Draining the Swamp while Avoiding the Alligators

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Introduction What is Risk Management? Why do Risk Management? Risk Management Processes,Tools Techniques

Participants !ill understand" And can de#ine the processes o# risk management $ommon risk management terminology The %ene#its o# pro&ect risk management

 Risk

and uncertainty are equi'alent

NO INFORMATION
(UNKNOWN UNKNOWNS)

PARTIAL INFORMATION
(KNOWN UNKNOWNS)

COMPLETE INFORMATION
(KNOWNS)

TOTAL UNCERTAINTY

GENERAL UNCERTAINTY

SPECIFIC UNCERTAINTY

TOTAL CERTAINTY

SCOPE OF PROJECT RISK MANAGEMENT

Pro&ect Risk

An uncertain e'ent or condition that, i# it occurs, has a positi'e or a negati'e e##ect on a pro&ect o%&ecti'e A systematic process o# identi#ying, analy.ing, and responding to pro&ect risk- It includes maximi.ing the results o# positi'e e'ents and minimi.ing the consequences o# ad'erse e'ents-

(PM)*+,

Pro&ect Risk Management

(PM)*+,

More and %etter in#ormation is a'aila%le during planning and decision making Pro&ect o%&ecti'es are 'eri#ied Impro'ed communications /igher pro%a%ility o# pro&ect success Proacti'e approach Pro&ect might %e canceled

Total Project Life Cycle P an I N C R E A S I N G R I S K

P"ase % CONCEPT Con!ei&e P"ase ' (E)ELOPMENT (e&e op

A!!omp is"
P"ase * IMPLEMENTATION E+e!ute P"ase , TERMINATION Finis"

Opportunity and Risk

Period #"en "i$"est risks are In!urred

$ V A L U E

Amount at Stake

Perio of !i"#e$t Ri$% I&'act

TIME

0n!illingness to admit risks exist 1ack o# understanding o# %ene#its Postpone the hard parts o# the pro&ect until later (do easy things #irst, Risk management costs money

0p #ront in'estment o# time $an2t pro'e it2s necessary

Think o# health insurance

Risks should only %e taken to achie'e a pro&ect o%&ecti'e The relationship %et!een uncertainty and in#ormation is in'erse $onditions o# relati'e uncertainty (partial in#ormation, are the rule Real in#ormation is the key

A risk should only %e taken !hen the potential %ene#it and chance o# !inning exceed the remedial cost o# an unsuccess#ul decision and chance o# losing %y a satis#actory margin
What may %e gained? What may %e lost? Is the potential re!ard !orth the risk (cost3%ene#it,? What are the chances o# success or #ailure? What can %e done is the desired result is not achie'ed? Amount and relia%ility o# in#ormation a'aila%le Managea%ility o# the risk Potential #or (ad'erse, pu%licity Whose money is it?

The risk does not achie'e a pro&ect o%&ecti'e The organi.ation cannot a##ord the loss The situation (or the pro&ect, is &ust not !orth it The odds are not in the pro&ects #a'or The %ene#its are not identi#ied There appears to %e a large num%er o# accepta%le alternati'es The expected 'alue #rom the %aseline assumption is negati'e or !ill %ecome negati'e !ith small changes in assumptions The data is unorgani.ed, !ithout structure or pattern There is insu##icient data to compute the results A contingency plan #or reco'ery is not in place should the results pro'e to %e less than satis#actory

Reduce the num%er o# surprise e'ents Minimi.e consequences o# ad'erse e'ents Maximi.e the results o# positi'e e'ents

4ecide ho! to approach and plan the risk management acti'ities #or a pro&ect 4etermine !hich risks might a##ect the pro&ect and document their characteristics Per#orm a qualitati'e analysis o# risks and conditions to prioriti.e their e##ects on pro&ect o%&ecti'es Measure the pro%a%ility and consequences o# risks and estimate their implications #or pro&ect o%&ecti'es 4e'elop procedures and techniques to enhance opportunities and reduce threats to the pro&ect2s o%&ecti'es Monitor residual risks, identi#y ne! risks, execute risk reduction plans, and e'aluate their e##ecti'eness throughout the pro&ect li#e cycle

