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DR.


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Understand what risk is and the importance of good

project risk management

Discuss the elements involved in risk management

planning Describe the risk identification process and tools and

techniques to help identify project risks

Discuss the qualitative risk analysis process

Explain risk analysis process and how to use decisiontrees and simulation to quantitative risks

Discuss what is involved in risk monitoring and control

Learning ObjectivesLearning Objectives


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There is nothing more difficult to plan, more doubtful of success,

nor more dangerous to manage than the creation of a new system.Machiavelli

Wisdom is clear ---- Change begets risk and the risk needs to be

managed.

QuotationQuotation


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What is Risk ??What is Risk ??


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A risk is an uncertain potential condition or event that,

if it occurs and is not mitigated, may have negative or

positive impact on the project objectives.

A measure of the inability to achieve program objectives

with defined cost and schedule constraints.

What is Risk?What is Risk?


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Positive & Negative Risks (Exp.)Positive & Negative Risks (Exp.)

Negative Risk

Each day that a critical piece of equipment is late in reaching the

plant site, it will throw our start up schedule off by three days.

Positive Risk

If we buy pumps for all our facilities bundled together in one

purchase order, we can obtain a volume discount.

Note:

In general, we find that a positive risk is an opportunity to be

pursued, while a negative risk is an issue to avoid or mitigate.


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Types of Project Risks Known risks with predictable outcomes

Bad weather canceling an event

Known risks with uncertain outcomes

Low turnout will the event breakeven

Unknown risks

No way to predict food-born illness

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There are arguably four levels of risk:

Strategic ---- risks involved in ensuring business

survival and long-term security or stability of the

organization Program ---- risks involved in managing

interdependencies between individual projects and

the wider business environment.

Projects ---- risks involved in making progressagainst project plans

Operational ---- risks involved in technical problems,

supplier management and so on

Levels of RisksLevels of Risks


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Risk ManagementRisk Management

Practices and procedures that enable managers toidentify, assess, categorize, monitor, control, and

mitigate a risk before or while it is transitioning to a

problem.

Risk Management is a methodology that helps

managers make best use of their available

resources.


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Risk Management isnow an integral part of business

planning.

Whouses Risk Management?Whouses Risk Management?


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Risk and the Project Life Cycle

Time

Conceptual Developing Testing Deployment Closure


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Additional Risk Terms

Residual risks

Any risks remaining after risk response strategies have

been applied

Secondary risks

Any risks resulting from the application of a risk response

strategy

Contractual agreementsAny contracts for the purpose of risk transference during

the project


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MAIN STEPS OFRISK MANAGEMENT


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Risk Management Planning

- Deciding how to approach and plan the risk management activities

Risk identification (Qualitative & Quantitative)

Determining which risks might affect the project and documenting their

characteristics. i.e., Identify project, product and business risks;

Risk Analysis Qualitative risk analysis

Performing a qualitative analysis of risks and conditions to prioritise their effects on project objectives

Quantitative risk analysis

Measuring the probability and consequences of risks and estimating their implications for project

objectives

Risk response planning

- Developing procedures and techniques to enhance opportunities and reducethreats to the project's objectives

Risk Monitoring & Control

-- Control-monitoring residual risks, identifying new risks, executing risk reduction

plans, and evaluating their effectiveness through out the project life cycle.

Main steps of Risk ManagementMain steps of Risk Management


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Project team completes the risk

management plan before the

project initiation document (PID)component ends. The team updates

the plan in each subsequent

lifecycle component and continues

to monitor and control risks

throughout the life of the project.

STEP 1 : Risk Management Planning

The PDT members assign project team

members to create a project risk

management plan.

STEP 2 : Risk Identification

The assigned project team members identify

risks and create a project risk list through

brainstorming, interviews, and sample risk

lists.

Risk management plan is optionalhat type of document

is expected

Project has only

a Categorical

Exemption or

Categorical

Exclusion

Risk ManagementRisk Management

(Flow Chart)(Flow Chart)


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STEP 3 : Qualitative Risk Analysis

The assigned team members assess the

importance of the identifies risks and

probability ofoccurence

STEP 5 : Risk Response Plan

For each identified risk, the PDT decides

whether to avoid the risk, mitigate the

risk, or accept the risk

STEP 6: Risk Monitoring and Control

Risk monitoring and control is anongoing

process for the life of the project. Assigned

team members monitor the risks as the project

matures, new risks develop, or anticipated

risks disappear.

