Project Risk management

Project Risk Management

Dr. A.K.Panigrahi

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What is Risk?• Risk is the possibility of suffering loss• Risk is a measure of the probability and

consequence of not achieving a defined project goal.

• Possible – but not certain, so it is expressed as probability

• Risks change though out the life of a project• Loss - is any unwanted consequence that

might occur4

Risk in Projects

• In a development project, the loss describes the impact to the project which could be in the form of diminished quality of the end product, increased costs, delayed completion, or failure.

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Possible Risks in a Project

• Creeping user requirements

• Excessive schedule pressure

• Low quality

• Cost overruns

• Poor estimates

• Low customer satisfaction

• Long schedules

Project Risk

Project Risk

Scope

IntegrationCommunication

Human Resources

Procurement

Cost

Quality

Time

The Importance of Project Risk Management

• Project risk management is the art and science of identifying, analyzing, and responding to risk throughout the life of a project and in the best interests of meeting project objectives

• Risk management is often overlooked in projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates

• Unfortunately, crisis management has higher visibility due to the obvious danger to the success of the project but it’s risk management that helps a project have fewer problems to begin with.

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Risk Can Be Positive• Positive risks are risks that result in good things

happening; sometimes called opportunities

• A general definition of project risk is an uncertainty that can have a negative or positive effect on meeting project objectives

• The goal of project risk management is to minimize potential negative risks while maximizing potential positive risks

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Risk Management

• Risk management is the act or practice of dealing with risk.

• Risk management is proactive rather than reactive.

• Risk management is not a separate activity but rather on aspect of sound project management.

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Elements of Risk Management

• Effective Risk Management is made up of:– Risk Assessment: identify, analyze, prioritize– Risk Control: planning, resolution, monitoring

RISK RISK MANAGEMENTMANAGEMENT

RISK RISK

CONTROLCONTROL

RISK RISK

ASSESSMENTASSESSMENT

IDENTIFICATIONIDENTIFICATION

ANALYSISANALYSIS

PLANNINGPLANNING

PRIORITIZATIONPRIORITIZATION

RESOLUIONRESOLUION

MONITORINGMONITORING

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Common Mistakes in Risk Management

• Not understanding the benefits of Risk Management

• Not providing adequate time or resources for Risk Management

• Not identifying and assessing risk using a standardized approach

Project Risk Management Processes

• Risk management planning: deciding how to approach and plan the risk management activities for the project

• Risk identification: determining which risks are likely to affect a project and documenting the characteristics of each

• Qualitative risk analysis: prioritizing risks based on their probability and impact of occurrence 14

Project Risk Management Processes

• Quantitative risk analysis: numerically estimating the effects of risks on project objectives

• Risk response planning: taking steps to enhance opportunities and reduce threats to meeting project objectives

• Risk monitoring and control: monitoring identified and residual risks, identifying new risks, carrying out risk response plans, and evaluating the effectiveness of risk strategies throughout the life of the project

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Project Risk Management Summary

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• Four Main Steps

Risk Management

Risk Identification

Plan Risk Management Process

Risk Assessment

Risk Response Development

Risk Response Control

• Before these activities?

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Risk Identification

• The possible risk is determined by a number of interrelated factors such as:– Nature of the Project– Aggressive or Conservative Schedule/Budget– Skills and motivation of the Project Team

Risk Response Control

Risk Response Development

Risk Assessment

Risk Identification

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Risk Identification

• The need to proactively identify risks.– When an event happens it is too late to plan.