5arly and o#ten Throughout the pro&ect li#ecycle Pro6acti'e process

Project Ri$% Ma(a"e&e(t

Ri$% Ma(a"e&e(t Pla((i("

Ri$% I e(tificatio(

)*alitati+e Ri$% A(aly$i$

)*a(titati+e Ri$% A(aly$i$

Ri$% Re$'o($e Pla((i("

Ri$% Mo(itori(" a( Co(trol

Project Ri$% Ma(a"e&e(t

Ri$% Ma(a"e&e(t Pla((i("

Ri$% I e(tificatio(

)*alitati+e Ri$% A(aly$i$

)*a(titati+e Ri$% A(aly$i$

Ri$% Re$'o($e Pla((i("

Ri$% Mo(itori(" a( Co(trol

Ri$% Ma(a"e&e(t 'la((i(" i$ t#e 'roce$$ of eci i(" #o, to a''roac# a( 'la( t#e ri$% &a(a"e&e(t acti+itie$ for a 'roject-

Tool$ a( Tec#(i.*e$ - P annin$ meetin$s I('*t$ - Pro.e!t C"arter - Or$ani/ation0s risk m$mt po i!ies - (e1ined ro es and responsi2i ities - Stake"o der risk to eran!es - Temp ates 1or t"e or$ani/ations Risk Mana$ement P an - 34S

Ri$% Ma(a"e&e(t Pla((i("

O*t'*t$ - Risk mana$ement p an

Pro&ect $harter *rgani.ation2s risk management policies 4e#ined roles and responsi%ilities Stakeholder risk tolerances Template o# a Risk mgmt plan W)S

Planning meetings
Attendees include pro&ect manager, pro&ect team leaders, anyone in the organi.ation responsi%le #or risk management and execution ($45,, key stakeholders, etc-

Risk management plan may include"

Methodology 6 approach, tools, data sources Roles Responsi%ilities )udgeting, Timing (#requency,, Thresholds, Tracking Scoring method to quali#y quanti#y risk e'ents Reporting #ormats

Project Ri$% Ma(a"e&e(t

Ri$% Ma(a"e&e(t Pla((i("

Ri$% I e(tificatio(

)*alitati+e Ri$% A(aly$i$

)*a(titati+e Ri$% A(aly$i$

Ri$% Re$'o($e Pla((i("

Ri$% Mo(itori(" a( Co(trol

Ri$% i e(tificatio( i$ eter&i(i(" ,#ic# ri$%$ are li%ely to affect t#e 'roject a( oc*&e(ti(" t#e c#aracteri$tic$ of eac#-

Tool$ a( Tec#(i.*e$ - (o!umented re&ie#s - (ata $at"erin$ te!"ni5ues - C"e!k ists - Assumptions ana ysis - (ia$rammin$ te!"ni5ues I('*t$ - Risk mana$ement p an - Pro.e!t p annin$ outputs - Risk !ate$ories - 6istori!a data O*t'*t$ - Risks - Tri$$ers - Inputs to ot"er pro!esses

Ri$% I e(tificatio(

$onditional Statement" I# (the possible future event occurs) Then (the consequences are) 5xample" I# the P47 corporation doesn2t deli'er !idgets on 8une 9:, then the pro&ect schedule !ill %e in a day #or day slip

Risk Management Plan Pro&ect planning outputs

Pro&ect charter W)S Product 4escription

Speci#ication S*W $ontract

Pro&ect planning outputs

Schedule and cost estimates Resource plan Procurement plan Assumption and constraint lists

Risk categories
Technical, quality, or per#ormance risks Pro&ect management risks *rgani.ational risks 5xternal risks

/istorical data
Pro&ect #iles $ommercial data%ases $orporate memory $orporate data%ase (lessons learned, We% sites

Stakeholder actions 5stimates Sta##ing plans ;requent Sources"

