Dr.

Atif Shahzad
_____________________
BE, MECHANICAL ENGINEERING
UNIVERSITY OF ENGINEERING & TECHNOLOGY, TAXILA, PAKISTAN, 2000

MCS, SOFTWARE ENGINEERING

SZABIST,, ISLAMABAD, PAKISTAN, 2003

MS, AUTOMATION & PRODUCTION SYSTEMS

ECOLE CENTRALE DE NANTES, NANTES, FRANCE, 2007

PhD, AUTOMATION & APPLIED INFORMATICS

UNIVERSITE DE NANTES, NANTES, FRANCE, 2011

EMAIL: atifshahzad@Gmail.com

TEL: +92-333-5219846, +92-51-5179755

LINKEDIN: pk.linkedin.com/in/dratifshahzad
 PROJECT
MANAGEMENT
TODAY’S LECTURE
 Risk Management Process
7–3

 Risk
¤ Uncertain or chance events that
planning can not overcome or control.
 Risk Management
¤A proactive attempt to recognize and manage internal
events and external threats that affect the likelihood of
a project’s success.
 What can go wrong (risk event).
 How to minimize the risk event’s impact (consequences).
Dr. Atif Shahzad

 What can be done before an event occurs (anticipation).

 What to do when an event occurs (contingency plans).
 The Risk Event Graph
7–4
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 Risk Management’s Benefits
7–5

 A proactive rather than reactive approach.

 Reduces surprises and negative consequences.
 Prepares the project manager to take advantage
of appropriate risks.
 Provides better control over the future.
 Improves chances of reaching project performance
objectives within budget and on time.
Dr. Atif Shahzad
 7–6

The Risk
Management
Process
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 Dealing with RISK
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 Managing Risk
7–8

 Step 1: Risk Identification

¤ Generate a list of possible risks through brainstorming,
problem identification and risk profiling.
 Macro risks first, then specific events

 Step 2: Risk Assessment

¤ Scenario analysis for event probability and impact
¤ Risk assessment matrix
¤ Failure Mode and Effects Analysis (FMEA)
¤ Probability analysis
 Decision trees, NPV, and PERT
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¤ Semiquantitative scenario analysis

 The Risk Breakdown Structure (RBS)
7–9
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 Partial Risk Profile for
Product Development Project
7–10
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 Scenario Analysis Example
IMPACT
DECISION OPTIONS c1
(.4)
10,000
c2 (.2)
2 15,000
c3 (.4)
d1 14,000
c1 (.4)
d2 8,000
1 c2 (.2)
3 18,000
d3 c3 (.4)
12,000
c1 (.4)
6,000
c2 (.2)
4
c3 16,000
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(.4)
21,000
 Defined Conditions for Impact Scales of a Risk on
Major Project Objectives
(Examples for negative impacts only)
7–12
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 Risk Assessment Form
7–13

Failure Mode and Effects Analysis (FMEA)

Impact × Probability × Detection = Risk Value
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 Risk Severity Matrix
7–14

Failure Mode and Effects Analysis (FMEA)

Impact × Probability × Detection = Risk Value
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 Managing Risk (cont’d)
7–15

 Step 3: Risk Response Development

¤ Mitigating Risk
 Reducing the likelihood an adverse event will occur.
 Reducing impact of adverse event.

¤ Avoiding Risk
 Changing the project plan to eliminate the risk or condition.

¤ Transferring Risk
 Paying a premium to pass the risk to another party.
 Requiring Build-Own-Operate-Transfer (BOOT) provisions.

¤ Retaining Risk
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 Making a conscious decision to accept the risk.

 Contingency Planning
7–16

 Contingency Plan

¤ An alternative plan that will be used if a possible

foreseen risk event actually occurs.
¤A plan of actions that will reduce or mitigate the
negative impact (consequences) of a risk event.
 Risks of Not Having a Contingency Plan

¤ Having no plan may slow managerial response.

¤ Decisionsmade under pressure can be potentially
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dangerous and costly.

 Risk and Contingency Planning
7–17

 Technical Risks
¤ Backup strategies if chosen technology fails.
¤ Assessing whether technical uncertainties
can be resolved.
 Schedule Risks
¤ Use of slack increases the risk of a late project finish.
¤ Imposed duration dates (absolute project finish date)

¤ Compression of project schedules due to a shortened

project duration date.
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 Risk Response Matrix
7–18
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 Risk and Contingency Planning
(cont’d)
7–19

 Costs Risks

¤ Time/cost dependency links: costs increase when

problems take longer to solve than expected.
¤ Deciding to use the schedule to solve cash flow
problems should be avoided.
¤ Price protection risks (a rise in input costs) increase if
the duration of a project is increased.
 Funding Risks

¤ Changes in the supply of funds for the project can

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dramatically affect the likelihood of implementation or

successful completion of a project.
 Opportunity Management Tactics
7–20

 Exploit
¤ Seeking to eliminate the uncertainty associated with an opportunity to ensure
that it definitely happens.
 Share
¤ Allocating some or all of the ownership of an opportunity to another party who
is best able to capture the opportunity for the benefit of the project.
 Enhance
¤ Taking action to increase the probability and/or the positive impact of an
opportunity.
 Accept
¤ Being willing to take advantage of an opportunity if it occurs, but not taking
Dr. Atif Shahzad

action to pursue it.

