderate, or high by combining thetwo dimensions of a risk: its
probability of occurrence, and itsimpact on objectives if it occurs.
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Risk Management Planning Step 3
Impact/Probability Matrix Incorrect: confusing or combining
Impact & Probability
It is very unlikely, therefore the impact is low
Correct: Keep Impact & Probability
independentProbability is low, but if it happens, the project
will fail. Therefore the impact is high
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Risk Management Planning Step 3
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Impact
Probability
Low
High
Low High
Green: Low Risk
(Passive Acceptance workarounds)
Yellow: ModerateRisk (Active
Acceptance
contingency)
Red: High Risk (RiskResponse Planning)
Using a 2x2 Impact/Probability Matrix
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Impact
Risk: Key project
team member withspecialized skillleaves project teambefore work is done.
Impact: High
Probability: Low
Yellow Zone Moderate Risk
2x2 Impact/Probability Matrix example
Impact
Probability
Low
High
Low High
Risk Management Planning Step 3
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X
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Impact
Risk: Change to
regulatory ordinancerequires additionalwetland mitigation,requiring additionalR/W
Impact: High
Probability: High
2x2 Impact/Probability Matrix example
Impact
Probability
Low
High
Low High
X
Risk Management Planning Step 3
40 Red Zone High Risk
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Impact
Risk: Mariners first
World Series game isscheduled on thesame date as theEnvironmentalHearing
Impact: Low
Probability: Low
2x2 Impact/Probability Matrix example
Impact
Probability
Low
High
Low High
X
Risk Management Planning Step 3
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Comparative Risk Rating
Risk Management Planning Step 3
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A
B
C
D
A B C D
A
C
B
C
A C
Risk A 2
Risk B
1
Risk C 3
Risk D 0
Priority Order:
C A B D
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Exercise Qualitative Risk Analysis
Qualitative Risk Analysis Exercise
Using a 2x2 impact & probability matrix, assess
the risks identified in the last exercise.
First, evaluate the impact of the risk event on theproject objectives
Then, with the risks identified as high impact,
assess the probability of the risk event.
Perform a comparative risk rating on the high-
high (red zone) risk events
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Risk Management Planning Step 4
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Quantitative Risk Analysis
The process of numerically analyzing
the effect of identified risks on theprojects objectives. (In particular,
the project schedule and the project
costs).
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Cost Risk Estimating &Management (CREM) Office
CRA: Cost Risk Assessment (pg.37) $25 million or more $5 million or more with specific characteristics
CEVP: Cost Estimate ValidationProcess (pg.37)
$100 million or more
Risk Management Planning Step 4
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Quantitative Risk Analysis
Quantify possible outcomes for the
project
Assess probability of achievingspecific project objectives
Identify risks requiring mostattention
Risk Management Planning Step 4
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Quantitative Risk Analysis
Identify realistic and achievable
cost, schedule, or scope targets,given project risks
Determine best management
decision when conditions oroutcomes are uncertain
Risk Management Planning Step 4
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Quantitative Risk Analysis tools
Interviewing (SMEs)
Decision Tree Analysis
Monte Carlo Simulation
Risk Management Planning Step 4
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Quantitative Risk Analysisproducts
Updated Risk Register
Probabilistic analysis for projectsuccess (time and cost)
Updated priority of risk events
Trends in risk analysis
Risk Management Planning Step 4
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Risk Management Planning Step 4
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25%
50%
75%
100%
0%
$30m $33m $36m $39m
$37.5m
90%
15%
COST
PROBAB
ILITY
TOTAL PROJ ECT COSTSCumulative Chart
Contingency
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Risk Management Planning Step 5
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Risk Response Strategy
The process of developing options
and actions to enhance opportunitiesand to reduce threats to the projectobjectives.
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Risk Management Planning Step 5
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Risk Response Strategy
Proactive, not reactive
Appropriate to significance of risk
Cost effective
Timely
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Risk Management Planning Step 5
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Risk Response Strategy
Realistic within project context
Agreed upon by project team and allparties involved
Assigned to / owned by a responsibleperson
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Risk Management Planning Step 5
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Risk Response Definitions
Avoidance Changing a project
objective to eliminate the threatposed by an adverse risk event.
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Risk Management Planning Step 5
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Risk Response Definitions
Transference Shifting the negative
impact of a threat, along with theownership of the response, to a thirdparty.
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Risk Management Planning Step 5
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Risk Response Definitions
Mitigation Reducing the Probability
or Impact of an adverse risk event(threat) to an acceptable threshold.
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Risk Response Definitions
Acceptance The project team
decides not to change projectobjectives to deal with the risk.
Passive acceptance: no action , deal withthreats as they occur (workarounds)
Active acceptance: establish a contingencyreserve to handle risks
Risk Management Planning Step 5
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Impact
Probability
Low
High
Low High
ATM
Passive
A
cceptance
(w
orkaround)
Active
Acceptance(or
A T M)
Risk Response Strategy (threats)
Risk Management Planning Step 5
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Risk Response Definitions
Exploit This strategy seeks to
eliminate the uncertainty with anopportunity by changing a projectobjective to ensure it happens.
Risk Management Planning Step 5
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Risk Response Definitions
Share Allocating ownership of the
positive risk event to a third partywho is best able to capture theopportunity for the project.
Risk Management Planning Step 5
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Risk Response Definitions
Enhance Increasing the probability
and/or positive impact of anopportunity.
Risk Management Planning Step 5
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Ri k M Pl i S
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Risk Response Definitions
Contingency Not a risk response,
but an output from risk planning.Developed for actively acceptedproject risks. This is typically
defined as time or funds.
Risk Management Planning Step 5
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E i Q lit ti Ri k A l i
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Exercise Qualitative Risk Analysis
Risk Response Strategy Exercise
Using the results from the qualitative analysis
from the last exercise:
Identify risk response strategies for the high-high
(red zone) risk events.
Decide who will be the responsible person to
monitor the risk event and the effectiveness of the
risk response
Decide if active acceptance or further risk
response planning will be required for the high-
low (yellow zone) risk events.
Ri k M t Pl i St 6
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Risk Monitoring & Control
Managing the Risk Register during the
Work the Plan phase of the project. Recognize the probability and impact of
risk events may change during the life ofthe project.
Also recognizing that additional risksevents can be identified during the Work
the Plan.
Risk Management Planning Step 6
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Ri k M t Pl i St 6
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Risk Monitoring & Control
Assign a responsible party
(ownership) of the risk event.
Track risk event status
Active/Dormant: risk is currently beingmonitored and analyzed
Retired: risk event (trigger) no longerposes a threat to the project.
Risk Management Planning Step 6
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Ri k M t Pl i St 6
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Risk Monitoring & Control
Risk Registers should be a standing
agenda item for project team meetings. Risk reporting should be an standing
reporting item for all project progressreporting
WSDOT tools for reporting (PDIS, QPR,GMAP).
Risk Management Planning Step 6
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Ri k M t
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Monte Carlo Simulation Exercise
Risk Management