22746138-project-management

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PROJECT

MANAGEMENT

Project Management 1/138


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MODULE 1 INTRODUCTION

1.1. What is a project

A project is a one-off process with a single definable end result or product.o Finite life cycle, definite starting and completion points on time,

within cost to required standards of quality

Much of project management is concerned with planning and controlling three keyvariableso time, cost, quality

1.1.2 Projects and Other Production System

3 main categories of projectionMass Production Large number of repetitive items

Capital-intensive and highly mechanistic,

little active management intervention or control

once system set up

BatchProduction

Unlikely continual high demand for product orrequires modification

Re-tooled, reconfiguration process started upagain for next batch

Management intervention and control is greaterProject(non-repetitive)production

One-off, non-repetitive item

High level of complex management planning andcontrol

Project versus ProgrammesProgrammes longer duration than individual project within it.

1.1.3 Characteristics of Projects

1. 1. It involves a single, definable purpose, product or result2. 2. It usually has definable constraints or targets time limit3. 3. It uses skills and talents from multiple professions and organizations multidisciplinary team4. 4. It is unique one off activity never repeated exactly5. 5. It is somewhat unfamiliar

6. 6. It is a temporary activity accomplish a goal in given period of time,once achieved project ceases to exist7. 7. It is part of the process involved in working to achieve a goal clearstart and finish points8. 8. It is generally of secondary importance to the organization9. 9. It is relatively complexProject management covers whole range of functional management areas

Financial awareness

Marketing appreciation

Technical knowledge

Planning skills Strategic awareness

Quality management



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1.2 What is Project Management

1.2.2 Definition of Project Management

The process of planning and executing a piece of work from inception to completion toachieve safe achievement of objectives on time, within cost limits and to the specifiedstandard of quality

And:The organizing, planning, directing, co-ordinating and controlling of all project resourcesfrom inception to completion to achieve project objectives on time, within cost, and torequired quality standards.Achieving time, cost and quality targets, within the context of overall strategic and tacticalclient requirements by using project resourcesConcerned with the lifecycle of the project: planning, and controlling the project from start tofinish

Typical project-management time-cost-quality continuum

1.2.3 The Basic Project Management Structures

1.2.3.1 Internal Project Management

Project teams operating within functional units

Single designated person, namely the project manager, responsible managing theproject organization

Project manager acts independently outside normal functional authority structure

Project manager acts as a single leader brings together various functional andproject resources

Project require a number of different functional specialist work together multidisciplinary group under project manager

Project manager responsible integrate multidisciplinary group into multidisciplinaryproject team

Project manger has to negotiate with individual function manager to share resources

Project manager concentrate on delivery of project objectives on time, cost quality,functional manger concentrate on pool resources conflicts between the 2 can arise

Two lines of authority project manager and functional manager

Decision-making, accountably rewards and potential benefits shared

Project structure temporary project completed function units are permanent

Project can originate from any level of organization

Project structure requires assistance of the standard support function i.e. HR,finance, IT



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Project manager given responsibility held accountable for project success. Project goalsversus functional goal, distinguishing project and functional management roles, ProjectManager depend on people who report directly to other manager.Project management is more complicated and diverse than in other management areas.1.2.3.2 External Project Management

External project manager acts as an agent on behalf of the client

External system more flexible than internal system, external consultants hired asrequired

Instructions and communication between external consultants and client cross theorganizational boundary. This boundary represents a barrier to effective communication

Team allegiance lower, owe no allegiance to client organization

External project manager has direct control over project team

Functional structure of the organization has no direct relevance to or impact onproject

Greater requirement for risk transfer and contractual control in external projectmanagement structure

No in-built knowledge of the firm. Can be disadvantage

1.3 Characteristics of Project Management

1.3.1 Introduction

International and industry specific benchmarks, professional provide advice in relation to fulllife cycle of a project from inception to completion.Important elements:

1.3.2 Multiple objectives Time, Cost, Quality 3way continuum

Impact on each other alter one it impacts the otherSuccess and failure criteria set by the client or executive oforganization at the outsetCost-quality curve success failure criteria determined levels ofperformance

1.3.3 International co-operation and standards

International project management association (IPMA)International approach co-ordinates the activities of specificinternational professional association ensures that the codes ofpractice and bodies of knowledge of various national projectmanagement associations adhere to one standard as closely aspossible, allowing only for essential cultural and economic differences

Association of Project Management (APM ) in UKProject management Institute (PMI) in USA

1.3.4 Multi-industry/Multi-disciplinary practitioners

Time, Cost, Quality planning-and-control techniques used in projectmanagement is as applicable to agriculture as to process engineeringThree largest member groups use APM are- IT, Process engineeringthen construction

1.3.5 Generic benchmarks Standardize how projects are set up and managed, what cost control

systems should be used and so on.1.3.6 Specific Provisions Traditionally project mangers were select from functional specialist in

the organizationModern concept include professional project manager is a specialistmanager educated and trained in project management and relevantindustrial experience in project management rather than in design or



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some other specialization1.3.7 Project life cycles Project manager concerned with following so that client can make

informed decisions during design and manufacture on matters thatmay incure a cost penalty in future.Typical life cycleInception - client decides to develop a projectFeasibility - project team seeks to establish validity of proposal fromall relevant perspectives, market research statement of viabilityPrototype fully tested and evaluated prior to full productionFull design development developing detailed productioninformation prepare drawings, define required standardsTendering and contractual arrangements common for ownproduction facilities tenderis a price given to contractor in returnfor doing workManufacturing assembled during the manufacturing processCommissioning switching the system onOperation actively used for purpose it was originally intendedDecommissioning system is switched off

Removal and recycling environmental impact of recycling.

1.4 Potential Benefits and Challenges of Project management

1.4.1 Introduction

International, interdisciplinary concern with whole life cycle of project, and uses time, cost, and quality.

1.4.2 Potential Benefits of Project Management

Increased concentration on a specific objective

More efficient use of company resources

Increased accountability

Potential for healthy competition between functional and project unit

Reduced disruption of functional operations

Enhanced visibility of strategy implementation

Consideration of life-cycle costs

Increased product development and release speed

Improved formal and informal communication

Control of simultaneous multiple objectives

Improved security of project related information

Improved team spirit and cohesion

Improved innovation through the use of multidisciplinary decision making

Opportunities to develop in-house interdisciplinary and multidisciplinary teams, individual andmanagement skills

1.4.3 Potential Challenges of Project Management

Key staff may be taken from the functional units

Project and functional mangers compete for same resources detrimental effect on companyas a whole

Project team members receiving conflicting order from functional and project managers

Powerful functional manger deprive project of necessary resources

Need arises for an additional level of authority. Project sponsorensures functional and projectmanger have equal authority over resources no destructive competition occurs

Functional manger less flexible than project manger feel pressurized by project demands

Staff develop different attitude have to develop flexible approach and used to working inmultifunctional environment



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Project staff have problems in re-adjusting to functional work after project completed

1.5 The History of Project Management

1900 Gantt chart introduced

1944 Atomic Bomb first really complex, high tech project need for new management approachidentified1950 First network diagrams, further development of Los Alamo principal into now called Project

Management1957 Dupont created Critical path method (CPM)1958 US Navy launched program evaluation and review technique (PERT)1960 Computer technology provided improved capabilities

1960 Association of Project Management (APM) in UK and Project Management Institute (PMI)in US

1967 Graphical evaluation and review technique (GERT)1970 Planning and costing based on an earned value concept widespread1980 Project management software for PC

1988 Body of Knowledge for APM1996 British standard BS6079

1997 European International standard ISO 10006

1.6 Project Management Today

Strategic project plan (SPP) allows accurate and standard recording and reporting of all aspects of aprojects development, Standardization includes design, execution, implementation and use. Used by numerous different disciplines evolved into integral management component widerange of industries Fundamental contributor to operational process

Internationally important discipline, As a profession growing rapidly in many countries



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Module 2 Individual and Team Issues

2.1 Introduction

People make projects succeed or fail they make the decisions, predict, plan for and controlthe progress.

