Risk Management Overview Week 2. Review of Project Life Cycle Phases Phase 1: InitiatingDefines and authorizes the project or a project phase Phase 2:

Risk Management Overview

Week 2

Review of Project Life Cycle PhasesPhase 1: Initiating Defines and authorizes the project or a

project phasePhase 2: Planning Defines and refines objectives, and plans

the course of action required to attain the objectives and scope that the project was undertaken to address

Phase 3: Executing Integrates people and other resources to carry out the project management plan for the project

Phase 4: Monitoring/Controlling Regularly measures progress to identify variances from the project management plan so that corrective action can be taken when necessary to meet project objectives

Phase 5: Closing Formalizes acceptance of the product, service, or result and brings the project or a project phase to an orderly end

PMBOK® p. 41

Project Risk

• “A project risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on at least one of the project’s objectives”– Threat risk has a negative impact on the project’s

objective(s).– Opportunity risk has a positive impact on the

project’s objective(s) such as allowing the project to finish early, with less cost, and with more scope (functionality) than originally planned.

PMBOK® p. 238

Project Risk Management

• “Project risk management includes the processes concerned with conducting risk management planning, identification, analysis, responses, and monitoring and control on a project; most of these processes are updated throughout the project. ”

PMBOK® p. 237

Project Risk Management Objective

• “The objectives of Project Risk Management are to increase the probability and impact of positive events, and decrease the probability and impact of events adverse to the project.”

PMBOK® p. 237

Risk Management AreasRisk

Management Planning

Risk Identification

Qualitative Risk Analysis

Quantitative Risk Analysis

Risk Response Planning

Risk Monitoring and Control

PMBOK® p. 239

Risk Management AreasRisk management planning Decide how to approach, plan, and execute the

risk management activities for the project. Standard templates, checklists, etc..

Risk identification Determine which risks might affect the project and document their characteristics. Identify at a high-level – about 80% are identified here.

Qualitative risk analysis Prioritize risks by evaluating and combining their probability and impacts. Subjective analysis.

Quantitative risk analysis Analyze numerically (expected monetary value) the effect of identified risks on overall project objectives. Objective analysis.

Risk response planning Develop courses of action to reduce threats and increase opportunities to project objectives. Note – this is not the same as risk mitigation.

Risk monitoring and control Track identified risks, monitor residual risks, identify new risks, execute risk response plans, and evaluate their effectiveness throughout the execution of the project.

PMBOK® p. 340

Knowledge Areas – Risk Centered

Risk

Integration

Communication

HumanResources

Procurement

Cost

Time

Quality

Scope

Adapted from Wideman, 1992

Project Life Cycle and Risk Management

Initiating PlanningExecuting/Controlling

Closing

Risk Management Planning

Risk Management PlanningRisk IdentificationQualitative Risk AnalysisQuantitative Risk AnalysisRisk Response Planning

Risk Monitor/ControlIterate risk identification, analysis and response planning

Risk lessons learned

When is risk management performed?

Stakeholders

• “individuals and organizations that are actively involved in the project, or whose interests may be affected as a result of project execution or project completion. They may also exert influence over the project’s objectives and outcomes”

PMBOK® p. 24

Risk StakeholdersProject manager The person responsible for managing the project.

Ultimately responsible for the risk management process. Participates in risk management activities throughout the project.

Project sponsor Person, or group, that provides financial resources for the project. Sets the risk threshold and tolerance for the project. Signs off on the risk management plan.

Project team members The group performing the work on the project. Participates in all risk management activities throughout the project.

Customers Person or organization that will use the project’s product.

Others People or groups not directly related to the project’s product, but can influence, positively or negatively, the course of the project.

PMBOK® p. 26

Risk Tolerance

• Propensity (individual or organization) to operate in an uncertain environment.