$hanges in requirements 4esign errors, omissions, and misunderstandings Poorly de#ined R R Insu##iciently skilled or experienced sta##

)usiness 's- Insura%le Risk Risk Sources

5xternal 0npredicta%le 5xternal Predicta%le Internal <on6Technical Technical 1egal

+no!ns
An item or situation containing no uncertainty

+no!n 0nkno!ns
Things !hich !e kno! exist %ut do not kno! ho! they !ill a##ect usThese can %e identi#ied and e'aluated- They are %udgeted #or in the contingency allo!ance-

0nkno!n 0nkno!ns
Those risks that cannot %e identi#ied and e'aluated (unexpected needs, They are %udgeted #or in the management reser'e

Risks can also %e classi#ied as"

5xternal 0npredicta%le 5xternal Predicta%le Internal <on6Technical Technical 1egal

Regulatory ;orce Ma&eure (PMI2s Word,

<atural /a.ards (tornadoes, hurricanes, etc, generally require disaster reco'ery actions 'ersus risk management

0nexpected Side 5##ects o# the Pro&ect

Market Risks *perational 5n'ironmental Impacts Social Impacts $urrency Risk In#lation Taxes

 Management Schedule $ost 7uality $ash

;lo!

$hanges in Technology Per#ormance 0ncertainty 4esign Sheer Si.e or $omplexity *ther Risks Associated !ith Pro&ect2s Technology

1icensing Patent Rights $ontractual 4i##iculties 1a!suits

Documentation reviews
Structure re'ie! o# pro&ect plans and assumptions, %oth at the total pro&ect and details scope le'els-

Information gathering techniques

)rainstorming 4elphi technique Inter'ie!ing Strengths, !eaknesses, opportunities, and threats (SW*T, analysis

Checklists
Structured tool used to 'eri#y i# a set o# required steps has %een per#ormed

Assumptions analysis
5xplicit Implicit

Diagramming techniques
$ause 5##ect 5##ect (#ish%one or Ishika!a charts,
What ensues /o! they occur What could happen

$ause

*utcomes to a'oid

System or Process #lo!charts In#luence diagrams

Risks
Speci#ic discrete e'ents that might e##ect the pro&ect =enerally include"
Pro%a%ility o# occurrence Range o# outcomes Timing Anticipated #requency

Triggers
Risk symptoms, or trip !ires, or !arning signs are indications that a risk has occurred or is a%out to occur
;ailure to meet intermediate milestones may %e an early !arning sign o# impending schedule delay

Inputs to other processes

Impro'ed estimating More training

Project Ri$% Ma(a"e&e(t

Ri$% Ma(a"e&e(t Pla((i("

Ri$% I e(tificatio(

)*alitati+e Ri$% A(aly$i$

)*a(titati+e Ri$% A(aly$i$

Ri$% Re$'o($e Pla((i("

Ri$% Mo(itori(" a( Co(trol

)*alitati+e Ri$% A(aly$i$ i$ t#e 'roce$$ of a$$e$$i(" t#e i&'act a( li%eli#oo of i e(tifie ri$%$-

Tool$ a( Tec#(i.*e$ - Risk pro2a2i ity and impa!t - Pro2a2i ity7impa!t risk ratin$ matri+ - Pro.e!t assumptions testin$ - (ata pre!ision rankin$ I('*t$ - Risk mana$ement p an - Identi1ied risks - Pro.e!t status - Pro.e!t type - (ata pre!ision - S!a es o1 pro2a2i ity and impa!t - Assumptions

)*alitati+e Ri$% A(aly$i$

O*t'*t$ - O&era risk rankin$ 1or t"e pro.e!t - List o1 prioriti/ed risks - List o1 risks 1or additiona ana ysis and mana$ement - Trends in 5ua itati&e risk ana ysis resu ts

Risk management plan Identified risks Project status

Risks may not sur#ace until a#ter design, as the pro&ect li#e cycle matures, then more risks !ill %e disco'ered State6o#6the6art or #irst6o#6its6kind technology tend to ha'e a great deal more uncertainty

Project type

Data precision
Measure the extent o# the data a'aila%le, as !ell as the relia%ility o# data

cales of pro!a!ility and impact

These are t!o key dimensions o# risk assessment

Assumptions

Risk pro!a!ility and impact Pro!a!ility " impact risk rating matri# Project assumptions testing Data precision ranking

$verall risk ranking for the project %ist of prioriti&ed risks %ist of risks for additional analysis and management Trends in qualitative risk analysis results

Project Ri$% Ma(a"e&e(t

Ri$% Ma(a"e&e(t Pla((i("

Ri$% I e(tificatio(

)*alitati+e Ri$% A(aly$i$

)*a(titati+e Ri$% A(aly$i$

Ri$% Re$'o($e Pla((i("

Ri$% Mo(itori(" a( Co(trol

)*a(titati+e Ri$% A(aly$i$ co($i$t$ of e+al*ati(" t#e ri$%$ a( ri$% i(teractio($ to a$$e$$ t#e ra("e of 'o$$i/le 'roject o*tco&e$-

I('*t$ - Risk mana$ement p an - Identi1ied risks - List o1 prioriti/ed risks - List o1 risks 1or additiona ana ysis - 6istori!a data - E+pert .ud$ement - Ot"er p annin$ outputs

Tool$ a( Tec#(i.*e$ - Inter&ie#in$ - Sensiti&ity ana ysis - (e!ision tree ana ysis - Simu ation O*t'*t$ - Prioriti/ed ist o1 5uanti1ied risks - Pro2a2i isti! ana ysis o1 t"e pro.e!t - Pro2a2i ity o1 a!"ie&in$ t"e !ost and time o2.e!ti&es - Trends in 5uantitati&e risk ana ysis resu ts

)*a(titati+e Ri$% A(aly$i$

Risk management plan Identified risks %ist of prioriti&ed risks %ist of risks for additional analysis 'istorical data (#pert judgement $ther planning outputs

(#pert )udgement $an o#ten %e applied in lieu o# or in addition to the mathematical techniques descri%ed a%o'e 4eri'ed #rom"
6 6 6 6 team mem%ers others in or outside o# organi.ation pu%lished #indings industry a'erages 3 statistics

*onte Carlo Analysis Requires *ptimistic, Most 1ikely, and Pessimistic estimates 0ses random num%er generator to select !hich 'alue to use $alculates the data%ase multiple times to de'elop a pro%a%ility distri%ution o# the data

Interviewing ensitivity analysis Decision tree analysis imulation

ensitivity Analysis 5'aluate e##ect o# a change in a single 'aria%le on the entire pro&ect 5xamples"
$hange the estimated durations %y 9>? Slip a milestone %y @ !eeks

*#ten re#erred to as the simplest #orm o# analysis as only one 'aria%le is changed at a time

0eci$io( Tree$
Gi&en t"e 1o o#in$ de!ision tree8
839
a""re$$i+e

Val*e 123 % 4533 % 4 62 %

EMV 523 % :%%;<;;; 4 63 % 47 % :=<;;;

C#oice e+e(t
co($er+ati+e

C#oice e+e(t

639 139 :39

C#oice e+e(t

13 %

58 %

A$$ressi&e s!"edu e EM) 9 :%%;<;;; Conser&ati&e s!"edu e EM) 9 :=<;;;

imulation 0ses a representation or model o# a system to analy.e the %eha'ior or per#ormance o# the system
6 Monte $arlo analysis is %est kno!n 6 Results used to quanti#y risk o# 'arious schedule choices

imple Pro!a!ility imple Pro!a!ility (quation+

Pr ;E+e(t <5= > Pr ;E+e(t <1= ? Pr ;@ot# E+e(t$= P;t= ? P;A= A P;@=
OR

3-B3 C 3-:3 ? 3-28

OR 289

NOTED T#i$ a''lie$ to i( e'e( e(t e+e(t$ o(ly

Raw Data+ Pro!a!ility Pro!a!ility Pro!a!ility Pro!a!ility

of cope , -./of 0o cope , -.1of Approval , -.2of 0o Approval , -.3# -.2# -.3# -.2# -.3-