• Tools for identifying risk– Brainstorming– Nominal Group Technique

• Each member identifies their ideas• Each member writes an idea on the board until all

ideas are listed

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Risk Identification

• The group discusses each idea• Each individual ranks each of the ideas• The group then ranks all the ideas• Each individual ranks all the ideas again• Rankings are summarized

– Delphi technique• Experts asked individually to provide input• Input summarized and distributed• Experts rank input

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Risk Identification

– Strength, Weakness, Opportunities, Threats– Cause and effect diagrams– Past Projects

Likelihood

• What is the likelihood of risk?– Expressed as a Probability (Percentage)– Example – There is a 5% chance of a programmer

breaking their big toe whilst coding in any 6 month period

Risk Response Control

Risk Response Development

Risk Identification

Risk Assessment

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Impact

• What impact will it have on the project?– Example – A broken toe on average results in the loss of 20

working days for a programmer– Expected Value of Loss/Profit

• Expected Value = Loss/Profit x Likelihood• -20 x 0.05 = -1• So we will lose 1 day of coding per programmer on a 6 month

project

Risk Response Control

Risk Response Development

Risk Identification

Risk Assessment

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Urgency

• How urgently do we need to deal with it?– Immediate remedy or Can it wait?– Additional means of prioritising action

Risk Response Control

Risk Response Development

Risk Identification

Risk Assessment

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Example Risk Assessment Team Conflict and Injuries

Description: Teammates in the group might have conflicts with one another throughout the semester. Injuries might result from conflict, accidents, and other mishaps throughout the semester.

How to Avoid It:

If any of the teammates show signs of conflict against one another, we need to mediate between them in order to make our team working smoothly and such throughout the whole semester. Thus that will reduce a factor for injury. However, for the other factors of injury, we need to make sure that we take good care of ourselves such that no harm will befall upon us (such as carpal tunnel syndrome, leg breaking, finger breaking, etc).

What It Will Affect:

If there is a large enough conflict, we might lose some teammates. Same with for injuries, if the injury is bad enough to cause teammates to not be able to work on the project.

Possible Likelihood:

3/100 chance

The Real World Lab: http://www.cc.gatech.edu/classes/RWL/Web/

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Quantifying Risk

• Programmer has 5% chance of breaking toe in any 6 month period– Broken toe results in the loss of 20 programmer days– Cost of a programmer-day = £500

• Expected Loss per year due to broken toes– 2 x (0.05 x -20) = -2 days– Expected loss = -£1000

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Techniques

• Risk Map/Probability Impact Matrix

• Hazard Control Matrix

• Payoff Matrix

• Decision Tree

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Risk Map

Likelihood of Occurrence

High Medium Low

Large

Medium

Sca

le o

f im

pact

Small

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Likelihood of Occurrence

High Medium Low

Large

Medium

Sca

le o

f im

pact

Small

Risk Map

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Risk Map

Likelihood of Occurrence

High Medium Low

Large

Medium

Sca

le o

f im

pact

Small

A B

C

D

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Risk Map

• List the risks in order of priority

• What else can we use to help prioritise?

Likelihood of Occurrence

High Medium Low

Large

Medium

Sca

le o

f im

pact

Small

A B

C

D

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Hazard Control Matrix

From Curtis, G (1998) "Business Information Systems" Addison Wesley

Errors and omissions

Lost data and documents

Computer Failure

Unauthorized Access

Fire Fraud

Input controls Processing controls Output controls Storage controls

Operating system controls

Records management

Accounting controls Contingency plan

Physical security

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Hazard Control Matrix

From Curtis, G (1998) "Business Information Systems" Addison Wesley

Errors and omissions

Lost data and documents

Computer Failure

Unauthorized Access

Fire Fraud

Input controls Processing controls Output controls Storage controls

Operating system controls

Records management

Accounting controls Contingency plan

Physical security

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Hazard Control Matrix

From Curtis, G (1998) "Business Information Systems" Addison Wesley

Errors and omissions

Lost data and documents

Computer Failure

Unauthorized Access

Fire Fraud

Input controls

Processing controls

Output controls

Storage controls

Operating system controls

Records management

Accounting controls

Contingency plan

Physical security

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Hazard Control Matrix

From Curtis, G (1998) "Business Information Systems" Addison Wesley

Errors and omissions

Lost data and documents

Computer Failure

Unauthorized Access

Fire Fraud

Input controls

Processing controls

Output controls

Storage controls

Operating system controls

Records management

Accounting controls

Contingency plan

Physical security

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Identification and Assessment

• Problems– Not a particularly interesting task– Needs experience to do well

• Are these good reasons to not do it?