Most project management is team-based.

Project Manager both team member and project tem leader. After motivation, communication most important single element in project team effectiveness,

using informal and formal communications, and also internal and external communications.

2.2 The Project Manager

2.2.2.2 The Concept of the Project Manager

Projects tend to be run outside the traditional hierarchy of the organisation. The projectmanagers role is by its nature a temporary one, superimposed on the organisation. It doesnot have the power associated with traditional hierarchical positions. Biggest single issuefaced by project managers arises because they have the authority to make decisions about

project priorities, schedules, budgets, objectives and policies, but often do not have theofficial authority to give direct orders to the people who must carry out the work as a result ofthese decisions. must rely on other forms of influence,

Source of Influence:

2.2.2.3 The Central Position of the Project Manager

Focus on issues in detail while at same time keeping a clear view of the project as a whole.

Focus within the overview ensures people and resources obtained and utilised in an integratedway. reorganizing to overcome problems and difficulties arise from time to time.

Like a spider at the centre of a web

Receiving and issuing more information than anyone else on the project. Highly paid messengerand primary decision-maker

Project manager needs intellect to devise the project strategy and diligence ensure actions aretaken.

Directs the project and people toward the ends. Requires energy and ability to motivate staff toachieve project goals

2.2.2.4 The Role of Project ManagerThe primary requirements of the project managers role can be summarised as:

Planning the project activities, schedules and budgets;

Organising and selecting the project team;

Interfacing with the client, the organisation and all other interested parties;

Negotiating with suppliers and clients;

Managing the project resources;

Monitoring and controlling the project status;

Identifying issues and problem areas;

Finding the solutions to problems;

Resolving conflicts.Project Management 7/138


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Delivering the project:

Within the agreed time limit;

Within the agreed cost limit;

To at least the minimum quality standards laid down;

To the satisfaction of the client;

In compliance with the strategic plan of the organisation;

Within the agreed scope.

These objectives are sometimes summarised as shown

project scopedefines the limits of the project. It determines what is and, equallyimportantly, what is not part of the project. Cost, time and quality standards are establishedbased on the agreed scope before the project commences.project creep Any changes, usually impact on one or more of the Cost, time and qualitystandards.interface management, navigating or controlling the boundaries between the project

and functional teams/departments - maintains a balance between managerial and technicalfunctions. Control system for formal and informal communications across interfaces, anauthority system in regards to the distribution of information, broad generic tool formanaging information flow across an organisation and Configuration Management System(CMS) often a part of the overall Interface Management System (IMS).Personal, Managerial and Leadership Skillssoft management skills and attributes, the project manager should

be flexible and adaptable; be able to concentrate on more than one thing at a time; demonstrate initiative; be persuasive;

be a good communicator; be able to keep multiple objectives in sight and be able to balance them; be well organised; be prepared to generalize rather than (always) specialize; be a good planner and implementer; be able to identify problems, find solutions and make sure that they work; be a good time manager; be good at negotiating and influencing (rather than arguing or givingorders); be diplomatic.

Technical and Business Skillsharder characteristics include

understanding how to set up a team and run it; the ability to develop complex time and cost plans and achieve them; understanding of contracts, procurement, purchasing and personnel;



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active interest in training and development; understanding of the technology that is central to project success; ability to translate business strategy into project objectives.

2.2.2.5 Selecting the Project Manager

A good functional manager with the skills required for project management is by far thebest option because of the understanding of the industry andthe organisation that is brought to the post. Such a person willbe familiarwith the technology and bring credibility built upduring performance of the functional role.

External consultant disadvantage that the project manager is not used to the

organisation and there will therefore be a learning curveinvolved. In addition, the project manager does not owe anyparticularallegiance to the organisation and there may thereforebe scope for some disparity of interest.

2.2.3 Some Essential Project Manager Requirements2.2.3.1 Introduction The project manager must have a reasonable command of:

2.2.3.2 project planning Planningis usually the first stage of any project and is one ofits most critical. greatest during the early stages of a project.covers the activities to be accomplished and the sequence inwhich they are to be executed.Task Responsibility matrix (TRM). A TRM typically shows:

key milestones; individual important activities; general responsibilities; specific responsibilities; dates.

Responsibilities would include such detail as responsibility for:

approval; preparation; checking; making and input; authorising.

A project TRM has two axes On one axis is a list ofactivities and/oroutputs required. On the other axis is a list of the various individuals orgroups involved in delivering the activities or outputs. The intersections onthe matrix defines the responsibilities of individuals or groups. This iscarried out for all activities/outputs throughout the project life cycle.

also clearly show dates for individual actions. In most cases,reports have to be produced by a certain date.

2.2.3.3 Authorising two perspectives:

1. Accumulating sufficient authority to get the job done; and,2. Determining how much of theirauthority to delegate to others involvedin delivering the project.Authorityis a type of ability to control and direct that is delegated fromhigher levels in the organization;Power, in contrast, is given to an individual by subordinates at lowerlevels

2.2.3.4 TeamOrganizing

Organizing how the work is to be executed. This includes devising theorganizational structures and team management approaches to support



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the project Dominant prevailing philosophies is to contrast the currentpractices with the main views on organizational procedures.Classical theory.(traditional view)Management is the process that is executed in order to meet some formof organizational objective or group of organizational goals. Simplecomponents of a production process. Process is highly complex andautomated and there is virtually no flexibility or potential for deviationswithin it; the process is self regulatingEmpirical theory.Basic and essential similarities between the systems and processesresearch is based on observation and interpretation The idea is that ifenough observations are carried out, the correct process or approachwill materialize from the sample and data setBehavioral theory.There are two main schools within behavioral theory. The humanrelations schoolconsiders the interpersonal relationship betweenpeople and their work. (Intrinsic links between the behaviour ofindividuals and the behaviour of the organization).Social system schoolconsiders the social characteristics of an

organization and of its component individuals. As the socialcharacteristics of the organization change, so there is a need for thesocial characteristics of the individuals who make up that organization tochange. All organizations evolve and change.Decision theory. Studied mathematically. Organizations can beobserved and modeled, and the models can then be used to interpolateand predict organizational efficiency in other organizations. Decisiontheory makes use of management science and operational researchtechniques.Systems management theory. Characterized by the throughput ofresources, and each stage in the production process can becharacterized separately. Inputs, processes, and outputs can be

considered separately as component parts of the whole.The project manager has to take a number of different people withdifferent backgrounds, qualifications, experience etc, and weld them into ateam. Establishing a successful multidisciplinary team is a majorundertaking

2.2.3.5 Controlling Being responsible for establishing desired targets for performance,

measuring actual performance against the targets, and initiatingcorrective action where the actual performance deviates too far from thatdesiredfour stage process,Targeting. Establishing some kind of workable and achievable target or

series of targets.Measuring. Extent to which actual progress is achieving targetedprogress. Formal, such as by the use ofearned value analysisorinformal,Evaluating. Identification and isolation of areas where progress is notbeing made in accordance with the overall project plan, and considerationof any alternative options for appropriate corrective action. Importanttouse variance analysis retrospective tool in conjunction with a system forforecasting or predicting the future.Correcting. Proposed corrective actions for reducing or eliminating theeffects of deviations from target identifies where problems are occurring.The correction process identifies why the problems are occurring, puts aprogramme in place for correcting them, and then monitors actual andplanned correction performance (often called a second level varianceanalysis)



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2.2.3.6 Directing converting organizational goals into reality through the use oforganizational and project resources.

Setting up the project team.