STEP 4: Quantitative Risk Analysis

The Value Analysis team, assisted by

an expert, develops statistical data on the

probability and impact of major risks

Is value analysis required

for the project

Yes

No


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Qualitative risk analysis Performing a qualitative analysis of risks and conditions to prioritise their effects

on project objectives


Measuring the probability and consequences of risks and estimating their

implications for project objectives

Risk response planning- Developing procedures and techniques to enhance opportunities and reduce

threats to the project's objectives






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RISKMANAGEMENT PLANNING


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The risk management plan describes how riskidentification, qualitative and quantitative analysis,

response planning, monitoring, and control will be

structured and perf ormed during the pr oject life

cycle. The risk management plan does not address

responses to individual risks - this is accomplished

in the risk response plan.

Risk Management PlanRisk Management Plan


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Qualitative risk analysis Performing a qualitative analysis of risks and conditions to prioritise their effects

on project objectives


Measuring the probability and consequences of risks and estimating their

implications for project objectives

Risk response planning- Developing procedures and techniques to enhance opportunities and reduce







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RISK IDENTIFICATION


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Risk management is concerned with identifying

risks and drawing up plans to minimise their effect

on a project.

Risk IdentificationRisk Identification


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QUALITATIVERISK IDENTIFICATION


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1. Assumptions Analysis

2. Checklists

3. Prompt Lists

4. Brainstorming

5. Facilitated workshops and

6. Interviews

Qualitative Risk IdentificationQualitative Risk Identification


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Making assumptions within a project will always create

risks and a way to help manage this is to list all the

assumptions of each phase or stage of your project

against a timeline. Then think about the consequence ofthe assumptions and how they affect the other parts of

the project.

1.1. Assumption AnalysisAssumption Analysis


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2. Checklists

3. Prompt Lists

4. Brainstorming


6. Interviews



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Risk checklists are often built upon a Project or

Programme Managers past experience or the Project

Management experience of an organization. They will

normally take into account

Quality experience

Formality of development

Novelty of application

Impact on business Requirements standards

Software identification

Projects concurrency

Dependencies

Project duration

Flexibility of delivery

Planning estimates Stability of suppliers

Range of sites

Procurement processes

2.2. ChecklistsChecklists


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Risk Category Risks Risk Causes

Use of new-to-the-firm technology

roblems arising fromthe maturity level of thetechnology used Use of new-to-the-

world technologyHigh uncertainty intechnical content

roblems arising fromthe complexity anduncertainty of thetechnical content

Difficulty in definingthe project scope

Technical

roblems arising from

the inadequacy of thetechnical personnel

Absence of qualified

people (person whohas the experienceand knowledge aboutthe technology)

Risk ChecklistsRisk Checklists


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Rit go

Ri Ri u

Inadequacy f labourunit fort i roject becauseofoverloadingInadequacyof laboratories /equi ent becauseofoverloadingNoexperience it t euseoft e laboratories / equipmentEquipment breakdown / lack

ofmaintenance

roblemsarising frominadequacyofresources

Reduction inproject teamsize

Resou eM n gement

roblemsarising fromt echanges in teammembers

urnover inproject team


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Risks here will be identified by logical examination of each ProgrammeorProject aspect. Following is a list of common areas from which risk

can arise

Human Resources

Personnel Relating to the availability and retention of staff

Health &

Safety

Relating to the well-being of people

3.3. Prompt ListsPrompt Lists


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External

Infrastructure Relating to infrastructures such as computernetworks, transport systems for staff, powersupply systems

Economic Relating to economic factors such as interestrates, exchange rates, inflation

Legal &Regulatory

Relating to the laws and regulations which ifcomplied with should reduce hazards

Environmental Relating to issues such as fuel consumption,pollution

Political Relating to possible political constraints such as achange of government

Market Relating to issues such as competition and supplyof goods

Act of God Relating to issues such as fire, flood earthquake


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Financial

Budgetary Relating to the availability of resources or the allocationof resources

Fraud or

Theft

Relating to the unproductive loss of resources

Insurable Relating to the potential areas of loss which can beinsured against

Capital

Investment

Relating to the making of appropriate investment

decisions

Liability Relating to the right to sue or be sued in certaincircumstances


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Activity

Policy Relating to the appropriateness and quality of policydecisions

Information Relating to the adequacy of information which is usedfor decision making

Operational Relating to the procedures employed to achieve

particular objectives

Reputation Relating to the public reputation of the organization andconsequent effects

Transferable Relating to risks which can be transferred or the transferof risks at inappropriate cost

Technologist Relating to the use of technology to achieve objectives

Project Relating to project planning and managementprocedures

Innovation Relating to the exploitation of opportunities to make

gains


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2. Checklists

3. Prompt Lists

4. Brainstorming


6. Interviews



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ithin SWOT analysis risks are identified by looking at

the

Strengths (or perceived Strength)

Weakness

Opportunity &

Threats

to the success of the project or programme.

