Part I
Pascal B. Xavier
“It is likely that unlikely things should happen.” Aristotle (384 BC – 322 BC)
“The excitement that a gambler feels when making a bet is equal to the amount he might win times the probability of winning it.” Blaise Pascal (1623-1662 )
“We define the art of conjecture, or stochastic art, as the art of evaluating as exactly as possible the probabilities of things, so that in our judgments and actions we can always base ourselves on what has been found to be the best, the most appropriate, the most certain, the best advised; this is the only object of the wisdom of the philosopher and the prudence of the statesman.” Jacob Bernoulli (1655 - 1705)
Part I
Pascal B. Xavier
Risk Definition What is Risk? In its broadest sense, risk can be defined as the
likelihood and consequence of loss of anything having value, associated with people, facilities, information, equipment, and reputation.
What is a Hazard? A hazard is the potential to lose these items of
value through specific agents and context e.g. Electricity near water, handling chemicals unprotected, excessive noise, constant stress, bad publicity, or other adverse effects.
Part I
Pascal B. Xavier
Risk Management Perceived as a Discipline
Figure Courtesy of Software Engineering Institute, Carnegie Melon
Figure 1: Risk and Project Management.
Part I
Pascal B. Xavier
Figure 2: Risk perception, risk assessment and risk management
Risk Definition
Part I
Pascal B. Xavier
Risk Definitions Risk analysis is a systematic use of information to
identify specific sources of harm (hazards) and to estimate the risk.
Risk evaluation compares the estimated risk against given risk criteria using a quantitative or qualitative scale to determine the significance of the risk.
Risk appetite is the level of risk that an organization is prepared to accept, before action is deemed necessary to reduce it (Averse, Minimal, Cautious, Open, Hungry)
Part I
Pascal B. Xavier
The Risk Management Process
Figure 4: The Risk Management Process (AS/NZS ISO 31000:2009)
Establish the Context (5.3)
Risk Assessment (5.4)
Risk Identification (5.4.2)
Risk Analysis (5.4.3)
Risk Evaluation (5.4.4)
Co
mm
un
icat
ion
an
d C
on
sult
atio
n (
5.2
)
Risk Treatment (5.5)
Mon
ito
ring
an
d R
evie
w (
5.6
)
Part I
Pascal B. Xavier
A Risk Management Overview
Figure 5: Risk Management Overview for Multiple Risks
Part I
Pascal B. Xavier
Portfolio, Program and Projects A business portfolio is an organization’s set of
investments, holdings, products, businesses and brands. A product portfolio is the product’s mix of market segments. e.g. health care, energy and aviation (GE, 3M, etc.)
Health care program could include drugs, foods, supplements, vaccinations, screening tests, exercises, hospital treatment, and physiotherapy.
A health care project could involve the development of a specific vaccine.
Part I
Pascal B. Xavier
Project Portfolio Management A project portfolio is a collection of project
programs that work together to meet strategic business objectives.
It is about customer satisfaction and timely launch of suitable products and services onto the market for increased financial returns.
It has to achieve project program purpose and strategic alignment against the business.
Project portfolio risk is reduced through diversification.
Greater adaptability towards change.
Part I
Pascal B. Xavier
Project Program Management A project program is a group of related projects,
managed in a coordinated way i.e. cross benefits between projects (e.g. drugs and vaccination).
While a project is a temporary organization, the program is a more permanent structure that provides strategic direction to the project collection.
Project programs are able to adapt better to changes in the market place than portfolios.
Part I
Pascal B. Xavier
Dimensions Project Program Portfolio
Scope Manage risk through project life cycle
Track benefits / costs in project risk strategies
Align project risk and business strategies
Primary role Identify and respond to individual project risks
Implement value creating and value protecting strategies
Diversify project risks across project portfolio
Focus on Project risk analysis and risk register
Organizational project risk issues
Strategic project risk issues
Outcomes Project risks are controlled and monitored
Program delivered within agreed project risk strategies
Improved business performance
Measures Project risk response is cost-effective
Business values are created and protected
Overall business success is increased
Skill required Project risk management Organizational leadership Executive leadership
Responsibility of
Project manager Project sponsor, Project Management Office
Steering committee, project sponsor
Responsibility to
Project sponsor Steering committee Board of Directors
Compliance with
Project risk management practices
Project risk governance principles
Project risk governance principals
Table 1: Risk Governance (PRG) in Portfolio, Program and Projects
Part I
Pascal B. Xavier
Project Stages Activities Processes Structures and Relationships
Project Identification
Determine project risk tolerance and appetite; Identify strategic project risks; Approve overall project risk profile
Business/Project interaction; Project Portfolio Management
Board of Directors; Steering Committees
Project Planning Determine project risks; Develop value-creating and value-protecting risk strategies
Portfolio, Program and Project Management; Investment Management
Project Sponsors; Steering Committees; Project Managers
Project Delivery Produce project risk management plan; Manage project risks through project development lifecycle
Project Management; Value Realization; Performance Management
Project Sponsors; Steering Committees; Project Managers
Project Closure Review project investment; Review project risk outcomes; Update ‘Lessons Learned’ repository; Determine PRG success/failure
Performance Management Project Sponsors; Steering Committees; Project Managers
Table 2: PRG Activities, Processes; Structures and Relationships
Part I
Pascal B. Xavier
Risk Management, Governance and Compliance Risk governance integrates management
information reporting with management control structures to ensure strategies, directions and instructions are undertaken systematically.