• Risk…– Seeker – embraces risk to realize gains– Tolerant – tolerates risk to ensure success– Averse – avoids risk to avoid failure

http://articles.techrepublic.com.com/5100-10878_11-6035405.html

http://articles.directorym.net/Know_Your_Risk_Tolerance_First-a881332.html

http://articles.techrepublic.com.com/5100-10878_11-6035405.html



Risk tolerance may change throughout the project depending on problems, crises, regulatory changes, and changes in

stakeholders.

Which trait(s) describe your style? Taking risks makes good sense only in the absence of acceptable

alternatives. I generally prefer stimulation over security I have confidence in my ability to recover from my mistakes, no

matter how big. I believe opportunity generally knocks only once. It is better to ask for permission than to beg for forgiveness. Success in management is as much as a matter of luck as ability. I can handle big losses and disappointment with little difficulty Given a choice, I would choose a $3,000 annual raise over a $10,000

bonus that I have a one-in-three chance of winning. I am willing to try anything once. I seek adventure. I stick to the rules.

Risk Tolerance Game

Successful project management is spotting the projects that will succeed and shouting "mine" and for the rest ducking and shouting "yours".

http://www.project-training-uk.freeserve.co.uk/page2.htm



The Cost of Uncertainty

• Uncertainty decreases as the project progresses

• The cost (amount at stake) of making changes (to address risks) increases as the project progresses

• Addressing risks later in the project is more expensive than earlier action

• Goal is to reduce uncertainty early in the project by effective risk management

Risk Management Should be Adapted Based on

• Project size, importance, and complexity• Risk tolerance (organizational and

stakeholders)• Organizational policies and culture• External regulatory environment• There is no “one size fits all” in project risk

management

Risk Management Implementation

• Resistance to risk management– Some companies want to avoid talking about risks– Tendency to deal with risks when they occur– Fear that talking about a risk will make it happen

• Requires commitment, discipline and participation

• Many companies stop after identifying and qualifying risks instead of integrating all risk processes into the entire project life cycle.

Risk Management Excuses

A lack of planning by you does not constitute an emergency for me.





Planning without action is futile, action without planning is fatal.




Risk Management ProcessesRisk

Management Planning

Risk Identification

Qualitative Risk Analysis

Quantitative Risk Analysis

Risk Response Planning

Risk Monitoring and Control

PMBOK® p. 239

“Risk Management Planning is the process of deciding how to approach and conduct the risk

management activities for a project”

The risk management plan is a subset of your overall project plan and should be completed early during project planning

PMBOK® p. 242


Inputs• Organization assets

(policies, lessons learned, etc..)

• Stakeholder risk tolerance

• Project Charter• Project Scope• Risk Management Plan

template

Tools/Techniques• Risk Planning

Meetings

Outputs• Risk

Management Plan

• Updates to project management plan

PMBOK® p. 242

Risk Management Planning• Set overall goals and objectives

• Determine tolerance level

• Decide how much money, time, and other resources will need to be allocated for risk management activities

• Establish templates, checklists, and other tools to be used in risk management for your project

• Create probably and impact scales

• Establish importance of risk management

• Decide basis for evaluating project risk PMBOK® p.243 - 246

Risk Planning Inputs• Project Management Plan– Project Charter– Project Scope

• Stakeholder risk tolerance– Used as an input for defining impact scales– Determines formality of your risk plan and processes– Factored in to developing risk responses– May differ from project manager and/or team risk

tolerance• Risk management plan template

What do you do if..

• Your customer is not a risk taker, but you (the project manager) believes some risk will always be present and needs to be managed?

• You (the project manager) thinks the customer is wanting to take too many risks?