(#ample Calculation+ Pr4 cope5 # Pr4Approval5 , -./, -.67 Pr4 cope5 # Pr40o Approval5 , -./, -.89 Pr40o cope5 # Pr4Approval5 , -.1, -.39 Pr40o cope5 # Pr40o Approval5 , -.1, -.-7 Total, 8.-

PRACTICA% APP%ICATI$0 ::; D(CI I$0 TR(( A0A%< I

(#pected *onetary =alue Product o# t!o 'alues

Risk e'ent pro%a%ility Risk e'ent 'alue 5MA B Risk e'ent pro%a%ility C Risk e'ent 'alue

Aaluation o# the risk e'ent is key

Must include tangi%le as !ell as intangi%le 'alue

When no pro%a%ilities are gi'en, use"

5MAB(*pt D ECM1 D Pess,3F I#" *ptimistic B G9>>k Most 1ikely B G9@>k Pessimistic B G9H>k
Then" 5MAB (G9>> DECG9@>DG9H>,C9>>>3F B G9@@,@@@

Descriptive tatistics Mean Mode Median Aariance Standard 4e'iation Range

>tility Theory 4e#inition

5ndea'ors to #ormali.e management2s attitude to!ard risk

There are @ Types

Risk Seeking Risk <eutral Risk A'erse

Prioriti.ed list o# quanti#ied risks Pro%a%ilistic analysis o# the pro&ect Pro%a%ility o# achie'ing the cost and time o%&ecti'es Trends in quantitati'e risk analysis results

Project Ri$% Ma(a"e&e(t

Ri$% Ma(a"e&e(t Pla((i("

Ri$% I e(tificatio(

)*alitati+e Ri$% A(aly$i$

)*a(titati+e Ri$% A(aly$i$

Ri$% Re$'o($e Pla((i("

Ri$% Mo(itori(" a( Co(trol

Ri$% re$'o($e 'la((i(" i$ t#e 'roce$$ of e+elo'i(" o'tio($ a( eter&i(i(" actio($ to e(#a(ce o''ort*(itie$ a( re *ce t#reat$-

I('*t$ - Risk mana$ement p an - List o1 prioriti/ed risks - Risk rankin$ - Prioriti/ed ist o1 5uanti1ied risks - Pro2a2i isti! ana ysis - Pro2a2i ity o1 a!"ie&in$ t"e !ost7time 1rame - List o1 potentia responses - Risk t"res"o ds - Risk o#ners - Common risk !auses - Trends

Tool$ a( Tec#(i.*e$ - A&oidan!e - Trans1eren!e - Miti$ation - A!!eptan!e O*t'*t$ - Risk response p an - Residua risks - Se!ondary risks - Contra!tua a$reements - Contin$en!y reser&es - Inputs to ot"er pro!esses - Inputs to a re&ised pro.e!t p an

Ri$% Re$'o($e Pla((i("

4e#ines steps #or enhancing opportunities responding to threats

Risk management plan %ist of prioriti&ed risks Risk ranking Prioriti&ed list of quantified risks Pro!a!ilistic analysis Pro!a!ility of achieving the cost"time frame

%ist of potential responses Risk thresholds Risk owners Common risk causes Trends

Avoidance
5liminate the threat %y eliminating the cause

Transference
Shi#t the consequence and o!nership to a third party 0se o# insurance, per#ormance %onds, !arranties, guarantees ;ixed price contracts !ith 'endor3supplier

*itigation : Reduce the impact !y

Reducing the pro%a%ility Reducing the risk e'ent 'alue Adopt less complex processes

Acceptance
4e'elop contingency and #all%ack plans Acti'e" Plan and contingency reser'e Passi'e" Accept the consequences

Procurement
)uy outside goods or ser'ices

Contingency planning
What to do if the e'ent occurs $ontainment

Alternative strategies
Pre'ention or A'oidance

Insurance

To elect the Right ?orm of Contract Requires

Identi#ication o# Speci#ic Risks 4etermination o# ho! they should %e shared %et!een the parties, and The insertion o# clear, legal language in the contract documents to put it into e##ect-

SCOPE OF EORK INFORMATION

VERF LITTLE

PARTIAL

COMPLETE

UNCERTAINTF

!IG!