4.4. Brainstorming or S/W/O/T AnalysisBrainstorming or S/W/O/T Analysis


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2. Checklists

3. Prompt Lists

4. Brainstorming


6. Interviews



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A facilitated workshop is a structured approach that

enables a group of people to work together to reach a

predetermined objective. The participants explore risksand make decisions in the workshop. These workshops

are supported by a skilled facilitator to ensure that

predetermined objectives are achieved.

Facilitated workshops can be used at any time in a

project.

5.5. Facilitated WorkshopsFacilitatedWorkshops


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Interviews conducted to identify risk will only be

successful where there is

good preparation clear objectives

a positive & supportive environment

proper time management

use of open questions & challenging not confrontational atmosphere.

The results of interviews should be well documented.

6.6. InterviewsInterviews


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Risk Analysis Qualitative risk analysis Performing a qualitative analysis of risks and conditions to prioritise their effects on project

objectives


Measuring the probability and consequences of risks and estimating their implications for project

objectives

Risk response planning

- Developing procedures and techniques to enhance opportunities and reduce







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RISK ANALYSIS


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Assess probability and seriousness of each risk.

Probability may be low, medium, high or extreme.

Risk effects might be catastrophic, serious, tolerable

or insignificant.

Risk AnalysisRisk Analysis


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Qualitative risk analysis feeds smoothly into the succeeding

processes. One good reason for using qualitative analysis

even if you intend to use quantitative analysis is to filter out

the minor risks first so you dont waste time and resourcesanalyzing minor risks.

You come out of qualitative analysis with a good idea of

overall project risk, which will be important to your

stakeholders. Moreover you have prioritized your identified

risks, and youre ready to either go on into more

quantitative analysis, or to developing your response plan.

Qualitative Risk AnalysisQualitative Risk Analysis


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Overall risk ranking for project

based on red condition risks

List of prioritized risks

by condition (red/yellow/green)

by impact type (cost/schedule/scope)

by data precision

Risks requiring further analysis & management

Qualitative Risk Analysis OutputsQualitative Risk Analysis Outputs


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QUANTITATIVERISK ANALYSIS


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Quantitative analysis of probability and impact:

determine probabilities of not achieving project

objectives determine realistic cost, schedule, and scope

objectives

quantify risk exposure

quantify specific risk contributions to overall riskexposure

Quantitative Risk AnalysisQuantitative Risk Analysis


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Rather like flowchart diagrams these represent a method of

looking at, for example, two options and making a

decision. By analyzing the impact each decision will have,

the risks of taking that decision can be forecast and used to

anticipate problems or inform the direction the project

takes.

This technique is best suited to simpler situations. In

complex scenarios they can become confusing andcomplicated.

Decision TreesDecision Trees


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-

Expected Monetary Value + Decision Tree

Analysis


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Goldratts Critical Chain

Assuming that an activity duration is known leads

to underestimating project durations

Because of this, people tend to pad their timeestimates

This may result in the student syndrome

What is that?

This in turn leads to procrastination, which can

then result in missing the finish date


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Goldratts Critical Chain

Add safety time buffers at strategic points in theproject network

Safety time buffer at end of critical path is called aproject buffer

Safety time buffer just before where noncriticalpaths feed into the critical path is called a feedingbuffer.


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Time and Cost Padding

People will generally use up as much time andmoney as they are allowed (if you dont use it youlose it!)

Student syndrome if extra padding is built intoactivity time estimates, some people are likely toprocrastinate getting started, and then theprotection against risk is lost

Although padding can be useful in reducing theseverity of risk, it can also lead to inefficienciesand waste


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Time and Cost Padding

Padding is a commonly used approach to address

risks, since it is very easy to implement and since

it protects against most minor risks

Paddingrefers to inflating the original time or cost

estimates for activities or for the project

Unfortunately, this leads to longer project durations

and higher costs


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