Team Training and development

Supervision

Individual Team motivation

Co-ordiation

2.2.3.7 Team building Ten primary sections in any good teambuilding process.

1. Individual and team commitment.

2. Developing a sense of team spirit.

3. Obtaining the necessary project resources.

4. Establishment of clear individual and team goals andsuccess/failure criteria.

5. Formalization of visible senior management support.

6. Demonstration ofeffective programme leadership.

7. Development of open formal and informal communications.

8. Application ofreward and retribution systems.

9. Identification and management ofconflict.10. Development ofheterogeneity control and cohesiveness.

2.2.3.8 Leadership Classical leadership traits are as set out next.

Decision making ability.

Problem solving ability.

Ability to integrate new team members.

Interpersonal skills.

Ability to identify and manage conflict.

Communication skills.

Interface management skills.

Factor-balancing skills.

2.2.3.9 LifecycleLeadership

1) 1) formed for specific project and last until project completed2) 2) complete life cycle of project rather than just individual stagesApply a range of leadership skills and styles

Phase 1 high task-related, low people related leadership (tell teammembers what to do)Phase 2 high task-oriented and high people oriented leadership(persuade them)Phase 3 low task-oriented and high people-oriented leadership (team toparticipate)

Phase 4 low task-oriented and low people-oriented leadership(delegating control to other members)Task oriented leadership relates to the tasksitself, including the actualmechanics of the process.People oriented behaviour relates to the leadership of the individualmembers of the team and how they work as part of the team.

2.3 The Project Team

Project management uses these functions in order to execute specific projects that are subject to:

time constraints; cost limits; quality specifications; safety standards.

The objectives are typical project success criteria. Let us consider each function in turn.Project Management 11/138


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2.3.2 Project Teams within Functional Organizations

Typical functional organization for a manufacturing company

Typical project organization structure

numerous advantages associated with operating project teams within functional organizations.:

The structure provides excellent flexibility and full use of employees.

Employees are given the opportunity to gain new experience and to develop newskills.

The overall team and cross functional working attitude of employees is improved.

Individual experts can share their expertise across a number of different projects.

Experts working together can create new synergies that cannot evolve in the rigidfunctional structure.

Employees working on projects are not prevented from following their primary careerpath within the function.

Project membership offers new potential career paths within the organization. Making use of internal project team members is often less costly than employing aseries of external consultants to provide the same service.The disadvantagesassociated with running project teams within an existing functional organizationinclude the following:

The function continues to operate as normal despite being depleted ofresources (at least to some extent) by the project. This can become a serious problemwhere a number of key people are assigned to projects.

Functional managers often try to offload their less efficient or productive people toprojects in the hope that this will minimize the negative effects on the function.

People who have worked for a long time in a functional environment may have

difficulty in adapting to the demands of the project environment. Several projects are likely to be running simultaneously within organizations. Aproject manager sometimes has difficulty in ensuring that his project is given the priority andattention that it requires.



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There are often communication buffers and bureaucratic layers between projectsand senior management while functional units tend to have more clear and longerestablished communication channels.

Motivation can be a problem unless the project is given high profile seniormanagement support.

Project team members tend to see their project responsibilities as secondary tothose of the functional unit.

2.3.3 Team Multi-disciplinary and Heterogeneity IssuesSentience Is the tendency for individuals to identify with theirown professions

and backgroundInterdependency Tendency for teams to depend on inputs from more than one

individual in order for the whole system to develop.Pooled interdependency Where individual sections ordivisions make contributions to the

whole.

Sequentialinterdependencyorreciprocal interdependency

Where an input is required from a number of individuals or sectionsbefore the process or system can move past a milestone

Differentiation (specialism) Contributes to sentience and causes teams to fragment.Integration Is simply the process of defining responsibilities and control, and

ensuring everyone adheres to the definition.

2.3.4 Group and Team Processes

Groupsare collections of individuals who work together in pursuance of a common objective. Teamsare collections of individuals who work under the direction of a team leader in pursuance of a commonobjective.teams tend to:

Brainstorm problems more effectively; Consider a wider range of factors; Develop an enhanced logic flow; Generate more new ideas and original thoughts; Discuss and consider a wider range of potential solutions and implications; Develop better approaches to weighing up the consequences of a range of potential actions; Solve problems more accurately and quickly.

2.3.5 Project Team Performance

Heterogeneity is the extent to which the team members are unlike each other, either interms of qualifications, experience, outlook

Cohesiveness is a combination of how much the members of the team want to be members,

how well their personal goals are aligned to the team goals, and to the overallcommitment and morale of the team members.

2.4 Project Team Staffing Profile and Operation

2.4.2 Project Team Staffing

balance of various skills and experience is sought in terms of technical skills;



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management skills; administrative skills; interpersonal skills.

Project manager recruits people from different functional teams typical factors for consideration include: immediate and long-term availability; ability; continuity requirements; team working skills; special skills.

characteristics found in a successful project team staffing process include the following examples.

Staffing is generally voluntary.

The project team is staffed in relation to the value of the project.

Project teams are staffed and operated in a less formal manner than functional teams.

Project managers lead by example.

Project teams are flexible and responsive.

Project teams interface.

Project teams innovate and evolve.

Functional managers who provide resources for project teams receive recognition or credit

when the project team performs well. There is some research evidence to suggest that conflict should be promoted during the staffing

process. -forming, storming, normingandperforming

2.4.3 Project Team profile

2.4.3.1 Project Team Mixproject in widest possible terms include

contractors personnel

subcontractors

clients

in-house staff

any other interested bodies ie inspectors, government, community groups, and lobbygroups

2.4.3.2 Uniqueness of Project Teamspositions that need to be filled:

project manager; project planner; project controller.

2.4.4 Project Team Operation

Enhance the operation of teams by improving team performance, typical common areas include

Establishing measurable objectives.

Identify and acknowledge the stakeholders, who will determine,

Work with the stakeholders to determine and state explicitly what their dimensions of successare.

agreeing criteria for success cannot be overemphasized.

Stakeholders management.

Stakeholders are sometimes referred to as the invisible team.

Protect the image of the team.

Develop a network of useful contacts who may be able to help or advise the project team asrequired.

Use the network to identify and provide quality project resources when and where they arerequired.



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Establishing and planning measurable targets.

Plans understandable and used in practice

Plan different levels overviews, detailed, contain as much information as is known

Plan for unknown contingency arrangements

Set realistic and achievable milestones

Planning and establishing processes Establish ground rules

Creating environment team members are energized to air their opinions, take responsibility

Plan for managing and developing relationships

Project team should operate within a flexible environment

Leadership

Strong, credible leadership provide clear direction stimulate high performance from members

Continual research to improve internal and external workings

Rewarding good performance, poor performance not tolerated.

Membership and identity

Team members support, requires respect

Active fellowship

Specialist

Team members understand their roles and what entail

Team members aware of their individual contribution, recognize their value to the team

Communication system

Formal or informal meetings, exchange information, solve problems and make decisions,confirm group identity, involvement, reinforcing rules and celebrating success

Advance preparation taken place and well run Accept and address conflict

Establish effective formal communication system use informal communication

Efficient communication with external bodies, adequate communication functioning correctly.Interface with internal legal services department

Result in action, time scales and individual or group responsibilities

Team separation

Expected to deliver on time

Rely on ability of fellow team members to deliver

Commitment and momentum maintained

Regular contact enables clear communication lines

Information technology

Advantage to making use of IT

Reduces need accommodation and facilities, video link conferences

Reduced direct interaction fewer conflicts personality clashes

Records accountability and audit become simpler

Less direct supervision greater freedom of action

Less control bureaucracy

Disadvantages

Expensive, face-to-face contact may be necessary



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Loneliness - motivation no daily interaction with work mates fewer opportunities develop teamspirit

Manager lose control of work

Time differences

Video-link not the same as direct face-to-face

Natural hostility towards advanced IT

IT can go wrong

Team building cohesion severely restricted

Teams in general optimum efficiency and effectiveness

Regular face-to-face meeting

Performance measures and completion criteria are clear

Team members given responsibility and accountability for their part of the project

Clear time commitments are established members expected to adhere

2.5 Project Team Evolution

2.5.2 Project Life cycles

Project progresses though life cycle, team adopt different perspectives appropriate to each stage.

New product development cycle

Inception

Feasibility

Preliminary research and development

Manufacturer of prototype

Development and testing of prototype

Feedback and analysis

Second stage research and development

Final trials and approvals

Production

Commissioning

Use

Decommissioning

Recycling

Five clear stages

Conception and feasibility Conception come up with the idea

Feasibility evaluation need or demand project claim, whatrequired in orderto produce it how much it will cost, how long itwill take

Outline proposals anddefinition

Detail analysis defining precise scope of project requirementsTime cost estimates, clear statement of manufacturing andproduction requirement, clear time scales, summary of projectresources required. Approval process end of each major life-cycle stage, approval barriers sometimes referred to asgateways.

Tooling up Set up production system, tends to form a high proportion of

project costs, lower proportion of mass production costs.Operation and production Production phase. Produces whatever result of project requires,

could contain numerous subsections, minor repetitions of whole



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life cycle,

Decommissioning Reassigning resources, remain after project competed,scrapping production equipment, recycling where possible.

2.5.4 Project Team Evolution and Leadership styles required

TeamEvolution

Description of Team Leadership style required

Forming Team meet, first time introductions, aims and objectivesestablished

Task responsibility matrix

Organizational breakdown structure

Project staff register

Baseline set of team and project objectivesestablishing duality

Ensure all team members know all other teammembers, the rule of operation are established,everyone know their own responsibilities andobjectives.

Telling: High task lowpeople orientedThis is necessary because

the cohesion of the teamhas not yet occurred andthey have to be driven witha high task orientation.

Storming Establish cohesiveness. Build up a clearer picture of

each person interim of ability commitment skill,

interpersonal skills tendency for conflict asperceptions developDevelopment of a cohesive group ideal is imperative,essential to productivity and effectives.Other wise result in reduction of commitment andindividual motivation and group; fragmentation

Persuading: high task high people

Individual and grouprelationships are juststarting to form have tocontinue with a high taskorientation but also developa high people orientation

Norming Team standards formal and informal standards of

behaviour expected. Starts as soon as stormingprocess completed organizational hierarchy and powerstructure established.

Participating: Low task high peoplecontinued high peopleorientation but with areduced task orientation

Performing Only perform at full capacity has overcome internal

fragmentation. Take place if a full set of norms in placeall team members satisfied equitably balanced andcontribution of each member are adequate resolvedmost of its interpersonal conflicts.

Delegating: low task lowpeopleteam is established and thetask understood. thereforeadopt a low task orientationand a low peopleorientation.

Adjourning All teams will come to an end, either naturally through

the project or sooner via themselves! It is an importantstage, people should be aware of what is expected ofthem when the project is complete, i.e. it isstraightforward for contractors, but any internalsecondments should be pro-actively managed.



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2.5.5 Group thinking

Occurs when group of individuals become very highly sometimes totally committed and motivatedtoward a set of beliefs, aims and objectives that the group shares.

Absolute commitment to theproject

Disproportionate perception of the value of their project

Lack of respect for competitors negative propaganda - High cohesion commitment

development of misdirected perception of direct and indirectcompetition.

Intolerance Intolerance of any dissenters people with alternative points ofview. Follow the party line or leave the team Internalcensorship can be extremely dangerous.

Fear Perceive something is wrong choose to censor themselvesand remain silent rather than challenge the leader or be seento be in conflict with the aims and objectives of the group

Self-delusion Cohesion and commitment are very high, Information is

filtered to portray only good results and nobody is willing tocriticize the team and leadership. False sense of invincibility.Unwillingness to implant internal change.

Selective reporting Team filters. Filter all information entering their system in

order to ensure only positive information enters and negativeinformation is suppressed or reduced. Negative feedback and

criticism is unacceptable in group thinking

2.6 Project Team Motivation

2.6.2 McGregor and Maslow

McGregorfamous Theory X (lazy bastards) and Theory Y (willing to work and compete jobwithout close supervision)Maslow hierarchy of needs

Self-actualization

Esteem

Belongingness Safety

PhysiologyDirect implications for project management. Hierarchy should be considered from a number of differentperspectives

Relative importance of theneeds

Need for sense of belonging or togetherness satisfied functionalsettings

Time-based requirements Motivate team members at the lower needs levels rather than at

the higher ones.

Unsatisfied needs Sense of self-actualization, influences cannot accommodate it -result can be resentment, employee dissatisfaction

Complex needs higher level need more subjective than lower-level ones, easy to



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determine when person need food, more difficult for self-actualization.

Anticipation Fulfilled needs are no longer motivators. Motivated by belief that

the future will provide fulfillment of the next level of needs.Reward system needs to reflect this belief.

2.6.3 Equity Theory and Expectancy Theory

2.6.3.1 Equity TheoryEquity theory based on the perceptionwhat they do and how they are rewarded. Any perception ofreceiving an inadequate personal reward generates a feeling of inequity (unfairness).Choices facing employee perceived inequity,

Seek promotion

Seek increase reward level

Make a lesser contribution

Increase other inputsPositive inequityindividual perceives an inequity as being in his or her favourNegative inequityperson feels undervalued.2.6.3.2 Expectancy TheorySuggest that people are motivated to make efforts to achieve goals that they believe willresult in obtaining the rewards they desire.

2.7 Project Team Communication

2.7.1 Introduction

Information flows in two directions

1) 1) inwards to the project manger from other people and organisations2) 2) outward from the project manger to othersboth formal and inform communications used.;

2.7.2 Project Communication

Project manger sends out information directives and objectives and then monitors actualperformance.

Good communication involves high-quality information sharing and exchange

Depends on quantity and quality of face-to-face meetingsWide range of communication include:

Meetings

Telephone conversations

Letters and memos

Email

Notice boards

Chats

Seminars

Project plans and reports

NewslettersMessage usually falls into two of four principal categories: formal or informal, and internal or external

2.7.3 Formal and Informal Communication

Formal communication



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Formal lines of communication ensuring that project stakeholders get whateverinformation they need, in suitable format when and where they need it.

Accurate and timely information.

Formal communication lines are strictly adhered to and rigorously maintained.

Monitor and record the flow of informationFormal communication tools include:

Frequent issued reports on all aspects of the project, defined distribution lists

Regular project meeting, information disseminated in person- encourage debate anddiscussion

Project memos

Project newsletters distributing information of lower urgency or social nature

Project notice-board

Project away-days and eventsInformal communicationLess easy to mange and control essential revolve around the grapevine

Informal communication tools include:

Lunch and dinner appointments with colleagues

Telephone conversations

Coffee breaks

Evenings in the bar after away-days

Social eventsInfluence channels in a positive way to encourage good working relationships between teammembers.

2.7.4 Internal and External Communications

Internal - project team members

External to all other people

Informal channels solely used for the purpose of internal communications

Internal communication rely on team members willingness to communicate anddisseminate information openly

External communication - absolute control in the dissemination of information

Essential to nominate an individual who responsible for all external communication.Individual approve all non-routine communication with outside parties.

2.8 Project Team Stress

2.8.2 Origins and Symptoms of Team Member stress

OriginsTypical reasons:

Team members having project and functional bosses, who sometimes make conflictingdemands on their time

Having to work to strict time, cost and quality limits

Teams having only a relatively short life span

Projects tending to be relatively complex

Operating within a frequently changing environment

Main sources

Type of stress Characteristics of stressProject

managercontrol

Personal Domestic and family problems, financial problems, health OutsideProject Management 20/138


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concerns

Work High workload, individual responsibility, conflict andleadership responsibility

Some control

Environmental Outside both individual and work place, national economic

activity, change in technology, new work practices, change ingovernment, fear of unemployment

No control

Symptoms

Symptoms Advanced symptomPhysiological Raised blood pressure,

Increased heart rate,

Persistent nausea,

Migraine headaches,

Trembling limbs

Sweating and visual

disturbance

Psychological Sleep interruption,

Depression,

Anxiety

Disorientation

Memory loss

Aggression and perceivedphysiological symptoms

Behavioural Overall loss in energy andenthusiasm

Increased number ofcomplaints

Listlessness

Absenteeism increases

Attendance decreases

Working patterns

2.8.3 Stress Management

2.8.3.1 Individual Stress Management

Healthy diet

Reduced tobacco and alcohol consumption

Regular exercise

Physiological awareness and control

Communication

Periodic re-alignment and reconciliation between goals and self-limits

Psychological self examination and seeking advice where necessary

Breaks and holidaysPoor diet, lack of exercise and higher stress levels linked.Physiological control seeks to counter and relieve stress by a range of methods includingcontrol breathing and respiratory functionCommunication talk about what is causing the stress.

2.8.3.2 Project-Team Stress ManagementWork practices that attempt to control work stress

Deregulation Too rigidly defined and applied work practices can be a source of greatstress for employees.

Reasonableness Simple gestures such a understanding if someone needs time off work



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for family-related reasons, overlooking a short-term drop in productivityFairness Ensure fair play by balancing the workload across all team membersOpen-mindedness Open minded attitude

Flexibility Peaks and troughs in work demand, use troughs to allow team to take abreak or reduce output for a while

Approachableness Being immediately approachable a problem shared is a problem

halved

2.9 Conflict Identification and Resolution

2.9.2 Sources of Conflict

Conflict results to some extent from change however numerous reasons include:

Onerous resource constraints and limitations

Pressure to increase speed and/or reduce costs

Pressure to meet demanding deadlines

Imposition of new aims and objectives

Change and consequent need for re-alignment

Conflicting functional and project demands

Personality clashes

Misunderstanding and differing interpretations of requirements

Incorrect or late information and communications

Individual perceptions of inequalities

Underlying resentment

2.9.3 Conflict Characteristics

Relationship between conflict levels and organizational factors as follows:

The greater the heterogeneity or multidisciplinary nature of the team the greaterthe potential for project team conflict

The lower the project managers degree of powerand authority within thefunctional organisation, the greater the degree of potential for project team conflict

The lower the degree of specified and quantifiable objectives, the greater thedegree of potential project team conflict

The lower the level of individual communication and accountability within theproject team, the higher the degree of potential project team conflict.

The greater the degree of change required, the greater is the potential for conflictto arise.

The lower the relative perceived prestige of the project, the greater the degree ofpotential conflict

2.9.4 Approaches to Conflict

Traditional view is that conflict is always bad and avoid if possible resolve as quickly aspossibleContemporary views, conflict may be useful, maintain group dynamics prevent teamstagnation, divergences are monitored and managed contribute to team development and

evolutionIn project environment six principle areas where conflicts regularly occur:

1. 1. When onerous deadlines have to be met

2. 2. Where change occurs



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3. 3. Where errors or omissions are discovered

4. 4. When resources are reduced or are supplied at an inadequatelevel

5. 5. Where people clash because ofpersonalities

6. 6. In agreeing areas forconcentration

7. 7. In agreeing priorities

8. 8. Where uncertainty is high

Conflict greatest during highly active phasesWhen seeking to identify the source of conflict the following questions should be asked:

What is the source of the conflict?

Why is the conflict occurring?

What is the potential impact of the conflict on the project?

Can the conflict be reduced or eliminated and if so how?

Could the conflict have been foreseen and can similar occurrences be avoided infuture?As a general rule, project objectives should be:

Clear and precise

Realistic

Related to each other (where appropriate)

Achievable with the resources and constraints given

Measurable

Compatible with the overall strategic plan

Agreed by senor management

Communicated to everybody in the project team

Communicated to stakeholders (where appropriate)

2.9.5 Conflict Management

Alternative approaches for managing conflict

Conflict AvoidanceAvoid becoming involved, arise when no reasonable or acceptablesolutions or insufficiently important

Conflict absorption Absorb the cost of conflict where mistake made, personalities of

the individualsConflict resolutionimposition

No alternative, extreme or emergency situation.

Negotiated conflictresolution

Attempt to agree or negotiate a mutually acceptable solution.

Deal with conflict as quickly as possible ensure performance does not suffer.

Process for dealing with conflict

Calm everyone

Clarify facts

Acknowledge positions and feelings and respect viewpoints

Focus on cause of conflict not apportion blame

Establish best option priorities

Attempt to get everyone to accept the decision Present as a win-win situation

Look for evidence of personality clashes and speak to people involved

Look for evidence of victimisation or specific targeting



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Examine project-function interface working correctly

Talk to everyone gather relevant background information

Talk to functional managers concerned and ascertain functional involvement or connotations.

Set a timetable for reconciliation

Monitor system make sure things improve

Learn from occurrence and try to avoid future conflicts, many arise from similar sets ofcircumstances



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Module 3 Project Risk Management

3.1 Introduction

Identify the risks that are present. Transfer or reduce unacceptable risks and then set up monitoringand control systems so that residual risk can be managed effectively.

3.2 Background to Risk

3.2.1 Introduction

3.2.2 The Concept of Risk

Risk in our context is a measure of the probability and consequenceLikelihood (probability) of an event occurring and on the consequences (impact) if that event should itoccur. Risk is therefore a function of the event, the probability of it occurring and the effect if it occurs

Risk = f(event, uncertainty, consequence)

First level equation for risk relates the probability of an event occurring and the consequences of

that event occurring.Risk = f(event, hazard, safeguard)

Second level equation for risk relates to source of dangeris a hazard and the mitigation or defenseagainst the hard is a safeguard.

Both levels are likelihood of the event occurring is important

Risk exposure is a measure of the vulnerability of the organization to specific risk types orimpacts.Exposure is a function of a number of different variables.

Sensitivity to risk is a function of three elements1. Significance (or severity) exposure to realization of different events

2. Likelihood different events occurring and ability to mange the implication

3. Sensitivity - measure oflikelihood and impact

Greater the range of possible outcomes from a particular decision, the greater the risk that isassociated with that decision.primarily concerned with the consequences of a specific risk impact, and especially the ability of theorganization to take the hit and continue. As with exposure, two apparently similar companies canhave different sensitivities

Questions one may ask What can go wrong with the project?

What possible outcomes do we face as a result of these risks?

Where do these risks and consequent outcomes originate?

Do we have any control over these risks and if so are we using it?

Are the risks and consequent outcomes related to any extent?

What is the degree of exposure of the organization to these risks?

How sensitive is the organization to each degree of exposure?

Do these risks affect the achievement of the overall strategic objectives of the organization?

What response options do we have?

What contingencies or emergency responses are in place?

Can we match the worse case scenario? If not which scenario reaches the limit of our response abilities?

What is the potential reward associated with each risk?



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Are we prepared to accept a risk and corresponding outcome that is beyond our limits toabsorb?

Facts about risk in general

The world is uncertain

Some cases risk cannot be eliminated - effectively mange them

Risk is a function of opportunity

Risk can intimidate the competition accept the higher level of risk may also be the

opportunity to gain the greatest rewards.

Risk management provides analytical tools

Risk management operates at all levels requirement to consider unforeseeable or catastrophicrisk at all level

Companies have to take risk. Opportunities or overcome the threats

Companies operate within a risk universe single risk should not be considered in isolationintrinsic links

Risk control and managements is only possible up to a point, foreseeable, partial foreseeableand wholly unforeseeable.

No risk management system is infallible, some external risk outside scope of even detailed risk

analysis.Risk therefore both a good thing and a bad thing. Driving force behind innovation and enterprise, threatif not properly evaluated and managed. Significant where work is typically complex.

3.2.3 The Human Cognitive Process

3.2.3.1 Pattern Recognition andAttention

People make decisions in relation to perceived rewards and riskPattern recognition compares information to previouslystored informationAttention filter relevant to the decision is considered.Memorystores the basic pattern recognition once interpretedand after subjective assessment stored in brains long term

memory3.2.3.2 Bounded Rationality Information processing is know as bounded rationality .

Cognitive process based on reasoning. All possibleoutcomes and separates outcomes into acceptable andunacceptable outcomes. Decision maker rejects actions thatleads to unacceptable outcomes and considers those options toacceptable outcomes. Acceptable outcomes can be consideredas goals of decision maker.

3.2.3.3 Risk Forecasting andPrediction Momentum

Bounded rationality uses knowledge of past event to assess acurrent risk concept of risk forecasting

Based on experience. Experience gained in past usedto analyze and forecast what might happen in the future

As much subjective as objective based

Subject it to complex modeling as in chaos theory,restricted to complex mathematical modeling

Best evaluated using a combination of modeling andsubjective approaches

Using data from past experience in order to allowextrapolation as a basis for predicting future trends

Happen in past is happening in present will continue in futureunless something happens to change it prediction momentum

Various forecasting techniques important considerationAccurate data more accurate the data, more accurate thepredictionTime limits longer the time scale, the more difficult to make



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accurate predictions.Cost - fewer resources are provided, overall accuracy of thepredication could be reduced.Visionpredict future and identify possible events that areoutside his or her experience

3.2.3.4 Intuition and Bias Intuition experience and extrapolationBias - is tendency misinterpret data or observation because ofown perception oroutcome preferences

3.3 Risk Handling

3.3.1 Introduction

Key factor to manage risk

Decide what level of risk is acceptable,

What level is not acceptable

Risk that is not acceptable is transferred or reduced in some way.

Residual risk is at an acceptable level, managed so as to ensure it does not affect

the performance.

3.3.2 Risk Assessment and Control

Risk assessment is part of the collective risk analysis process.

Risk analysis involves determination of the probability of individual risky events occurring,establishing measure of potential consequences of each event occurring, monitoring and controlsystem

Risk handling is process ofdealing with risks. Reduce the likelihood of individual events occurring

Risk feedback is essential section in the process. Results of occurred risks are analyzed use infuture strategies are fed back into the system.

Risk analysis handling and feedback are often referred to collectively as risk controlRisk assessment must proceed risk control.

3.3.2.1 Elements of Risk AssessmentIdentifying and assessing all potential risk areas within project. Constraints important to recognize andunderstood essence of project management is planning, forecasting, budgeting and estimating. Selectonly those areas of project with the most severe constraints and the greatest uncertainty. Impact isseverity of the effect on either budgets, schedule project completion quality of work safety of project.Project Management 27/138


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Whether severity of risk or probability of risk occurring at all is high or low difficult to make anything otherthan subjective.3.3.2.2 Elements of Risk ControlRisk control involves investigation of the entire project plans, documents and contract toidentify areas ofuncertainty or ambiguity.Risk control particularly important in monitoring the evolution of risks.

3.3.2.3 Risk IdentificationPersons perception of risk depends on numerous factors including:

Where the individual is in the organization

The power level of the individual

The immediate area of authority of the individual

The responsibilities of the individualCan be linked to project life cycle phases, risk diminish as project progressesLate change still occur tend to be increasing expensive as the life cycle continues.

3.3.3 Project and Strategic Risk

Project risk limited to aspects ofrisk that are considered entirely in relation to the project.

Cost limits, time limits, quality and performance limits, health and safety and otherstatutory or company requirementsExamples: delay caused by error omissions in project documentation, cost overrunscaused by changes, re-design caused by inadequate performance.necessary risk transfers take place as part of the project documentation. Examplesinclude insurances and the establishment of performance warranties and bonds asrequired. Residual risk is treated as a project risk. Contingencies and provisional sumsare established and are included within the overall project time and cost estimates

StrategicRisk

tends to be applicable over the long term, complex and difficult to model andassess than project risk Foreseeable and unforeseeable riskrelate to: sustaining or improving competitive advantages, maintain or increasingmarket share; developing and introducing new products,Examples: incorrect definition of strategic objective; incorrect alignment betweenstrategic objectives and operational processes; failure to identify external strategic-impact change and re-align accordingly

Strategic Risk Management is concerned with the identification and management of risks ensuresthat the organization finishes up with an acceptable distance of the original goal.

Project Risk Strategic Risk

Short term Long term

Less complex & difficult to model More complex and difficult to model &access

Error in contract document Competitive behavior

Day to day breakdown Change in economy

Absenteeism & Labour issues Impact of IT & new technology

Risk considered entirely in relation to theproject one component / element overallstrategy for organization cost, time, quality,performance

Organization finsh up within acceptabledistance of original goal



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3.4 Types of Risk

3.4.1 Generic Risk Headings

Strategic RiskRelates to the long-term performance

Operational Risk Process itself, asset base, people within project team and the legal controlswithin which organization operates

Financial risk Market, credit, capital structure and reporting risks.Knowledge risk Includes IT hardware and software, information management, knowledge

management, and planning.

Catastrophic risk Cannot be predicted effectively and therefore cannot be quantifiedaccurately.

3.4.2 Market Risk and Static Risk

Market risk(business riskordynamic risk)

Primarily concerned with the risk to all the stakeholders can be positive ornegative impact2 primary components business and financial riskMarket Business Risk (MBR) trading with its assetsMarket Financial Risk (MFR) gearing ratio risk, measure of the financing ofthe organization. of the annual dividend falling to zero

Static risk(specific risk or

insurable risk)

Considers losses only. Obvious example is an insurance policy.Generally concerned with making sure that the company performs at a

given level.

3.4.3 External Risk and Internal Risk

3.4.3.1 External RiskOperates outside the organization, organization has virtually no control over it.

Competitor Risknew kid on the bock

Market demand

risk

Demands of the customer base change and alter rapidly

Innovation risk Fast track change and innovation

Exposure risk Companies are exposed to different level of risk will affect them in differentways. High level of borrowing could result in problem if interest rateincreased.

Shareholder risk Firm depends on shareholder equity to keep the shareholder happy,

confidence declines effect on company can be significant. Ability to raisecapital.

Political risk Government of home country and of overseas countries has expanded canrepresent a major risk. Government fiscal policy and the consequentperformance



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Statute risk Government constantly change existing statutes and introduce new ones.Affect profitability of affect organizations.

Impact risk Some companies are better than other at withstanding big hits degree of

diversification3.4.3.2 Internal Risk

There are very many possible internal risks. Within an organization at least in theory, the companyshould have some control.

Operational processes Risk

Financial Risk

Management Risk

IT and Technology risk

3.4.4 Predictable and Unpredictable Risks

Predictable Risksknown unknown risks, such as changes in interest rate can be predictedwith some accuracy although not with certainty

UnpredictableRisks

unknown unknown cannot predict with any accuracy

3.5 Risk Conditions and Decision making

Risk assessment and control are really tools for decision makingConditions under which a decision is made is generally three main conditions

Conditions of certainty

Outcome is known . known event

Conditions of risk Reasonable probability that an event will occurand where some kind

of assessment can be made - known unknownForecast with reasonable accuracy but it is not a certainty.Transfer some risk associated with conditions of risk by taking outsome form of insurance policyRisks are insurable while uncertainties are notoutcome is not clear, but the risk can be evaluated in some way

Conditions ofuncertainty

Not possible to identity any known event or predict outcomes withany accuracy.unknown eventNot possible to transfer risk under conditions of uncertainty throughinsurance.risk cannot be evaluated with any accuracy strategy depends onthe nature of the condition

3.5.1 Conditions of Certainty

Under conditions of certainty implies the decision makerknows with 100% accuracy what theoutcome will be. Necessary decision making data and information are available to assist decisionmaker in making the right decision. no probability assigned.



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3.5.2 Decision making under Conditions of Risk

In the absence of a dominant strategy, a probability is assigned to each individualstate of nature. Expected payoff for each strategy now is the sum of the payoffs foreach state of nature multiplied by the probability of that state occurring

3.5.3 Decision making under Conditions of Uncertainty

Difference between conditions ofuncertainty andconditions of risk is that underriskthere are assigned probability that relate to known unknowns; underconditions ofuncertainty, these probabilities do not apply.

Several obvious sources of uncertainty

Externally driven(environment)

Inflation, economic activity, change interest rate, demographicchanges, competitor changes

Internally driven (process) Employee attitudes motivation loyalty, implementation of newtechnology, changed work practices, new products, innovation

Decision driven(information)

Corporate strategy, strategic planning, new market analysis,mergers and acquisitions, research and development,investment

Hurwicz

(maximax criterion)

Maximum possibleprofits irrespective ofloss

S3 200 millionall or nothing ignore loss pick maximumgain

Wald(maximin criterion)

Minimumprofit withno lossminimizemaximumlosses,play it

S2 minimum profit 80 millionplay it safe loss of zero (0) with profit canhave no chance of a loss



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safeSavage(minimax criterion)

Minimumregret

S2maximum regret, lowest end results(regrets)

Laplace Maximum profitbased onprobabilities

S2add all together divide by number ofinstances , average payoff based onequal probability of each individual payoffgreatest payoff would be based on equalprobability of occurrence

Conditions of Uncertainty into conditions of risk

Main difference between the two conditions is inability to predict probabilities in conditions ofuncertaintyObjective Probabilities based on long term frequency of occurrences record frequency ofoccurrence of past events may be possible to predict formally possibility of future event.Subjective Probabilities based on degree of belief or confidence as experienced by the decisiontaker compare requirement risk with hypothetic risk

Offer risk take two options go ahead or take another option

The process allow decision maker to engineer a variable with a known probability of success as ameasure of the perceived subjective probability of success in another unknown conditionUse 10 balls 5 black and 5 white 50% win 6 black 4 white 40% win, 7 black 3 white 30% win atsome point not worth pulling ball and perform the work.

Laplace does with probability of each state of nature is unknown, can assume to be equal

3.5.4 The Need for a Risk Management Strategy

Total Strategic Risk Management (TSRM) applies to packaging and delivery as it does toprocess and manufacturing. Holistic and pre-emptive. Forwarding and predictive rather thanreactive. Far better suited for strategic plan it than for tactical response.TSRM must be developed alongside, and integrated with strategic planning and management.



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3.6 The Concept of Risk Management

3.6.1 Introduction

Without risk there is no reward, risk breeds innovation. Risk management system aims toidentify and primary risks organization is exposed to, so that an informed assessment can bemade and proper decisions made to safeguard the organization

Risk management system must be:

Practical

Realistic

Compliant with internal and external standards

Cost-efficientMost Risk management systems contain five distinct areas

1. 1. Risk identification2. 2. Risk classification3. 3. Risk analysis4. 4. Risk attitude5. 5. Risk responds, control, policy and reporting

6.

3.6.2 Risk Identification

Find out all the risks that are likely to impact on a given project linkages and interdependenciesbetween them. Build a risk profileNot all risks are high-Impact and high probability, However cumulative effect of small risk can have asimilar effect to a high impact riskRisk identification typologies for purely project risk:

Internal RiskWork breakdown structure (WBS) 3 or 4 level will allowidentification

External Risk Originate outside the project i.e. interest rate, levels of economic

activity



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Project Risk Overlap internal and external risk, specific project administrationand control techniques. Organizational breakdown structure(OBS), team membership, leadership, communication

Overall risk consider a combination of these three sources

Objective sources sum total of past experienceSubjective sources sum total of current knowledge based on current experienceIdentification is concerned with the source of the risk rather than the event itself. You cando something about the sources of risk but not event or the effect.

Most widely used method for risk identification is brainstorming

3.6.2.1 Brainstorming

Phase 1: Creative phase invite ideas

Phase 2 Evaluation phase list of ideas is completed each one is evaluated by all members of theteamSpecific methodologies for brainstorming using

Delphi Technique

Nominal group technique

SWOT analysis

3.6.3 Risk Classification

Once Risk is identified it needs to be classified, most work uses the so-calledportfolio

theory with a beta coefficient. Considers risk classification from a financial point of view.Example share with 10% beta coefficient will on average move 10% for each 1% move inthe market. Risk can be considered in terms of different classifications.Primarily classified in terms of market risk or static risk can also be classified in terms ofimpact or affect on organizationThee-level classifications

1. Risk Type

Static /Specific (insurable) negative only

Market (Business) negative or positive

Market Business Risk (MBR) trading with its assets

Market Financial Risk (MFR) gearing ratio risk, measure of the financingof the organization

2. Risk probability3. Risk impactConsequence or impact of risk is important consideration expressed as:



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Maximum probable lossMost likely cost of the lossLikely cost of covering the loss (if uninsured)Cost of insuring against the event occurringReliability of predictions about the event

3.6.4 Risk Analysis

Most risk analysis methodologies comprise six basic steps

Step 1. Evaluate all the options All factors that could possibly affect the impact or likelihood ofthe risk should be identifiedStep 2 Consider the risk attitude Some decision makers are more or less risk-averseStep 3 Consider thecharacteristics of the risks

Identified and controllable risk impact. Apply controls to somethat have been identified

Step 4 Establish a measurementsystem

Measure and evaluate in some way, using a qualitative orquantitative (or combined approach)

Step 5 Interpret the results Extrapolation from observed data to try to make a prediction of

future outcomesStep 6 Make the decision Decide which risk to retain and which to transfer to other parties



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Other methodologies adopt a slightly different approachStep 1: Identify and source the risk and extract all relevant information.Step 2: Identify all possible threats and opportunities (SWOT analysis) and map the risk drivers.Identify and brief risk holders where appropriate.Step 3: Assess the probability and impact of each risk and develop the actual risk map.Step 4: Consider all available options and develop a target risk map.Step 5: Assess the value added to the company by taking the recommended risk responseaction.Step 6: Set up monitoring and reporting systems to ensure effective evolution of the risk map.3.6.4.1 Risk MapA risk map shows individual isolated risk on an axis ofprobability of occurrence againstimpact process something referred to as risk profiling or risk foot printing basically showing therelationship between risk probability and impact. For a range of given risks as function of time.

Four quadrants

Quadrant 1: Red zone (high impact and high probability)Dangerous risk. Business cannot survive accepting these risks at this critical level over the

long term. Addressed immediate action taken.

Quadrant 2: Upper Yellow zone (high impact and low probability)Not as crucial as red zone. Require close attention, severe effects of extraordinary events.i.e. Severe storm on agricultural. typically driven by external orenvironmental factorsbeyond management control. Contingency planning appropriate for these risks. Generallyinsurable.

Quadrant 3: Lower Yellow zone (low impact and high probability)Risk related to day-to-day operations and compliance issues. i.e. basic plant andmachinery breakdown. If left unmanaged, great as the risk in quadrant 2. Cost control fallinto this category. Based on monitoring and detection, identify a defect downstream fromthe risk. Cost overruns are virtually certain to occur.

Quadrant 4: Green zone (low impact and low probability)Low severity / low likelihood. Generally insignificant and are acceptable at present level.Areas that may be outsourced. i.e. blocked toilets and vandalized windows in a station.Best solution is outsourcing the maintenance function for a fixed price problem istransferred to another organization.

3.6.4.2 Risk GridRisk grid is an alternate to risk map. Probability of a risk occurring and the impact of the riskif it occurs. Probability of occurrence and the consequences can measured in several

different ways.. most obvious ones are time, cost and quality ( quality is often referred to asperformance)



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3.6.5 Risk Attitude

Risk takers either

neutral,

risk-averse Err on the side of action Only increase effort once impact is very highrisk seeking. Encourage risk Increase effort at a much earlier stage

Impact refers to maximum reward or opportunity available to the risk taker. As potential

reward increases, the averse risk taker becomes more and more inclined to risk making amove, whereas the risk seeker increase effort earlier stage.

3.6.6 Risk Response

3.6.6.1 Response ConsiderationVariables that can affect risk response include:

Company policy

Lack of relevant information on cause and effect

Length of time of exposure to the risk

Individual versus team interests

Involuntary risk (forced on the risk taker)

Voluntary risk (risk that the risk taker is prepared to accept) Alternatives (cost-effective and non-cost-effective)Distribution of risk will depend on a number of non-contractual considerations

Is the outcome of the project worth the risk?

Who has the greatest risk control?

Who has the greatest risk liability? Onus be least affected by it occurring

What incentive does each party have? - Insurance company policy holder pay firstso many dollars

3.6.6.2 Response Options

Risk Avoidance Removing the risk in all forms from the project

Risk Acceptance (retention)Third party insurance rather than comprehensive insurance.Likelihood of loss, carry are the low-probability low-impact ones.Rarely prudent to retain a high-probability high impact riskunless there is no choice. Use ofwarranties guarantees canbe used by manufacturers , Reserve contingency to covereventuality.

Risk Mitigation(reduction)

Risk reduced by training and development, or defining theaims and objectives, Careful planning & put in place monitor &

control systemRisk Transfer Transferring risk to other, liability transferred through

contractual clauses, insurance contracts, outsource



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Relevant factors when considering insurance

The insurability of the risk - basis for makingcalculation data available

The cost of the insurance premium- smallproportion of insured loss

The maximum probable loss - what is likely tobe lost and a result of risk occurring

The likely cost of the loss full cost ofreinstatement to original condition

The likely cost of paying for the loss ifuninsured in some cases it can be cheaper to acceptthe loss and cover it rather than to insure ones assets.

Seeking additionalinformation about the risk

Seeking additional decision relevant information. Level ofperceived risk may be reduced if more information is madeavailable

3.6.7 Risk Control, Policy and Reporting

Risk controlis process of using the information that has been learned on a project to assistin the later development of the project.Risk reportlevel and frequency of reporting will depend on significance of the risk.Risk strategy has been developed and accessed; it is adapted formulated into an overallrisk policy.Risk policy establishes a number of elementsOverall aims and objectives Show what the required outcomes for each section or control unit

are, aims and objectives could relate to the treatment or handling ofspecific risks

Accountability for individualmangers

Task responsibility matrix (TRM)

Formalized reportingchannels

Frequency, circulations, membership and individual responsibilities.

Risk tolerances Acceptable deviations and tolerances stated in the form of a direct

variance envelope. Sets an alarm ringing if overall performancemoves outside these limits.

Authorization May not be immediately obvious who can authorize what.

Risk policy initially develop individual targets for individual sections within the organization. Thendeveloped and worked up as a strategic document.

3.7 Risk, Contracts and Procurement

3.7.1 Introduction

Contract is a classic way of managing risk. Formal agreement between two parties. Such,it records the rights and obligations of each party . Tool for risk transfer and mitigation.Purpose of the contract is to define the rights, dues, obligations liabilities of each party.Defining allocating risk. Main risk consideration in terms of contracts and contract low iscommensurate risk.Commensurate riskis an obligation when accepting a contract. Risk of being unable tofulfill the obligation or duty because of ones own inadequacy, incapacity, inadvertence orerror or because of interference from outside events or sources



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Contract defines only the ground rules. Execution of the contract depends on goodwill,intent and the relationship between the parties. Some depend on uberrimae fidei, or utmostgood faith.

3.7.2 Basic Contract Theory

Typical contract documents include the following:

Signature block and project tile

Definition of contract terms and scope Information and facilities to be provided by the client

Project approvals various levels of consents and approvals

Payment systems

Working drawings show full design information

Specification describes the technical performance

Schedules describe and summarize various components and assembly requirements

General conditions primary duties and obligations

Specific conditions - i.e. restriction on noise, working times and access

Provision for change and variations - include general and specific conditions

Form of tender - fees and contingencies

Dispute resolution dealing with disputes and arguments first resource toarbitration, followed by recourse litigation. Prevents wronged party from going directly tocourt. Or Alternative Dispute Resolution (ADR)

Bonds and warranties provision is required how to be executed. Public financeoften require bond cover, guarantees and warranties .In order for a contract to exist, there must be:

Offer and acceptance

Consideration - contract to be valid something of value must be exchanged depositpaid

Capacity parties to perform their obligations under the contract

Legal relations contract itself must be legal

Communication communicated to the offeror can be no contract if the offeror isunaware that the acceptance has been made.Alternatives to performance include the following:

Breach one party acts in contravention of one or more terms or conditions.

Frustration contract cannot be preformed

Rescission error or misunderstanding in the preparation of the original contract

Rectification contract term has been wrongly worded or phrased

Void contract goods are illegal

Termination / determination determination means that both parties can cease theirworks under the contract party determined the contract has a right to seek reimbursementagainst the party who has been determined.

3.7.3 Procurement

Procurement is the process by which goods and services are acquired. Procurementgenerally includes a number of individual life-cycle phases. Number of common phases

Objective phaseObjectives of procurement process are established and reconciled with theobjectives of the project and with overall objectives of the company

Exposure phaseSuitable sources are identified from past experience and reliable ones listed.Expressing of interest invited.

Alternatives phaseVarious alternative sources available, type of contract to be adopted.

Document phaseContract documents which describe works in some way such as level of detailthat all ambiguity, or much as is possible is removed.



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Tendering phaseScrutinized, selected proceed invited to tender or bid . Formal documentdescribes the liabilities and obligations

Award phase

Various bids are scrutinized, usually by a legal expert and by a cost expert

Contractadministration phase

Ensure that both parties comply with its terms and conditions.

3.7.4 Characteristics of Contracts

Controllable risk human error and decision making. Internal and are controllable by

good management and good quality control procedures. Can generally be foreseenadequate provision can be made against its occurrence.Uncontrollable risk - outside the immediate control of the project, adverse weatherconditions outside the control of the parties to the contract. Reduce risks by some form ofinsurance.Fundamental contractual risks:

Adequacy of design:latent andpatentdefects

Defects can be patent (obvious) or latent (hidden)

Project eventual costCost limits - risk for cost overruns may be client or contractorbased.

Safety andindemnification foraccidents

Specific provisions for indemnity

Third party insuranceInsurance against damage to third parties . risk to adjacentproperties or people , third party insurance covers this risk

Fire, flood etcInsurance to cover these

Completion deadlines:

liquidatedandascertaineddamages

Projects completed by a specific and stated deadline. Completed latecontractor or client will loose money. Clauses to protect against latecompletion. Damages for late completion may be punitive or (more likely)liquidated (i.e. cash) and ascertained (based on actual losses incurred)



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3.7.4.2 Express and Implied TermsContracts contain both express and implied termsExpress terms are those that clearly express within the wording of the contractImplied terms are those that can be implied from the working of the contract or from common usageFundamental risks are generally covered by express terms.Liabilities are generally covered by implied terms.

3.7.5 Transfer of Risk in Contracts

Contracts are vehicles for risk transferIndemnity clause seeks to transfer specific risk for specific events onto a named party.Reasonable transfer of risk through a contract also depends on the ability of the riskbearer to absorb any damagesThe person who accepts the risk must have the ability to pay the costs incurred if the risk isrealized.

3.7.6 Variation Orders and Change Notices

There has to be some system in place forallowing agreed changes or variations to whatwas agreed in the contract.

Variations allow for changes to be made to a contract with out invalidating it. Changes canbe technical, or administrative.Main requirement is variation order notice is fair to both parties

3.7.7 Claims Risk

Variations or delays may result in seek r

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