Business & Commercial Aw a r e n e s s

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Lecture 11: Project and Risk Management

j.a.g.willard@herts.ac.uk
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Learning Outcomes
To understand the role and importance of project management in business activity To be able to use basic project management techniques in business situations To understand the importance of risk assessment and action planning in business ventures To be able to use basic risk techniques
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Project and Risk Management

their roles in business ventures
Project Management
An investment in a new product is a oneoff, goal focussed activity ie: a project
Diverse resources: money, people, offices
and factories, equipment, IT, stakeholders

Risk Management
Most business activity involves uncertainty
Business environments change Product requirements change Resources change (especially people)

Requirement for:
Control Coordination Monitoring of progress Corrective action in the event of change or unforeseen events Reporting on progress to owners

Many uncertainties can be accommodated as part of daily routine Some are potentially serious or project threatening and need management It is better to manage proactively than after the risk event has happened

Formal PM techniques allow tried and tested, professional skills to be used to ensure the optimum delivery

Risk management techniques allow effective & professional control of risk

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Projects: characteristics
uniqueness

goal and purpose

inter-dependencies

conflict

minimum scale
but no maximum

single point of responsibility

life-cycle (start and end)

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Based on Meredith and Mantel 2000

communication problem solving handling change

PROJECT MANAGERS Many projects are run by ordinary managers but . . . . . . . large projects need a professional with:
Experience Training Personal characteristics

skills

single point of responsibility leadership

organisation team building

PROJECT

MANAGER Do we need a professional PM? YES

Large scale project Many stakeholders Diverse departments High risks/uncertainty Conflict within company

self motivation
toughness traits self esteem

NO
Small scale project Single department Repeated project Requires detailed: Company knowledge People knowledge
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delegation

decisiveness sense of humour

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Basic PM techniques
The Balanced Triangle Gantt Charts

Stakeholder Analysis *

Pareto Analysis

Risk Assessment

* We have already looked at this in an earlier lecture

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The Balanced Triangle

essential to keep in mind when change happens
money
money

time IDEAL or TARGET balance

quality

time Unbalance
By reducing money the time and/or the quality must be stretched

quality

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Gantt Charts - basic

Student Group X: Investment Case Assignment
Day Task Read brief Discuss Allocate tasks Research Generate ideas Evaluate ideas Write report Hand in report
1 2 3 4 5 6 7 8 9 10 11 12 13

A simple bar chart: Activities listed down the side Horizontal bars indicating the duration of the activity (in days here) The start and end points required to hit deadline are seen from the bars
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Gantt Charts - progress

Student Group X: Investment Case Assignment
Day Task Read brief Discuss Allocate tasks Research Generate ideas Evaluate ideas Write report Hand in report
1 2 3 4 5 6 7 8 9 10 11 12 13

For each activity a bar running parallel to the activity bar shows progress Length of bar shows when activity started and stopped A vertical line shows where we currently are
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Gantt Charts - dependencies

Student Group X: Investment Case Assignment
Day Task Read brief Discuss Allocate tasks Research Generate ideas Evaluate ideas Write report Hand in report
1 2 3 4 5 6 7 8 9 10 11 12 13

Arrows at the start and end of each activity show: Which activities must end before that activity can start Which activities are dependent on that activity before they can start
for clarity, not all the dependencies are shown
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Gantt Charts critical path

Student Group X: Investment Case Assignment
Day Task Read brief Discuss Allocate tasks Research Generate ideas Evaluate ideas Write report Hand in report
1 2 3 4 5 6 7 8 9 10 11 12 13

There are always activities which are linked one to another And which represent the quickest route through the project Delay to any one of these will delay the whole project These activities are collectively called The Critical Path Project Managers are obsessed with ensuring these start and finish on time
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Gantt charts - commentary

Many extended features Earliest and latest starts Earliest and latest finishes Spare time before starts (slack) Resource levels required . . . and used so far It can get very complicated

Specialist software exists

Use Microsoft Project

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Pareto analysis: the 80/20 rule

results 80% Customers will not pay for total perfection Businesses cannot afford to provide total perfection Businesses must determine what is required to satisfy and deliver only what is required . . . . it is called sufficing 20% effort TYPICALLY 80% of the results can be generated by 20% of the effort 80% of the symptoms of a problem are caused by 20% of the causes The law of diminishing returns it is not worth chasing those last few %
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Pareto analysis: example

A new car is being developed
Customer wants Rain sensing wipers Steerable headlights Folding mirrors Heated seats Parking sensors Electric sunroof Rear seat DVD player Cruise control Customers wanting this feature 65% 30% 25% 35% 50% 30% 15% 55% Cost to provide 150 200 150 400 200 350 350 250

All 8 will cost over 2000 and make the product unmarketable What do we include?
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Pareto analysis: method

Customer wants Customers wanting this feature 65% 55% 50% 35% 30% 30% 25% 15% Cost to provide Cumulative demand 65% 120% 170% 205% 235% 265% 290% 305% (B) Calculate cumulative demand Pareto % Rain sensing wipers Cruise control Parking sensors Heated seats Steerable headlights Electric sunroof Folding mirrors Rear seat DVD 150 250 200 400 200 350 150 350

21%
39% 56%

67%
77% 87% 95% 100% (C) Represent this out of 100%

(A) Rank the features in descending order of popularity

(D) Plot a column chart of the Pareto % and provide those features up to 80%

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Pareto: results

Cost of features = 1200 We have saved 850

Conclusion: provide everything below the 80% cumulative line (* items) . . . . but remember the 80/20 rule is only a guideline . . . . so think about each situation and use your judgment
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Risk management
Stage 1 Identification of possible risks
Brainstorm Draw on previous experience

Stage 2 Evaluate likelihood of occurrence

Multi-criteria decision analysis method Input from experts

Stage 3 Mitigation actions

Identify how to reduce/eliminate risk Determine what to do if it occurs

Stage 4 Monitor business environment

For early signs of the risk For new risks
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Risk identification
functional areas strategic operational tactical stakeholders project team money, time quality (the D) key suppliers involve experts project manager advisors

processes

BASH technique (Brainstorm Around Some Headings)

legal team senior managers

PESTLE:
Political Economic Social Technological Legal Environmental

Porters 5 forces:
Customers Suppliers Competitors New entrants Substitutes
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functional experts, eg:

Finance HR Operations Logistics

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Risk evaluation
You are preparing your Implementation Plan assignment
Risk
1. Computer crash you lose all work 2. Deadline brought forward 2 weeks

Magnitude Likelihood
1 = low 10 = high 1 = unlikely 10 = likely

Foreseeability
1 = see it coming 10 = out of the blue

Total Score
multiply all 3

Rank
1 = worst

10 9

2 1

9 10

180 90

1 3

3. Illness
4. Other module coursework due on the same day

8
4

2
5

9
2

144
40

2
4

Assess each of the brainstormed risks against 3 criteria Multiply scores (scored out of 10) Highest scores = priority risks
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Risk mitigation and monitoring

For the priority risks, split them into 3 categories: (A) Risks that can be prevented
you take action to stop them

(B) Risks that may be prevented

action may stop them but they may still happen

(C) Risks that cannot be prevented - these are the worst

they just happen and there is nothing you can do about it
Risk types (A): Risk 1 What can we do to prevent their occurrence? Back up work files frequently Have computer checked at PC clinic Risk types (B): Risk 3 What can we do to prevent their occurrence? What do we do if they occur? Look after health, dont go near people with colds etc Apply for an extension if ill
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Risk types (C): Risks 2 & 4 What can we do to limit their impact if they occur? Do work early in case deadline is advanced Plan work so we have done some module c/wk early if deadlines clash

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Summary
In this lecture we have learned:
Why project management and risk management both need to be managed on investment projects The characteristics that are common to all projects The role, skills and personal characteristics required from PMs and

. . . . whether a professional PM is required

About 4 key techniques commonly used in project management
1. 2. 3. 4. The Balanced Triangle Gantt charts Stakeholder analysis Pareto analysis

How to identify and manage major risks that can kill your project

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