Syrian Virtual University

Dr. Iyad Zoukar

zoukar@gmail.com

I. Zoukar, 2012

Project Risk Management

Lecture 09

How most projects seem

Dr. Iyad Zoukar SVU Fall 2011 Project Management Lecture 09

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How most projects are

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Without effective risk management

$

Cost

Benefits

Cost

Benefits
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What is Risk?

Risk is anything, event, practice, process, activity, etc which has an uncertain outcome.

Risk is uncertain or chance events that planning can

not overcome or control.

In a business sense it is any threat to the achievement of our organizational objectives.

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9.6

What is Risk?

There are three main types of business risks:

Financial

Risks

directly impact financial position

Operational

Risks

indirectly impact financial outcomes Risks

Strategic

impact viability of business

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What is Risk Management?

Risk Management
A

proactive attempt to recognize and manage internal events and external threats that affect the likelihood of a projects success.

What can go wrong (risk event).

How to minimize the risk events impact (consequences). What can be done before an event occurs (anticipation). What to do when an event occurs (contingency plans).

Identification,

measurement, and management of events which may adversely impact your organizational objectives.
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What is Risk Management?

Identify
Past experience Market information Potential risk information Risk limits

Measure
Data analysis Simulations and sensitivity analysis Risk and return of strategic choices Identifying priorities

Manage
Risk management techniques Strategic choices Tradeoffs

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Principles of risk management

Risk management should: create value. be an integral part of organizational processes. be part of decision making. explicitly address uncertainty. be systematic and structured. be based on the best available information. be tailored. take into account human factors. be transparent and inclusive. be dynamic, iterative and responsive to change. be capable of continual improvement and enhancement
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The Risk Event Graph

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Risk Management Process

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Managing Risk

Step 1: Risk Identification

Generate

a list of possible risks through brainstorming, problem identification and risk profiling.

Macro risks first, then specific events

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How Identify Risks? Managing Risk

Step 1: Risk Identification Round table discussions. Workshops. Questionnaires. Audits. Stakeholder analysis. Complaints. Sickness absence / staffing levels. New legislation and policy. Controls Assurance Standards.
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Managing Risk

Step 1: Risk Identification

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Risk Management Process

Step 1: Risk Identification

Product description Other outputs Historical info

Risk Identification
Sources of risk Potential risk events Risk symptoms
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Checklist
Dr. Iyad Zoukar SVU Fall 2011 Project Management Lecture 09

Managing Risk

Step 2: Risk Assessment

Scenario

analysis Risk assessment matrix Failure Mode and Effects Analysis (FMEA) Probability analysis

Decision trees, NPV, and PERT

Semi-quantitative

scenario analysis

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Risk Management Process

Step 2: Risk Assessment

Stakeholders risk tolerance Sources of risk Potential risk events Cost estimates Activity duration estimates

Risk Assessment
Simulations Opportunity to pursue Treats to respond to Opportunities to ignore Treats to accept
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Managing Risk

Partial Risk Profile for Product Development Project

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Risk prioritization
High

Low
Low High

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Risk prioritization
Transfer Risk

High

Manage RISK Through Control: management, Monitoring and feedback mechanisms

Absorb Risk

Low Low High

Manage RISK Through Processes, Procedures, technology

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Risk Assessment Form

Step 2: Risk Assessment

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Risk Severity Matrix

Step 2: Risk Assessment

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Prioritized checklist

Step 2: Risk Assessment

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Prioritize Risks
Some questions that you should ask:

Identify those that have the greatest impact on organization

Which Are

are easy to control?

controls already in place and if so how effective are they?

Does

everyone understand the risks and the risk priorities?

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Managing Risk

Step 3: Risk Response Development

Mitigating

Risk

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

Transferring

Paying a premium to pass the risk to another party.

Avoiding

Risk

Changing the project plan to eliminate the risk or condition.

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Managing Risk

Step 3: Risk Response Development

Sharing

Risk

Allocating risk to different parties Risk

Retaining

Making a conscious decision to accept the risk.

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Risk Management Process

Step 3: Risk Response Development

Opportunity to pursue Treats to respond to Opportunities to ignore Treats to accept

Risk response development

Insurance

Risk mgt plan Contingency plan Reserves Contractual arrangements

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Contingency Planning

Contingency Plan
An

alternative plan that will be used if a possible foreseen risk event actually occurs.
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.

Decisions

made under pressure can be potentially dangerous and costly.

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Risk Response Matrix

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Risk and Contingency Planning

Technical Risks
Backup

strategies if chosen technology fails.

whether technical uncertainties can be

Assessing

resolved. Schedule Risks

Use

of slack increases the risk of a late project finish. duration dates (absolute project finish date)

Imposed

Compression

of project schedules due to a shortened project duration date.

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Risk and Contingency Planning

Costs Risks
Time/cost
Deciding Price

dependency links: costs increase when problems take longer to solve than expected.
to use the schedule to solve cash flow problems should be avoided. 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 dramatically affect the likelihood of implementation or successful completion of a project.

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Contingency Funding and Time Buffers

Contingency Funds Funds to cover project risksidentified and unknown.

Size of funds reflects overall risk of a project

Budget

reserves reserves

Are linked to the identified risks of specific work packages.

Are large funds to be used to cover major unforeseen risks (e.g., change in project scope) of the total project.

Management

Time Buffers Amounts of time used to compensate for unplanned delays in the project schedule.
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Contingency Fund Estimate

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Managing Risk

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 Assigning and documenting responsibility for managing risk
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Risk Management Process

Step 4: Risk Response Control

Risk mgt plan Actual risk event Additional risk identification

Risk response control

Workarounds Corrective actions Updates to the risk Mgt plan
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Risk Managements Benefits

A proactive rather than reactive approach. Reduces surprises and negative consequences. Prepares 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. Links between Risk Management and business objectives. Fewer sudden shocks. Competitive advantage. Strategy-setting basis. Assists with change management. Reduction in the need for fire-fighting. Minimise damage and loss.
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Limitations of Risk Management

If risks are improperly assessed and prioritized, time can be wasted in dealing with risk of losses that are not likely to occur. Spending too much time assessing and managing unlikely risks can divert resources that could be used more profitably. Unlikely events do occur but if the risk is unlikely enough to occur it may be better to simply retain the risk and deal with the result if the loss does in fact occur. Qualitative risk assessment is subjective and lack consistency.
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Limitations of Risk Management

The primary justification for a formal risk assessment process is legal and bureaucratic. Prioritizing too highly the risk management processes could keep an organization from ever completing a project or even getting started.

This is especially true if other work is suspended until the risk management process is considered complete.

It is also important to keep in mind the distinction between risk and uncertainty. Risk can be measured by impacts x probability.
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Dr. Iyad Zoukar SVU Fall 2011 Project Management Lecture 09

Project Risk Management

End of Lecture 09