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Risk Response Development

• How are we going to deal with risks when they occur?– What about those we weren’t expecting?

Risk Response Control

Risk Identification

Risk Assessment

Risk Response Development

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Risk Response Planning

• Who is going to detect when the risk occurs?

• Who has the responsibility to respond and communicate?

• What is the response?

Risk Response Planning

• After identifying and quantifying risks, you must decide how to respond to them

• Four main response strategies for negative risks:– Risk avoidance– Risk acceptance– Risk transference– Risk mitigation

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Risk Management Planning

Risk Response Definitions

• Avoidance – Changing a project objective to eliminate the threat posed by an adverse risk event.

Risk Management Planning

Risk Response Definitions

• Transference – Shifting the negative impact of a threat, along with the ownership of the response, to a third party.

Risk Management Planning

Risk Response Definitions

• Mitigation – Reducing the Probability or Impact of an adverse risk event (threat) to an acceptable threshold.

Risk Response Definitions

• Acceptance – The project team decides not to change project objectives to deal with the risk.• Passive acceptance: no action , deal with threats as they occur

(workarounds)

• Active acceptance: establish a contingency reserve to handle risks

Risk Management Planning

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Risk Strategies

• Factors impacting the strategy– Impact of the risk– Project constraints– Tolerances

• Strategy– Accept or Ignore

• Provide reserves

– Contingency plans• Natural disaster/backup plans

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Risk Strategies

– Avoidance, eliminate the risk – Mitigate, lessen the impact of the risk

• Performance impact, provide extra hardware

– Transfer the risk• Offsite backup planning• Server farms• Outside management

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Risk Monitoring and Control

• Risk monitoring– Determine who is responsible for monitoring– How are risks monitored?

• Project tracking, resources, quality, etc

– Communicating the status of identified risks• Reviews and Audits

• Once a risk is identified as occurring – Communicate– Take action

Control Systems

• Preventive Control– Stops undesirable events (disturbances) from

occurring (see Curtis, 1998 Chapter 8)

• Feedback Control– Doesn’t attempt to prevent unpredictable disturbances– Is able to recover from effects

• Systems will usually combine both

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Risk Control

• Goals of Control– Prevention– Detection– Minimise Loss– Recovery– Investigation

H. A. Simon

• Risk Response– Avoidance

• Prevention

– Mitigation• Transfer

– AcceptanceCadle and Yeates

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Risk Response Control

• Implement Risk Responses• Identify new Risks

– Implement new responses

Risk Identification

Risk Assessment

Risk Response Development

Risk Response Control

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Risk Response and Evaluation

• Trigger the defined risk response plan– Identify the risk owner– Assign resources– Understand the impacts

• PERTs, Dependencies

• Communicate

• Evaluate once action is taken– Is more action needed?– What additional risks are triggered?

Risk Register

• Can be used to keep information about identified risks– Title and description– Risk Status - e.g. candidate, live, closed– Potential impact– Risk owner– Actions– Action Log

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Risk Ownership

• Risk owner is someone who:– Has sufficient information concerning the risk– Has the necessary resources to do something

about the risk– Possesses the authority to do something

about the risk

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Don’t take the risk if...

• the organization cannot afford to lose.• the exposure to the outcome is too great.• the situation (or project) is not worth it.• the odds are not in the project’s favor.• the benefits are not clearly identified.• there appear to be a large number of acceptable

alternatives.

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Don’t take the risk if...

• the risk does not achieve the project objective.• the expected value from baseline assumptions is

negative.• the data is unorganized, without structure or

pattern.• there is not enough data to understand the

results.• a contingency plan for recovery is not in place

should the results prove unsatisfactory.

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