Microsoft PowerPoint - Project Risk Management v 1 3

Project Risk Management

1

Project Risk Management

Somasekhara Rao Gonuguntla PMP

Agenda

What is Risk?

Plan Risk Management

Identify Risk

Perform Qualitative Risk Analysis

2

Perform Quantitative Risk Analysis

Plan Risk Responses

Monitoring and Control Risks

What is risk?

What is Risk?


Identify Risk



Plan Risk Responses


3

What is risk?

4No Risk No Fun

What is Risk?

A risk is any uncertain event or condition that affect the

project.

It is something that may or may not happen.but if it does, then it

will impact the project

5

Not all the risks are negativeThreats & Opportunities

PROCESS GROUPS RISK MANAGEMENT

1. Initiation2. Planning Process Group

Plan Risk managementIdentify RisksPerform Qualitative risk analysis

6

Based on PMBOK 4th Edition 2008 Project Management Institute, 14 Campus Blvd, Newtown Square, PA 19073-3299 USA

Perform Qualitative risk analysisPerform Quantitative risk analysisPlan Risk responses

3. Execution4. Monitoring and Controlling Process Group

Monitor and control risks5. Closure


What is Risk?


Identify Risk



Plan Risk Responses


7


Based on PMBOK 4th Edition

Risk Management What is it all about


Plan Risk Management is the process of defining how to

conduct risk management activities for a project.

Purpose of risk management plan is to increase the probability and

impact of positive events and decrease the probability and impact of

negative events

88

negative events



99Based on PMBOK 4th Edition


1. Project scope Statement

2. Cost management Plan

3. Schedule management

Plan

Tools and TechniquesTools and Techniques

OutputsOutputsInputsInputs

1010

Plan

4. Communications

management Plan

5. Enterprise

environmental factors

6. Organizational process

assets

1. Risk management

plan1. Planning meetings and

Analysis

Plan Risk ManagementTools and TechniquesTools and Techniques OutputsOutputsInputsInputs

Project scope Statement:- Provides a clear sense of possibilities associated with the project and its deliverables and establishes the framework for how significant the risk management effort.

Cost management Plan:- Defines how the risk budgets , contingencies, and management reserves will be reported and accessed.

If you need water today, you should dig well yesterday Old Chinese proverb

1111

will be reported and accessed.

Schedule management Plan:- Defines how the scheduling contingencies will be reported and

accessed.

Communications management Plan:- Details out who will be available to share information on various risk responses at times

Enterprise environmental factors:- Risk attitudes and tolerances that describe the degree of risk that an organization will withstand

Organizational process assets:- Risk categories, risk definitions, templates and decision making authorities.


1. Planning meetings and Analysis:

Project teams hold meetings to develop the risk management plan.

Project manager

Selected project team

Tools and TechniquesTools and Techniques OutputsOutputsInputsInputs

1212

Stakeholders


Risk Management Plan: Describes how risk management will be structured and performed on

the project

Methodology- Defines the approaches, tools, and data sources & how risk management will be done

Roles and responsibilities- Defines the risk management team (Lead, support and risk management team members for each type of activity) and their responsibilities for risk management activities

1313

members for each type of activity) and their responsibilities for risk management activities

Budgeting- Assigns budget for risk management activities (Contingency reserves)

Timing- When and how often risk management activities appear in the project schedule

Risk Categories- Defines types and sources of the risks (RBS) external, Internal, Technical, and Unforeseeable etc

Definitions- Operational definitions for the project team to use to ensure consistency in the assessment of risks and opportunities

Project Risks

Technical ExternalProject

Management

Requirements

Organizational

Supplier Resources Estimating

Risk Breakdown Structure


14

Requirements

Technology

Supplier

Regulatory

MarketQuality

Resources

Funding

Prioritization

Estimating

Attrition

Funding

Performance and reliability

Weather


1515

Probability and impact Matrix- Specifies combinations of impact and probability, which lead to risk ratings such as high, medium and low

Revised stakeholders tolerances- Revised or validated descriptions that trigger taking action; scope, quality, cost, and time thresholds may be different from each other

Reporting formats- How to communicate risk activities and their results

Tracking- How to document risk monitoring and management activities

Video

16

Video


Identify Risks

What is Risk?


Identify Risk



Plan Risk Responses


17

Identify Risks


Check Risk Video

Identify Risks

Identify risks is the process of determining which risks may

affect the project and document their characteristics.

Project manager

Project team members

Risk management team (if assigned)


Risk management team (if assigned)

Subject matter experts

End users

Stakeholders

Identify risks is an iterative process

Identify Risks


Identify Risks

1. Risk management Plan1. Risk management Plan

2. Activity cost estimates

3. Activity duration estimates

4. Scope baseline

1. Documentation reviews

2. Information gathering



2020

5. Stakeholder register

6. Cost management plan

7. Schedule management plan

8. Quality management plan

9. Project document

10. Enterprise environmental

factors

11. Organizational process assets

1. Risk Register

techniques

3. Checklist analysis

4. Assumptions analysis

5. Diagramming

techniques

6. SWOT analysis

7. Expert Judgment

Identify RisksTools and TechniquesTools and Techniques OutputsOutputsInputsInputs

1. Risk management Plan:- Assignment of roles and responsibilities, provision for risk management activities in the budget and schedule, and categories of risk.

2. Activity cost estimates:- Qualitative assessment of the likely cost to complete schedule activities.

3. Activity duration estimates:-

2121

3. Activity duration estimates:-

4. Scope baseline:- Assumptions- uncertainty in project assumptions should be evaluated as potential causes of project risk. ( WBS is a critical input)

5. Stakeholder register:-

6. Cost management plan:-

7. Schedule management plan:-

8. Quality management plan:-


9. Project document:-

Assumptions log

Work performance reports

Baselines etc

2222

10. Enterprise environmental factors:-

Published information

Published checklists

Benchmarking etc

11. Organizational process assets:-

Lessons learned

Risk statement templates


1. Documentation Reviews: A review of project documents like plans, assumptions, previous project files, contracts etc

2. Information Gathering Techniques:

Brain Storming- Using the project team and other experts to generate a comprehensive list of project risks. BS sessions always have a facilitator, without her

2323

comprehensive list of project risks. BS sessions always have a facilitator, without her its just a disorderly meeting

Delphi Method- is a way to reach a consensus of expert. Developing consensus through a polling technique in multiple rounds, moderated by a facilitator. Identity of each expert is kept anonymous to get honest feedback.

Interviewing- Interviewing SMEs (Subject Mater experts) or other experienced in projects

Root Cause Analysis- Analyze each risk and figure out whats actually behind it.


3. Checklist Analysis- Checklists are usually developed based on historical information and previous project team experience. A lowest level of RBS of some other project can be used as checklist.

4. Assumptions Analysis- It is a matter of validating the assumptions that you identified and documented during the course of the projects.

2424

identified and documented during the course of the projects.

Strength of assumption.

Consequences if assumption turns out to be false.

5. Diagramming Techniques- Cause and affect diagrams, process flow charts, and etc

6. SWOT Analysis- Lets you analyze strengths, weaknesses, opportunities and threats.

7. Expert judgment

Identify RisksHow to do effective risk identification?

Material

Material Defects

Process

Wrong Order

Cause Effect

Frequent server shut down

25

Staff

Availability

No Training

Hardware

Damaged

Incompatible

Frequent server shut down

Cause and effect Diagram

Identify RisksHow to do effective risk identification?

Arranged Marriage Need to

compromise on many things

HighlyEducated

Will not obey orders

Cause Effect

Unhappy person

26

LoveMarriage

Parents are not happy

Low acceptance in society

things

Low Education

Unhappy person

Cause and effect Diagram

Will not mix with others


Risk register:

List of identified risks

List of potential responses

2727

Risk Register

Risk

How to create a Risk register Video


What is Risk?


Identify Risk



Plan Risk Responses


28




Perform Qualitative risk analysis is the process of prioritizing

risks for further analysis or action by assessing and combining

their probability of occurrence and impact.



1. Risk register1. Risk probability and impact

assessment



3131

2. Risk management plan

3. Project Scope statement


assets

1. Risk register

updates

assessment

2. Probability and impact

matrix

3. Risk data quality

assessment

4. Risk categorization

5. Risk urgency assessment

6. Expert judgment


Organizational Process AssetsProject Scope StatementRisk Management PlanRisk Register


32

Make sure that the information in Risk Register is absolutely rightExamine carefully how likely risks are to happen and how bad it will be if they doIf a risk is going to occur early in the project, its a good idea to think of response strategy earlytoo

Perform Qualitative Risk AnalysisTools and TechniquesTools and Techniques OutputsOutputsInputsInputs

1. Risk Probability and Impact Assessment-

Investigate the likelihood and effect on project

objectives for each risk

1. Probability and impact Matrix- A look up table that integrates probability and impact combinations into risk ratings such as high, medium, or low.

3333

impact combinations into risk ratings such as high, medium, or low.

2. Risk Data Quality Assessment- Examining the data used to evaluate risks to determine whether it is accurate and reliable, including the distinction between fact and opinion

3. Risk Categorization- Re-group of project risks by category e.g. work package

4. Risk Urgency Assessment- Designation of critical nature of risk for warning signs, severity, and time to implement a response

5. Expert judgment

Perform Qualitative Risk AnalysisTools and TechniquesTools and Techniques OutputsOutputsInputsInputs

Outputs of Qualitative Risk Analysis include the updated risk register with some or all of the following

Relative ranking or Priority list of project risks- Each individual risk is ranked according to significance and increased chance of meeting project objectives (scope, cost, time, or quality) from a risk response.

Grouped by Category- Looking at the common cause or location of risks can lead to an

3434

Grouped by Category- Looking at the common cause or location of risks can lead to an understanding of root cause and hence more effective responses

Near-term response- Risks that require an immediate response are grouped so that they can be addressed in a timely fashion

Additional Analysis- Risks that require more analysis and response.

Low priority risks for watch lists- Risks that are low priority but that should be watched

Trends in Qualitative Risk Analysis- Trends that require additional analysis that may point the team to a potential problem area


Example of Qualitative Risk Analysis

Risk Event Priority (High, Medium, Low)

Category of risk

Near-term Response

Additional Analysis Required

Watch List Trends

Project

personnel

Low Organizational None No Communicate with

functional

Ask

sponsor

35

personnel

reassigned

before end

of project

functional

managers on a

monthly basis

sponsor

for

addition

al

observat

ions

Vendor

delivery

date of

hardware

High External-

Supplier

Expeditin

g

activities

Yes-explore

alternatives

with other

vendors

If the inspection

date is delayed by

the vendors

schedules this must

be noted in the

status reports

Other

purchas

e orders

are

delayed


Probability and Impact analysis

Probability

P&I

0.9 0.09 0.27 0.45 0.63 0.89

0.7 0.07 0.21 0.35 0.49 0.63

Probability: Likely hood that an event

will occur

36

0.5 0.05 0.15 0.25 0.35 0.45

0.3 0.03 0.09 0.15 0.21 0.27

0.1 0.01 0.03 0.05 0.07 0.09

Impact 0.1 0.3 0.5 0.7 0.9

Impact: Amount of pain or gain the risk

event poses to the

project

Probability and Impact analysisProbability

P&I

0.9 0.09 0.27 0.45 0.63 0.89

0.7 0.07 0.21 0.35 0.49 0.63

0.5 0.05 0.15 0.25 0.35 0.45

0.3 0.03 0.09 0.15 0.21 0.27


37

0.1 0.01 0.03 0.05 0.07 0.09

Impact 0.1 0.3 0.5 0.7 0.9

Risk Probability

Impact P&I

1. Illness 0.1 0.7 0.07

2. Weather 0.5 0.9 0.45

3. No Power 0.3 0.9 0.27

4. Attrition 0.5 0.7 0.35

5. Suppliers 0.3 0.9 0.27

Video On Risk Analysis


_______ and ________ are assessed for each identified risk in the Qualitative Risk Analysis process

38

risk in the Qualitative Risk Analysis process

Probability and Impact

Probability and Impact

Impact and Priority

Probability and Cost

Priority and Impact

Inputs to Qualitative Risk Analysis process include


39

H: A, B, C and D

A . Risk Register

B: project Scope Statement

C: Risk Management Plan

D: Org process Assets

E: Probability and Impact

F: All (A to E)

G: A, B, C and E

H: A, B, C and D

Which one of the following is not an information gathering technique for risk management.


40

gathering technique for risk management.

Probability and Impact Matrix

A . Interviews

C: Probability and Impact Matrix

B: Delphi Method

D: Root Cause Analysis

Risk Management should be completed ________ the planning phase.


41

planning phase.

Early in

A . End of

C: Early in

B: Middle

D: Any time

Project risk is the uncertainty that an event or condition that effects ________ will be realized.


42

that effects ________ will be realized.

At least one of the project objectives cost, scope time or quality

A . Project performance as measured by the functional managers

B . Project Impact on the organization

C . Opportunities that project could realize

D . At least one of the project objectives cost, scope time or quality


What is Risk?


Identify Risk



Plan Risk Responses


43




Perform quantitative Risk Analysis is the process of

numerically analyzing the effect of identified risks on overall

project objectives.

It presents a quantitative approach to making decisions in the

presence of uncertainty


presence of uncertainty


1. Risk Register

2. Risk management plan 1. Data gathering and



4646



4. Schedule management

Plan


assets

1. Risk register

updates

1. Data gathering and

representation

techniques

2. Quantitative risk

analysis and modeling

techniques

3. Expert judgment


1. Risk Register



4. Schedule management Plan


47

4. Schedule management Plan

5. Organizational process assetsAfter you have identified risks and ranked them according to teams assessment, you need to take your analysis a little further and make sure that numbers back you up.

Perform Quantitative Risk AnalysisTools and TechniquesTools and Techniques OutputsOutputsInputsInputs

1. Data Gathering and representation Techniques:

Interviewing: In the interviewing try getting the three-point cost estimates so

4848

Interviewing: In the interviewing try getting the three-point cost estimates so that you can come up with a budget range that will help you mitigate risks later.

Probability Distribution: Time and cost estimate ranges in terms of their distribution.

Expert Judgment: Its good to talk to expert in statistics or risk analysis


2. Quantitative Risk Analysis and modeling techniques

Sensitivity Analysis: Determine which risks have the most potential impact on the project. Relative importance and Impact of variables that have a high degree of

uncertainty

Expected monitory value analysis: Examine costs of all of the paths you might take

4949

through the project depending on which risks occur and assign a monitory value to

each decision.

Modeling and simulation: It is good run the project risks through modeling programs if you can. Monte Carlo analysis is such tool that can randomize the outcomes of your

risks and the probabilities of them occurring to help you get a better understanding of

risks.

3. Expert Judgment: Its good to talk to expert in statistics or risk analysis


50Decision Tree Analysis


51


Risk register updates:

Probabilistic analysis of the project: Estimates are made of potential project schedule and cost outcome listing the possible dates and cost with their associated confidence levels.

Probability of achieving cost and time objectives: The Probability of achieving project objectives under the current plan can be estimated using quantitative risk analysis

5252

objectives under the current plan can be estimated using quantitative risk analysis

Prioritized list of quantified risks: The list of risks include those that pose greatest threat or opportunity to the project.

Trends in Quantitative risk analysis results: A trend may become apparent that leads to

conclusions affecting risk responses

Plan Risk Responses

What is Risk?


Identify Risk



Plan Risk Responses


53

Plan Risk Responses


Plan Risk Responses

Plan risk responses is the process of developing options and

actions to enhance opportunities and to reduce threats to

project objectives

Identify and assign the risk response owner to take the

responsibility for each agreed to and funded risk response.


responsibility for each agreed to and funded risk response.

Plan Risk Responses


Plan Risk Responses

1. Risk register

updates

2. Risk related contract

decisions

1. Strategies for negative

risks or threats



5656

1. Risk register

2. Risk management Plan

decisions

3. Project

management plan

updates

4. Project document

updates

risks or threats

2. Strategies for positive

risks or opportunities

3. Contingent response

strategies

4. Expert judgment

Plan Risk Responses

Risk RegisterRisk Management Plan

Without proper risk analysis, project teams may tempted to run into developing responses, which is not correctUnderstanding of the causes and impact is

Tips


57

Understanding of the causes and impact is important before planning response

Plan Risk ResponsesTools and TechniquesTools and Techniques OutputsOutputsInputsInputs

1. Strategies for negative Risks or Threats

Avoid, Transfer, Mitigate, Accept

2. Strategies for positive Risks or opportunities

5858

Exploit, Share, Enhance, Accept

3. Contingency Response Strategies- Predefined conditions

4. Expert judgment

Plan Risk Responses

If your project requires that you stand on the edge of a cliff, then there is a risk that you could fall.

59

If its very windy or the ground is slippery and uneven, then falling is more likely

Plan Risk ResponsesHow to deal with risk?

Avoid

The best thing that you can do

is to avoid it. Also called as

eliminate

60

eliminate

The easiest way to avoid this risk is to walk away from the cliff.but that may not be an option on this project

Avoidance most of the times mean loosing the business


Mitigate

Implies as reduction in probability and /or impact of an

adverse risk event to be with in acceptable threshold

limits.

61

Take some action that will cause little impact to the

project.


Transfer

Transfer the risk to a third party

i.e. Pay someone else to accept it for

you , but it does not eliminate the risk.

62

you , but it does not eliminate the risk.

The most common way is to outsource

or buy insurance etc.


Accept

When you accept the risk, at

least you have looked at all the

alternatives and you know what

63

alternatives and you know what

will happen if it occurs

Looks like

falling is the

best option

Plan Risk ResponsesDealing with Positive Risk or Opportunities

Exploit

Directly exploit the risks with positive impacts to take

advantage of an opportunity.

Share

64

Share

Allocate ownership of the risk to a third party who is

best able to capture the opportunity.

Enhance

Identify and maximize key drivers for opportunities,

thereby strengthening the impact or increasing the

positive risk event

Plan Risk ResponsesDealing with threats and opportunities

Passive Acceptance

Do nothing. Used when there is no possibility of

elimination or when the costs are prohibitive

Active Acceptance

65

Contingency planning involves, planning alternatives, to deal with risk if it occurs.

Contingency comes into play only when the risk event occurs.

Contingency reserves is a common contingency response. Contingency reserves include project funds that are held to offset any unavoidable threats that may occur for project scope, schedule, cost or quality

Contingency Planning

Active Acceptance

Risk Response Strategies

Strategy Type or risk Example

Avoid Negative, Threat Revise the schedule so that if the risk occurs, the project completion date is not missed

Transfer Negative, Threat Outsource or insure

Mitigate Negative, Threat In process inspection or review

Plan Risk Responses

66

Exploit Positive, Opportunity

Shorten the project duration by increasing number of people in the team

Share Positive Opportunity

Join Venture

Enhance Positive, Opportunity

Increase probability of a positive risk

Accept Positive or Negative

Add enough time or money into contingency reserve to handle the risk if it occurs

Contingency Positive or Negative

Additional money in reserve in case schedule or quality objectives are missed.

Plan Risk ResponsesTools and TechniquesTools and Techniques OutputsOutputsInputsInputs

Risk register updates:- Identified risks, risk owners and assigned responsibilities

Risk relegated Contract decisions:- Decisions to transfer risk e.g. insurance, services.

Project management Plan Updates:- Update to Schedule, Cost, Quality,

6767

Project management Plan Updates:- Update to Schedule, Cost, Quality, Procurement, Human resource Management plans, WBS,Schedule Base line, Cost performance

baseline.

Project Document Updates:- Assumptions log updates, Technical documentation updates

Name the strategies for negative risks?

Plan Risk Responses

68

Avoid, Mitigate, Transfer, Contingency, Accept

Avoid, Mitigate, Transfer, Contingency, Accept

Avoid, Mitigate, Transfer

Avoid, Mitigate, Transfer, Accept

None of the above

Updated Risk Register

Risk Event Priority

Risk Owner

Category of risk

Approved Response Strategy

Contingency reserve

Contingency Plan and Triggers

Secondary Risk

Late delivery of

High Ravindra External-

Contingency

3 weeks to schedule

Additional

Taking active

Plan Risk Responses

69

delivery of hardware

-Supplier

gency schedule

$3000 for additional effort, travel, and expediting shipping

nal meetings with vendor if immediate milestones are missed

active part in vendor management might impact other delivery activities

Risk register is updated periodically throughout the project life cycle. The risk register is initiated during the ______________ and further updated based on the

Plan Risk Responses

70

______________ and further updated based on the information developed in the ____________________

Risk Identification, Qualitative Risk Analysis

Risk Management Planning, Qualitative Risk Analysis

Risk Identification, Risk Management Planning

Risk Identification, Qualitative Risk Analysis

Risk Management Planning and Risk Identification

Mitigation as a response strategy will always add time and/or money to the project. True or False?

Plan Risk Responses

71

money to the project. True or False?

False

Risks may have one or more causes and one or more impacts. True or False?

Plan Risk Responses

72

True or False?

True


What is Risk?


Identify Risk



Plan Risk Responses


73



Monitor and Control Risks

Monitor and Control risk is the process of implementing risk response plans, tracking identified risks, monitoring residual risks, identifying new risks, and evaluating risk process effectiveness throughout the project.



1. Risk register updates

2. Organizational

process assets

updates

1. Risk assessment



7676

1. Risk register

2. Risk management Plan

3. Work performance

information

4. Performance reports

updates

3. Change requests

4. Project management

plan updates

5. Project document

updates

2. Risk audits

3. Variance and trend

analysis

4. Technical performance

measurement

5. Reserve analysis

6. Status meetings


Risk RegisterProject Management PlanWork Performance Information

Risk Monitoring should be done at every status meeting.

Tips


77

InformationPerformance reports

Monitor and Control RisksTools and TechniquesTools and Techniques OutputsOutputsInputsInputs

Risk Reassessment: Have regular scheduled reassessment meetings to review the information.

Variance and Trend Analysis: Comparing the actual project performance to

planned performance is a great way to tell if a risk might be happening.

7878

Reserve Analysis: Keep a running tab on the budget to know how much money

you have set aside for risk response.


Risk Audits: Have an outside party to look at your risks and take feedback.

Technical Performance measurement: Comparing the performance of the

project with its planned performance.

Status Meetings: Most important way to keep the team up to date on risk

7979

Status Meetings: Most important way to keep the team up to date on risk

planning. They should happen through out the project.


Risk register updates:

List of identified risks

List of potential responses

Organizational process assets update

8080

Organizational process assets update

Change Requests:- Recommended corrective actions, Recommended preventive

actions.

Project management Plan updates

Project document updates


Control Risks

8181

Control Risks

0 5 10 15 20

8282

D. Insurance Premiums

0 5 10 15 20

8383

C. $20,000 Profit

0 5 10 15 20

8484

B. Risk identification and Risk Monitoring and control

0 5 10 15 20

8585

B. Document them and revisit during project execution

0 5 10 15 20

8686

B. Transfer

0 5 10 15 20

8787

C. Qualitative

0 5 10 15 20

8888

A. Residual risks

0 5 10 15 20

8989

D. Risk Monitoring and control

Thank you

90

Sample risk register

Identified

Risks

Potential Responses Root Causes

Landslide caused by

loose gravel and dirt on

the nearby mountain

Put up barrier or dig trench Geological data review found

loose topsoil nearby

Risk Identification Process

92

the nearby mountain

High winds can lead to

cliff disaster

Reinforce tent stakes; obtain

weather proof equipment

National weather service

predicts 35% chances of high

winds

Truck rental is

unavailable

Pay to reserve equipment at a

second company

Higher than expected demand

for equipment in the are this

season

Equipment failure during

project

No responses were found by team Recent industry report cites

higher-than-expected failure

rates for critical equipment

Documents

Microsoft PowerPoint - Project Risk Management v 1 3