Risk Management Planning Outputs

• Risk management plan– Probably and impact scales

• Changes/updates to the project management plan

Define Probability and Impact• Define significant ranges for probability scores• Define impact definitions for each of the 4

competing demands– Scope, time, cost, quality

• Base these definitions on:– Historical data– Expert judgment– Risk tolerance – Organizational culture/policies

Probability Score ExampleProbably of Risk

Range of Probability Probability Score

81% - 99% 5

61% - 80% 4

41% - 60% 3

21% - 40% 2

1% - 20% 1

(red)

(red)

(yellow)

(green)

(green)

Scope Impact ExampleImpact of Risk on Scope Objective

Description of Potential Scope Impact ImpactScope reduction renders deliverable useless 5More than 20% of major functionality is affected 4Major areas of the scope are affected 3No more than 15% of the scope is affected (minor areas of functionality only)

2Minor functionality affected 1

(red)

(red)

(yellow)

(green)

(green)

Time Impact ExampleImpact of Risk on Time Objective

Description of Potential Time Impact Impact> 20% schedule delay 511 – 20% schedule delay 46 – 10% schedule delay 31 – 5% schedule delay 2Delays are insignificant (less than 1% schedule delay) 1

(red)

(red)

(yellow)

(green)

(green)

Cost Impact ExampleImpact of Risk on Cost Objective

Description of Potential Cost Impact Impact> 25% cost increase 516 – 25% cost increase 46 – 15% cost increase 31 – 5% cost increase 2Cost increase is insignificant (less than 1% increase) 1

(red)

(red)

(yellow)

(green)

(green)

Cost Impact ExampleImpact of Risk on Cost Objective

Description of Potential Cost Impact Impact> 25% cost increase 516 – 25% cost increase 46 – 15% cost increase 31 – 5% cost increase 2Cost increase is insignificant (less than 1% increase) 1

(red)

(red)

(yellow)

(green)

(green)

Quality Impact ExampleImpact of Risk on Quality Objective

Description of Potential Quality Impact ImpactProject deliverable is rendered unusable 5Quality reduction affects major functionality, less than 90% functionality meets quality standards

4Quality reduction affects major functionality – require customer approval

3Major functionality not affected, 90 – 96% functionality meets quality standards

2Major functionality is not affected, at least 97% functionality meets quality standards

1

(red)

(red)

(yellow)

(green)

(green)

Create Probability and Impact Scales

Some things that don't count are counted, many things that count

aren't counted.




Tailor Risk Management to Your Project

• Do we need a risk management officer?• Do we advisors or risk experts from outside

the project?• Do we need a formal quantitative risk

assessment?• How often do we need formal risk meetings?• Risk management processes are determined

by the size, complexity, and organizational impact of the project.

The Risk Management Plan (RMP)

• The RMP does not address individual risks• The RMP does address the processes for how

risks will be identified, analyzed, responded to, and monitored throughout the project life cycle.

• Include risk management activities in the project WBS, schedule, and budget.

• Establish risk objectives for the team.• Risk communication plan.• How frequently will risks be addressed.

Create a Risk Management Plan

People make a plan work, a plan alone seldom makes people work

(Confucius).

Project Charter ExampleTable 5-2

Schwalbe, 2007 p. 185

Project Charter Example

Schwalbe, 2006 pp. 86 - 87

Project Charter Example

Schwalbe, 2006 pp. 86 - 87

Project Scope Statement


Sample Scope Management Plan Example

Schwalbe, 2007 p.184

Work Breakdown Structure (WBS) Example


Work Breakdown Structure (WBS) Example


Work Breakdown Structure (WBS) Example – Tabular Format

1.0 Concept1.1 Evaluate current systems1.2 Define Requirements

1.2.1 Define user requirements1.2.2 Define content requirements1.2.3 Define system requirements1.2.4 Define server owner requirements

1.3 Define specific functionality1.4 Define risks and risk management approach1.5 Develop project plan1.6 Brief Web development team

2.0 Web Site Design3.0 Web Site Development4.0 Roll Out5.0 Support


Project Schedule Example – Gantt Chart


Project Cost Budget Estimates ExampleBudget Category Estimated Costs Explanation

Headcount (FTE) 13 Included are 9 programmer/analysts, 2database analysts, 2 infrastructuretechnicians.

Compensation $1,008,500 Calculated by employee change notices(ECNs) and assumed a 4% pay increase inJune. Overload support was planned at$10,000.