Risk management identifies, analyses and assesses the necessary response to risks that may derail the organisation’s business goals.
Risk compliance is achieved through processes that identify certain requirements in laws, regulations, contracts, strategies and policies.
Part I
Pascal B. Xavier
Stakeholders A person, group or organization that has an interest
or concern in an organization. Stakeholders can affect or be affected by the organization’s actions, objectives and policies. (http://www.businessdictionary.com)
A person who has an interest in or investment in something and who is impacted by and cares about how it turns out. (Webster Dictionary)
Anyone who might be affected by a decision; anyone who has a “stake” in the outcome of a situation. (Real Estate Encyclopaedia)
Part I
Pascal B. Xavier
Who are the Organization’s Stakeholders?
Figure 11: Stakeholders of an Organization
Part I
Pascal B. Xavier
Stakeholder Analysis
Figure 12: Who are your Key Stakeholders?
High Influence,
Low Interest
(Latents)
High
Influence.
High Interest
(Promoters)
Low Influence,
Low Interest
(Apathetics)
Low Influence,
High Interest
(Defenders)
Keep Informed
Actively Engage Keep Satisfied
Occasional Contact
Part I
Pascal B. Xavier
Strategic Factor Analysis
Figure 13: Key Stakeholders
ORGANIZATION CUSTOMERS SUPPLIERS
EMPLOYEES
OWNERS
CO
MPE
TITO
RS
CO
MPETITO
RS
COMPETITORS
COMPETITORS
Graham Kenny (2013)
Organisation Objectives
from Owners
Organisation Objectives
from Employees
Strategic Factors for
Owners
Strategic Factors for Employees
Organisation Objectives
from Customers
Organisation Objectives
from Suppliers
Strategic Factors for Customers
Strategic Factors for Suppliers
Organisation Objectives – What the Organization wants from Key Stakeholders
Strategic Factors – What Key Stakeholders want from the Organization
Note: If ‘ORGANIZATION’ is a Corporation, then ‘OWNERS’ may be Shareholders. Others include Sole Proprietor, Partnership or Cooperative.
Part I
Pascal B. Xavier
Service Improve contract
performance Minimize
operating costs Improve
customer management
Manufacturing Minimize
manufacturing costs
Maximize customer service
Minimize distribution costs
Maximize profit
Distribution Minimize
operating costs
Reduce inventory levels
Improve operating cycle time
Insurance Maximize
customer service
Streamline information technology
Improve service delivery margin
FMCG Improve
profitability Increase market
share Increase sales Reduce
manufacturing costs
Reduce distribution costs
What are the Organizational Objectives?
Part I
Pascal B. Xavier
Consumers Price Product features Packaging Customer service
Retailers Delivery Price Margin Product range Product
Presentation Customer
Service
Suppliers Consistency
of orders Order lead
time Trade terms Long
production runs
Size of orders
Employees Promotion
Prospects Salary Superannuation
/Benefits Training Physical
Working Conditions
Location Organization
Reputation Organization
Culture Job Security
Shareholders Dividends Capital
growth Financial risk Physical
working conditions
Location Organization
reputation Organization
culture Job security
What are Strategic Factors?
Part I
Pascal B. Xavier
Linking Strategies to Organizational Objectives through Measurement of these Objectives Establish Behavioural Outcomes required of
Stakeholders (e.g. get donors to provide funds) Develop Organizational Objectives based on
Behavioural Outcomes (e.g. to increase revenue from donors)
Develop Measures on Objectives (e.g. how much revenue from donors)
Thus, what an organization wants from its key stakeholders becomes their objectives
Part I
Pascal B. Xavier
Reducing Risks to Increase Positive Outcomes
ORGANIZATIONAL OBJECTIVE LEASEHOLDERS Maintain current
leaseholders EMPLOYEES To decrease no-
shows on shifts
BEHAVIOURAL OUTCOME To get current
leaseholders to renew leases at end of term
To get casual
employees to show up for shifts
RISKS
Lease not renewed
No-show at
shifts
STRATEGIC FACTORS Offer grace
period for rent Attend to
legitimate complaints expeditiously
Goodwill gestures
Automated
reminders when shift due
Incentives for good record
MEASURE $ Revenue # Current
leases %Current
leases renewed # No-shows
per shift % No-shows
per shift $ Cost of no-
shows
Part I
Pascal B. Xavier
Stakeholder Risk Management by Board
Figure 14: Board Risk Management
BOARD GOVERNMENT MEDIA
REGULATORY AGENCIES
SHAREHOLDERS
Organisation Objectives – What the Board wants from Key Stakeholders
Strategic Factors – What Key Stakeholders want from the Board
LOCAL COMMUNITY
EXECUTIVE MANAGEMENT
Part I
Pascal B. Xavier
Stakeholder Risk Management by Board
ORGANIZATIONAL OBJECTIVE SHAREHOLDERS Raise equity for
trade GOVERNMENT Political stability Favourable regulations Favourable fiscal and monetary policies MEDIA Marketing
BEHAVIOURAL OUTCOME Increased number of shareholders Autonomy to run the business Peace and stability Sound regulations and infrastructure Increased government investment
Increased sales
RISKS
Shareholders sell their shares in large numbers Shareholders wielding too much influence and or control War Poor infrastructure Increased corporate tax Raised interest rates
Reputational damage
STRATEGIC FACTORS Receive dividends Gain assets upon liquidation Nominate directors Company growth
Local and foreign investment Employment for its citizens/residents Tax from corporate earnings
Payment for services Improved ratings
MEASURE Earnings per share Price/Earnings Ratio Intangible / tangible assets e.g. IP, broadcast rights, customer relationships, etc.
# of years without conflict/war Employment rate # of years in power # of Immigrants
Poll results Station ratings
Part I
Pascal B. Xavier
Stakeholder Risk Management by Executives
Figure 15: Executives/PMO Risk Management
EXECUTIVES/PMO GOVERNMENT SUPPLIERS
REGULATORY AGENCIES
LOCAL COMMUNITY
Organisation Objectives – What the Executives want from Key Stakeholders
Strategic Factors – What Key Stakeholders want from the Executives
COMPETITORS
LABOUR UNIONS
UTILITY SERVICES
INDUSTRY TRADE GROUPS
BANKS EMPLOYEES
Part I
Pascal B. Xavier
Group Exercise
ORGANIZATIONAL OBJECTIVE GOVERNMENT LOCAL COMMUNITY EMPLOYEES LABOUR UNIONS INDUSTRY TRADE GROUPS BANKS SUPPLIERS COMPETITORS REGULATORY AGENCIES
BEHAVIOURAL OUTCOME
RISKS
STRATEGIC FACTORS
MEASURE
Part I
Pascal B. Xavier
References Chris Chapman & Stephen Ward (2004) Project
Risk Management: Processes, Techniques and Insights, John Wiley and Sons
Dan Patterson (2006), “Managing Project Cost Risk”, AACE International Transactions, ppIT.05.1-IT.07.1
Eisner Amper (2013), “Concerns About Risks Confronting Boards”, Fourth Annual Board of Directors Survey
Part I
Pascal B. Xavier
References (Cont’d) Ezekiel A. Chinyio and Akintola Akintoye (2008),
“Practical Approaches for Engaging Stakeholders: Findings from the UK”, Construction Management and Economics, 26, pp591-599.
Gregory A. Garrett (2005), Managing Opportunity and Risk in a Complex Project Environment, Contract Management, 45(4), pp8-20
Iqbal Noor & Robert Tichacek (2009), “Contingency Misuse and Other Risk Management Pitfalls”, Cost Engineering, 51, 5, pp28-33
Part I
Pascal B. Xavier
References (Cont’d) Morten Huse and Violina P. Rindova (2001),
“Stakeholders’Expectations of Board Roles: The Case of Subsidiary Boards”, Journal of Management and Governance, 5, pp153-178
Payant, W. Randall (2000), “The Forsaken Side of Risk Management – Have Deterministic Approaches Gone Too Far?”, The Journal of Bank Cost & Management Accounting, 13, 2, pp55-62
Rolf Olsson (2008), Risk Management in a Multi-Project Environment – An Approach to Manage Portfolio Risks, International Journal of Quality and Reliability Management, 25, 1, pp60-71
Part I
Pascal B. Xavier
References (Cont’d) Stefan Olander and Anne Landin (2005),
“Evaluation of Stakeholder Influence in Implementation of Construction Projects”, International Journal of Project Management, 23, pp321-328
Young, Beth (2007), “From Compliance to Risk – The Evolution of Corporate Governance”, The Corporate Governance Advisor, 15, 3, pp12-13 Free Resources and Articles on Strategic Factors http://www.strategicfactors.com/press.htm
Part I
Pascal B. Xavier
Bibliography Douglas W. Hubbard (2009), “The Failure of Risk
Management – Why It’s Broken and How to Fix It”, John Wiley and Sons
Dieter Fink (2013), “Project Risk Governance – Managing Uncertainty and Creating Organizational Value”, Gower Publishing Company
Kenny, Graham (2013), “Strategic Planning – How to Write a Strategic Plan that Drives Performance” Strategic Factors Manual - Thirty Eight Edition, Section 21, pp81-96