 Contingency Funding and Time
Buffers
7–21

 Contingency Funds
¤ Funds to cover project risks—identified and unknown.
 Size of funds reflects overall risk of a project

¤ Budget reserves
 Are linked to the identified risks of specific work packages.

¤ Management reserves
 Are large funds to be used to cover major unforeseen risks (e.g., change in project scope) of
the total project.
 Time Buffers
¤ Amounts of time used to compensate for unplanned
delays in the project schedule.
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 Severe risk, merge, noncritical, and scarce resource activities

 Contingency Fund Estimate ($000s)
7–22
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 Managing Risk (cont’d)
7–23

 Step 4: Risk Response Control

¤ Risk control
 Execution of the risk response strategy
 Monitoring of triggering events
 Initiating contingency plans
 Watching for new risks

¤ Establishing a Change Management System

 Monitoring, tracking, and reporting risk
 Fostering an open organization environment
 Repeating risk identification/assessment exercises
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 Assigning and documenting responsibility for managing risk

 Change Management Control
7–24

 Sources of Change

¤ Project scope changes

¤ Implementation of contingency plans
¤ Improvement changes
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 Change Control System Process
7–25

1. Identify proposed changes.

2. List expected effects of proposed changes
on schedule and budget.
3. Review, evaluate, and approve or disapprove
of changes formally.
4. Negotiate and resolve conflicts of change, condition, and cost.
5. Communicate changes to parties affected.
6. Assign responsibility for implementing change.
7. Adjust master schedule and budget.
8. Track all changes that are to be implemented
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 7–26

The Change
Control
Process
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 Benefits of a Change Control
System
7–27

1. Inconsequential changes are discouraged

by the formal process.
2. Costs of changes are maintained in a log.
3. Integrity of the WBS and performance measures
is maintained.
4. Allocation and use of budget and management reserve funds are
tracked.
5. Responsibility for implementation is clarified.
6. Effect of changes is visible to all parties involved.
7. Implementation of change is monitored.
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8. Scope changes will be quickly reflected in baseline and

performance measures.
 7–28

Sample
Change
Request
Form
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 Change Request Log

7–29
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 Key Terms
7–30

Avoiding risk Risk breakdown structure (RBS)

Budget reserve Risk register
Change management system Risk profile
Contingency plan Risk severity matrix
Management reserve Scenario analysis
Mitigating risk Sharing risk
Opportunity Time buffer
Risk Transferring risk
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 PROJECT
MANAGEMENT
RISK MANAGEMENT
PERT AND PERT SIMULATION
Appendix 7.1
 PERT—Program Evaluation Review
Technique
7–32

 Assumes each activity duration has a range that statistically follows

a beta distribution.
 Uses three time estimates for each activity: optimistic, pessimistic,
and a weighted average to represent activity durations.

¤ Knowing the weighted average and variances

for each activity allows the project planner to
compute the probability of meeting different
project durations.
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 Activity and Project Frequency
Distributions
7–33
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FIGURE A7.1
 Activity Time Calculations
7–34

The weighted average activity time is computed by

the following formula:

(7.1)
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 Activity Time Calculations (cont’d)
7–35

The variability in the activity time estimates is

approximated by the following equations:
The standard deviation for the activity:

(7.2)

The standard deviation for the project:

(7.3)
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Note the standard deviation of the activity is squared in this equation;

this is also called variance. This sum includes only activities on the
critical path(s) or path being reviewed.
 Activity Times and Variances
7–36
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TABLE A7.1
 Probability of Completing the
Project
7–37

The equation below is used to compute the “Z” value found in

statistical tables (Z = number of standard deviations from the
mean), which, in turn, tells the probability of completing the
project in the time specified.

(7.4)
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 Hypothetical Network
7–38
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FIGURE A7.2
 Hypothetical Network (cont’d)
7–39
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FIGURE A7.2 (cont’d)

 Possible Project Duration
7–40

Probability project is completed before Probability project is completed

scheduled time (TS) of 67 units by the 60th unit time period (TS)
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FIGURE A7.3
 Z Values and Probabilities
7–41
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TABLE A7.2
 Avoiding risk Elimination of the risk cause before the project begins.

Budget reserve Reserve setup to cover identified risks that may occur and
influence baseline tasks or costs. These reserves are typically controlled by the
project manager and the project team. See management reserve.

Change management system A defined process for authorizing and

documenting changes in the scope of a project.
Dr. Atif Shahzad

Contingency plan A plan that covers possible identified project risks that
may materialize over the life of the project.
 Mitigating risk Action taken to either reduce the likelihood that a risk will occur
and/or the impact the risk will have on the project.

Opportunity An opportunity is an event that can have a positive impact on

project objectives.

Risk The chance that an undesirable project event will occur and the
consequences of all its possible outcomes.
Dr. Atif Shahzad
 Risk profile A list of questions that addresses traditional areas of uncertainty
on a project.

Risk severity matrix A tool used to assess the impact of risks on a project.

Scenario analysis Scenario analysis is the easiest and most commonly

used technique for analyzing risks.
Dr. Atif Shahzad

Time buffer A contingency amount of time for an activity to cover

uncertainty—for example, availability of a key resource or merge event.
 PROJECT
MANAGEMENT
QUESTIONS
THANK YOU FOR YOUR INTEREST