Consultant/PurchasedServices

$424,500 Expected consulting needs in support of theProject Accounting and Cascadeimplementation efforts; maintenanceexpenses associated with the Hewlett-Packard (HP) computing platforms;maintenance expenses associated with thesoftware purchased in support of the BSRproject.

Travel $25,000 Incidental travel expenses incurred insupport of the BSR project, most associatedwith attendance of user conferences andoff-site training.

Depreciation $91,000 Included is the per head share ofworkstation depreciation, the Cascade HPplatform depreciation, and the depreciationexpense associated with capitalizedsoftware purchases.

Rents/Leases $98,000 Expenses associated with the Mach1computing platforms.

Other Suppliesand Expenses

$153,000 Incidental expenses associated with thingssuch as training, reward and recognition,long distance phone charges, miscellaneousoffice supplies.

Total Costs $1,800,000 Schwalbe, 2006 presentation slide

Return on Investment Example


Stakeholder Analysis ExampleKey Stakeholders

Ahmed Susan Erik Mark DavidOrganization Internal

seniormanagement

Project team Project team Hardwarevendor

Projectmanager forotherinternalproject

Role onproject

Sponsor ofproject andone of thecompany'sfounders

DNAsequencingexpert

Leadprogrammer

Suppliessomeinstrumenthardware

Competingfor companyresources

Unique facts Demanding,likes details,businessfocus,StanfordMBA

Very smart,Ph.D. inbiology,easy to workwith, has atoddler

BestprogrammerI know,weird senseof humor

Start-upcompany, heknows wecan makehim rich ifthis works

Nice guy,one of oldestpeople atcompany,has 3 kids incollege

Level ofinterest

Very high Very high High Very high Low tomedium

Level ofinfluence

Very high;can call theshots

Subjectmatterexpert;critical tosuccess

High; hardto replace

Low; othervendorsavailable

Low tomedium

Suggestionson managingrelationship

Keepinformed, lethim leadconversations ,do as hesays andquickly

Make sureshe reviewsspecifications and leadstesting; cando somework fromhome

Keep himhappy so hestays;emphasizestockoptions;likesMexicanfood

Give himenough leadtime todeliverhardware

He knowshis projecttakes a backseat to thisone, but Ican learnfrom him

Schwalbe, 2006

Stakeholder Analysis ExampleKey Stakeholders

Ahmed Susan Erik Mark DavidOrganization Internal

seniormanagement

Project team Project team Hardwarevendor

Projectmanager forotherinternalproject

Role onproject

Sponsor ofproject andone of thecompany'sfounders

DNAsequencingexpert

Leadprogrammer

Suppliessomeinstrumenthardware

Competingfor companyresources

Unique facts Demanding,likes details,businessfocus,StanfordMBA

Very smart,Ph.D. inbiology,easy to workwith, has atoddler

BestprogrammerI know,weird senseof humor

Start-upcompany, heknows wecan makehim rich ifthis works

Nice guy,one of oldestpeople atcompany,has 3 kids incollege

Level ofinterest

Very high Very high High Very high Low tomedium

Level ofinfluence

Very high;can call theshots

Subjectmatterexpert;critical tosuccess

High; hardto replace

Low; othervendorsavailable

Low tomedium

Suggestionson managingrelationship

Keepinformed, lethim leadconversations ,do as hesays andquickly

Make sureshe reviewsspecifications and leadstesting; cando somework fromhome

Keep himhappy so hestays;emphasizestockoptions;likesMexicanfood

Give himenough leadtime todeliverhardware

He knowshis projecttakes a backseat to thisone, but Ican learnfrom him

Schwalbe, 2006

References

• Information Technology Project Management, Fourth Edition (2006) and Fifth Edition (2007) by Kathy Schwalbe

• Risk Management Handbook, Project Management Institute, Newtown Square, PA, 1992, by R.M. Wideman

• Management Concepts

http://www.pmi.org/

Documents

Risk Management Overview Week 2. Review of Project Life Cycle Phases Phase 1: InitiatingDefines and authorizes the project or a project phase Phase 2: