lecture 7 risk

7/28/2019 Lecture 7 Risk

1/59


2/59


3/59


4/59


5/59


6/59
http://www.funnytimes.com/


7/59
http://www.funnytimes.com/http://www.funnytimes.com/


8/59


9/59

First Solar Plane Flight 19/04/2013


10/59

What is Project Risk?

Project Risk is an uncertain event or condition that, if occurs, has a

positive or negative effect on one or more project objectives such as

scope, schedule, cost and quality.


11/59

PMBOK Perspective1 Plan Risk Management: The process of defining how to conduct risk management activities for a

project

2 Identify Risks: The process of determining which risks may affect the project and documenting their

characteristics.

3 Perform Qualitative Risk Analysis: The process of prioritizing risks for further analysis or action by

assessing and combining their probability of occurrence and impact.

4 Perform Quantitative Risk Analysis: The process of numerically analyzing the effect of identified

risks on overall project objectives.

5 Plan Risk Responses: The process of developing options and actions to enhance opportunities and

to reduce threats to project objectives.

6 Control Risks: The process of implementing risks response plans, tracking identified risks,

monitoring residual risks, identifying new risks, and evaluating risk process effectiveness throughout the

project.


12/59

Some Risk Conditions Risk conditions may include aspects of the projects or

organizations environment that contributes to projectrisk:

Immature project management practices

Lack of integrated management systems Concurrent multiple projects

Dependency on external participants who are outsidethe direct project control

Project manager is too optimist


13/59

Risk Attitude Depends Upon

Risk Appetite The degree of uncertainty an entity is willing to take on

in anticipation of a reward.

Risk Tolerance

The degree, amount or volume of risk that anorganization or stakeholder will withstand

Risk Threshold

Below this threshold, the company will accept the risk

and above it, the organization will not tolerate the risk.


14/59

Positive Risks

What are positive Risks?

Why they are called opportunities?

Are they considered good ?


15/59

Positive Risk

Definition: Positive RiskPositive risk is the chance that your objectives will produce too much ofa good thing. Positive risks are deemed as undesirable despite beingpositive at face value

Positive Risk As An Opportunity :Risk-taking is the process of accepting risk. Examples of risk-takinginclude investing, developing new products and changing businessprocesses. Risk-taking is the basis of economic progress. It's oftenpositive.

Positive risk is different it's something you're trying to avoid.


16/59

Positive Risks Being under budget is a good thing because the company saves money.

However, in the context of project management it's considered a

planning error. You didn't really save money

the project manageroverestimated the project.

A bridge is constructed to last 50 years. The project management teamcarefully monitors quality risks (the risk it won't last to the 50 yeartarget). They also manage the positive risk that the bridge will last too

long. If they discover that the bridge will last 100 years

it was likelyover-engineered.

Your accountant points out the positive risk that if your income risespast a certain mark then tax rules will apply that will reduce your netincome.

An ambitious manager seeks important responsibilities. She managesthe risk that she won't take on enough work to achieve recognition. Shealso manages the positive risk that the firm will trust her with so manyresponsibilities that she'll be unable to deliver.


17/59

Plan Risk Management

InputsAll approved plans and baselines;scope, schedule & cost

2.Project Charter: contains highlevel risks

3. Stakeholder Register forCommunications managementplan

4.Enterprise environmental

factors Risk attitude, threshold,tolerances

5.Organizational process assets:Risk categories, Roles &responsibilities

Tools & Techniques

Analytical TechniquesExpert JudgmentMeetings

Participants:Project Manager, Selected Project TeamMembers, Stakeholders, thoseresponsible to manage risk planningand execution activities

Risk Management Plan

See Next Page


18/59

Risk Management Plan

Include: Methodology: Approaches to perform Risk Management Roles and responsibilities: Defines the lead, support and

risk management team members & their responsibilities Budgeting: Estimated Funds needed for inclusion in cost

baseline and establishes protocols for application of

contingency and management reserves. Timing: How often the risk process will be performed

throughout the project life cycle Risk Categories: Categories a-z depending on the severity Probability & Impact: a method to determine which risks

will and will not be acted upon Reporting formats: Documentation, analysis and reportingof risk whenever it will happen.

Tracking: How recording of the risk will be documented forauditing and future reporting


19/59


20/59

Identify RisksInputs

1.Risk management plan

2.Cost management plan

3.Schedule management plan

4.Quality management plan

5. Human Resource Mgt. Plan

6.Scope baseline

7.Activity costs estimates

8.Activity duration estimates

9.Stakeholder register

10. Procurement Document11.Project documents

12.Enterprise environmentalfactors

13.Organzational process assets

Tools & Techniques1. Documentation reviews2. Information gathering techniques

BrainstormingDelphi TechniqueInterviewingRoot cause analysis

3. Checklist analysis4. Assumptions analysis5. Diagramming techniques

FlowchartingCause and effect diagram

6. SWOT Analysis7. Expert judgment

Risk registerList of Identified RisksList of potential Responses


21/59

Perform Qualitative Risk Analysis

Tools & Techniques1. Risk probability and impact assessment2. Probability and impact matrix

3. Risk data quality, reliability assessment4. Risk categorization (RBS) and area of the

project affected5. Risk urgency assessment (near term)6. Expert judgment

Risk register updatesAssumptions Log Update

Inputs1.Risk register

2.Risk management plan

3.Project scope baseline4.Organizational processassets


22/59


23/59

Perform Quantitative Risk AnalysisTools & Techniques

1. Data gathering and representationtechniquesInterviewing (3-point estimates)Probability Distribution

2. Quantitative risk analysis and

modeling techniquesSensitivity Analysis (potentialimpact)

3. Expert judgment

Risk register updatesProbabilistic analysis of the projectProbability of achieving cost and time objectivesPrioritized list of quantified risks

Inputs1. Risk register

2. Risk management plan

3. Scope Baseline

4. EEF

5. OPA


24/59

Exercise

A company is trying to determine if prototyping is worthwhile onthe project. They have come up with the following consequences ofwhether the equipment works or fails when it is used. Based on theinformation provided below, what is the expected value of yourdecision?

24


25/59

SolutionPROTOTYPE 35% x $120,000 plus US$200,000

=US$242,000

Do not

Prototype

70% x $450,000 = US$315,000


26/59


27/59


28/59


29/59


30/59

QUANTITATIVE RISK ANALYSISIs a numericalanalysis of the probability and

consequences (amount at stake or impacts)of the highest risks on the project to:

Determine which risk events warrant a response Determine overall project risk (risk exposure) Determine the quantified probability of meeting

project objectives - e.g., "We only have an 80%chance of completing the project within the sixmonths required by the customer," or "We only havea 75% chance of completing the project within the

$80,000 budget." Determine cost and schedule reserves Identify risks requiring the most attention Create realistic and achievable cost, schedule or

scope targets


31/59

QUANTITATIVE RISK ANALYSIS

Risk quantification involves the following activities:

Further investigation into the highest risks on theproject

Determination of the type of probability distribution

that will be used - e.g., triangular, normal, beta,uniform or log normal distributions

Interviewing experts

Sensitivity analysis - determining which risks have themost impact on the project

Monte Carlo simulation (simulation) - described later

Decision tree analysis - described later


32/59

DECISION TREE

A decision tree takes into account future events intrying to make a decision today.

It calculates the expected value (probability timesconsequences) in more complex situations thanthe expected value previously presented.

It involves mutual exclusivity (previouslyexplained in the Quality chapter.)


33/59

MONTE-CARLO SIMULATION

Evaluates the project, not the tasks

Provides the probability of completing theproject on any specific day, or for any

specific amount of cost Provides the probability of any task actually

being on the critical path

Provides a percent probability that each taskwill be on the critical path


34/59

MONTE-CARLO SIMULATION Takes into account path convergence (places in the

network diagram where many paths converge into onetask)

Translates uncertainties into impacts to the totalproject Can be used to assess cost and schedule impacts Is usually done with a computer-based Monte Carlo

program because of the intricacies of the calculations Results in a probability distribution


35/59


36/59

RISK RESPONSE PLANNING

During this step: Strategies are agreed upon in advance by all

parties

Primary and backup strategies are selected

Risks are assigned to individuals or groups totake responsibility

Strategies are reviewed over the life of theproject for appropriateness as moreinformation about the project becomes known


37/59

STRATEGIES FOR Negative Risks and Threats

The choices include:

AVOID - Eliminate the threat by eliminating thecause. Changing the Project Plan to eliminate thethreat entirely. Most radical avoidance strategy is toshut the project entirely.

MITIGATION Project team acts to reduce theprobability of occurrence or impact of a risk and

bring it down to within threshold limits.


38/59

STRATEGIES FOR Negative Risks and Threats

ACCEPT - Do nothing and say, "If it happens, it happens." Activeacceptance may involve the creation of contingency plans andpassive acceptance may leave actions to be determined asneeded. A decision to accept a risk must be communicated tostakeholders.

TRANSFER- Make another party responsible for the riskthrough purchasing of insurance, performance bonds,

warranties, guarantees or outsourcing the work.


39/59

Exercise For each strategy described, determine the name of its strategy. Remember to include

mitigate probability and mitigate impact.


40/59

Solution


41/59

Sample Exam Questions

What do you do with non-critical risks? Answer: Document and revisit periodically.

Would you select only one risk response strategy? Answer: No, you can choose a combination of choices.

What risk management activities are done during theexecuting phase of the project? Answer: Watching out for non-critical risks that become

more important.


42/59

Sample Exam Questions

What is the most important item to address in projectteam meetings?

Answer: Risk.

How would risks be addressed in project meetings?

By asking, "What is the status of risks? Any new risks?Any change to the order of importance? "


43/59

Strategies for Positive Risks or Opportunities

Exploit:This is a point where the organization wishes to ensure that the

opportunity is realized. The strategy seeks to eliminate theuncertainty associated and ensures that opportunity hashappened

Enhance: Increase the positive impacts of the opportunity

Share With other teams and projects / portfolios

Accept Recognition but not pursuing it further


44/59

Contingent Response Strategies

Alternate ways of doing things

Create sufficient warning to implement plan


45/59

RISK MONITORING AND CONTROLThis step involves managing the project according to therisk response plan and may include the following

activities:

Keeping track of the identified risks

Implementing risk responses Looking for the occurrence of risk triggers

Monitoring residual risks

Identifying new risks

Ensuring the execution of risk plans

Evaluating the effectiveness of risk plans

Developing new risk responses


46/59

Monitor and Control Risks

Tools & Techniques1. Risk reassessment2. Risk audits

3. Variance and trend analysis4. Technical performance

measurement5. Reserve analysis6. Meetings

Outputs1. Work performance information2. Organizational process asset updates

3. Change requests4. Project management plan updates

5. Project document updates

Inputs1.Risk register

2.Project management plan

3.Work performance information

4.Performance reports


47/59

Which is the most important

tool & technique in Control Riskand why?

Risk Assessment

Risk Audit

Variance & Trend Analysis

Technical Performance Measurement Reserve Analysis

Meetings


48/59

Change Requests

Recommended Corrective Actions

These are activities that realign the performance of theproject work with the project management plan. This

includes contingency plans and workarounds

Recommended Preventive Actions

These are activities that ensure that future performanceof the project work is aligned with the projectmanagement plan.


49/59

MCQs


50/59

1 The Three attributes of project risk are

_________, ___________ and ___________.1. What might happen, who it happens to, and how

much will it cost

2. Notification, frequency of relevant events,probability of occurrence

3. Risk cost, quality, control

4. Quality, risk planning, total number of risk events

5. Risk event, probability occurrence, the amount atstake


51/59

2: A risk is defined as what might happened to the____________ of the project

1. assessment

2. detriment

3. schedule4. cost

5. scope


52/59

3: When is the project's amount at stake the lowest

1. conceptual

2. design

3. close-out4. implementation


53/59

4: What is the most accurate method of obtaining

project information that can reduce the amount of risk?

1. Observations on the current project

2. Determining the risk by using brainstormingtechniques

3. The use of historical data from previous projects thatwere similar in nature

4. Sensitivity analysis5. Delphi technique.


54/59

5: Which of the following fit the category of external

risks?

1. Project delays, budget under-runs, movement of cityutilities

2. Regulatory, currency changes, taxation

3. Natural disasters, regulatory, design

4. Inflation, design, social impact


55/59

6: Decision trees are best used for

1. Determining the interaction of the amount at stakeand the expected value

2. Association of the probabilities with the risk events

3. An illustration of how to see the interactionsbetween decisions and the associated events

4. A flow chart which determines the standard

deviation of the risk event


56/59

7: The total amount of risk that is calculated for a

project is found by

1. Multiplying the sum of each the risk times theamount at stake

2. Calculating the cumulative sum of the probability foreach risk and multiplying this value times theconsequence of occurrence of the risk events

3. Cannot be calculated since all risks are not know

4. The amount of project reserves available


57/59

8: A situation in which one of two or more risk events

will follow an act, but the precise nature of these events

may not be known and the probabilities of their

occurring cannot be objectively assigned, is the

definition of

1. certainty

2. uncertainty3. risk

4. risk adversity

5.None of the above.


58/59

Answers:

1: 5

2: 2

3: 1

4: 3

5: 2

6: 37: 2

8: 2


59/59

Thank you,

Any questions?

lecture 7 risk

Documents