MO0ERATE

LOE

0EGREE OF RISK

!IG! 5339

ME0IUM

LOE 39

SUGGESTE0 RISK ALLOCATION CONTRACT TFPES

AGENCF ;@UFER=

39 CPPF CPIF

SELLER ;CONTRACTOR= 5339 CPFF FPIF FFP

A!arding contracts %e#ore all the in#ormation is complete to reduce the o'erall time #or the pro&ect Much higher risk categoryII Appropriate contingency allo!ances must %e increased accordingly

$ontingency planning is the esta%lishment o# pre6de#ined action steps to %e taken i# an identi#ied risk e'ent should occur
generally part o# the risk management plan, %ut may also %e integrated into other parts o# the o'erall pro&ect plan

Risk response plan Residual risks econdary risks Contractual agreements Contingency reserves Inputs to other processes Inputs to a revised project plan

Project Ri$% Ma(a"e&e(t

Ri$% Ma(a"e&e(t Pla((i("

Ri$% I e(tificatio(

)*alitati+e Ri$% A(aly$i$

)*a(titati+e Ri$% A(aly$i$

Ri$% Re$'o($e Pla((i("

Ri$% Mo(itori(" a( Co(trol

Ri$% re$'o($e &o(itori(" a( co(trol i$ t#e 'roce$$ of %ee'i(" trac% of t#e i e(tifie ri$%$G &o(itori(" re$i *al ri$%$ a( i e(tifyi(" (e, ri$%$G e($*ri(" t#e e>ec*tio( of ri$% 'la($G a( e+al*ati(" t#eir effecti+e(e$$ at re *ci(" ri$%

Tool$ a( Tec#(i.*e$ - Pro.e!t risk response audits - Periodi! pro.e!t risk re&ie#s - Earned &a ue ana ysis - Te!"ni!a per1orman!e measurement - Additiona risk response p annin$ I('*t$ - Risk mana$ement p an - Risk response p an - Pro.e!t !ommuni!ation - Additiona risk identi1i!ation and ana ysis - S!ope !"an$es O*t'*t$ - 3orkaround p ans - Corre!ti&e a!tion - Pro.e!t !"an$e re5uests - Updates to t"e risk response p an - Risk data2ase - Updates to t"e risk identi1i!ation !"e!k ists

Ri$% Re$'o($e Co(trol

Respond to the changes in project risk over the life of the project
Respond !ith the risk plan !hen triggers occur Respond !hen un#oreseen e'ents occur Add and re'ise risk plans as the pro&ect e'ol'es

Risk management plan Risk response plan Project communication Additional risk identification and analysis cope changes

Project risk response audits Periodic project risk reviews (arned value analysis Technical performance measurement Additional risk response planning

@orkaround plans Corrective action Project change requests >pdates to the risk response plan Risk data!ase >pdates to the risk identification checklists

'istorical data!ase Current project data!ase Post project assessment and archive update

6 6 6 6 6

1essons learned Plan 'ariances Actuals Methods, tools and techniques $ase studies

Pro&ects are launched to take ad'antage o# opportunities, %ut opportunities are associated !ith uncertainties !hich ha'e risks attached Risk can <5A5R %e 9>>? eliminated ;or the pro&ect to %e 'ia%le, the expected 'alue resulting #rom a #a'ora%le pro%a%ility o# gain must %e higher than the consequences and pro%a%ility o# loss There#ore, the risks associated !ith a pro&ect must recei'e care#ul examination in the context o# the organi.ation2s !illingness or a'ersion to taking risks This is the domain o# pro&ect risk management, !hich #orms a 'ital and integral part o# pro&ect management

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