managing risks-engineering project management

7/28/2019 Managing Risks-engineering project management.

http://slidepdf.com/reader/full/managing-risks-engineering-project-management 1/27

Engineering Project Management (IENG300)

Chapter 7

M anaging Risks

Ibrahim Serhan



Introduction

08/02/2012 2

• Risk: An uncertain event or condition that, if it occurs, may have a positive(opportunity) or negative effect on project objectives.



• A proactive rather than a reactive approach.

• Reduces surprises and negative consequences.

• Prepares the PM to take advantage of appropriaterisks.

•

Provides better control over the future.• Improves chances of reaching project performance

objectives within budget and on time.

08/02/2012 3

Risk Management Benefits



Risk Management Process

08/02/2012 4



Step 1: Risk Identification

08/02/2012 5

• During the planning phase, the PM pulls together a risk managementteam consisting of core team members and other relevantstakeholders.

• The team uses brainstorming and other problem identifyingtechniques to identify potential risks. Examples: Risk BreakdownStructure (RBS) & risk profiling.

• Participants are encouraged to keep an open mind and generate as

many probable risks as possible.

• A list of all the possible risks that could affect the project isgenerated and prepared by the PM for assessment.



Risk Breakdown Structure (RBS)

08/02/2012 6



Risks Profiling

08/02/2012 7



Step 2: Risk Assessment

08/02/2012 8

• Some generated risks may be trivial and can be ignored, while others pose seriousthreats to the success of the project.

•

Scenario analysis is the easiest and most commonly used technique for analyzingrisks. Team members assess the significance of each risk event in terms of:Probability & impact of the event.

• For probability, a relatively simple scale ranging from “very unlikely” to “almostcertainly” may suffice for one project, whereas another project may use more

precise numerical probabilities (e.g., 0.1, 0.3, 0.5, . . .).

• For impact, different kinds of impact scales are used. Some scales may simply userank-order descriptors, such as “low,” “moderate,” “high,” and “very high,”whereas others use numeric weights (e.g., 1–10).



Impact Scales of Risks

08/02/2012 9



Risk Assessment Form

• Documentation of scenario analyses can be seen in variousrisk assessment forms. Here is a partial example of a riskassessment form:

08/02/2012 10



Risk Severity Matrix

• It useful to categorize the severity of different risks into a riskassessment matrix which is typically structured around theimpact & likelihood of the risk event.

08/02/2012 11



Failure Mode & Effects Analysis

• Failure Mode and Effects Analysis (FMEA): It extends the riskseverity matrix by including ease of detection in the equation:

Impact x Probability x Detection = Risk Value

• The weakness of the FMEA approach is that a risk event ratedImpact =1, Probability =5 & Detection =5 would receive the sameweighted score as an event rated Impact =5, Probability =5 &Detection =1!

• Risk assessment is not simply an exercise in mathematics. There isno substitute for thoughtful discussion of key risk events.

08/02/2012 12



Step 3: Risk Response Development

• Once a risk event is identified and assessed, a decision must be madeconcerning appropriate response. Responses to risks can be classified as:

1. Mitigating: Reducing the likelihood that the event will occur &reducing the impact that the adverse event would have on projects.

2. Avoiding: Changing the project plan to eliminate the risk orcondition. Although it is impossible to eliminate all risk events, somespecific risks may be avoided before project start.

3. Transferring: Passing risk to another party is common; this transferdoes not change risk. Passing risk to another mostly involves paying apremium for this exemption. Examples: Contractors & insurance.

4. Sharing: Allocating risks to different parties.

5. Retaining: Conscious decision is made to accept the risk.

08/02/2012 13



Contingency Planning

• A contingency plan is an alternative plan that will be used if a possible foreseen riskevent becomes a reality.

• It answers what, where, when & how much action will take place.

• It represents actions that will reduce the negative impact of the risk event.

• A risk response is part of the actual implementation plan and action is taken before therisk can materialize, while a contingency plan is not part of the implementation plan &only goes into effect after the risk occurs.

• The absence of a contingency plan, when a risk event occurs, can cause the PM topostpone the decision to implement a remedy.

• All parties affected should agree to the contingency plan and have authority to make

commitments. 08/02/2012 14



Risk Response Matrix

• Risk response matrices are useful for summarizing how theproject team plans to manage risks that have been identified.

08/02/2012 15



Contingency Planning for Different Risks

• Technical Risks: Backup, redundancy, cloud storage …

• Schedule Risks: Crashing, or reducing project duration, is accomplishedby shortening activities on the CP.

• Cost Risks: Costs that may change should be identified and estimates madeof the magnitude of change. This ensures control of the contingency fundsas the project is implemented. Inflation rates must be monitored closely.

• Funding Risks: Seasoned PMs recognize that a complete risk assessmentmust include an evaluation of funding supply. A project’s funding may bereduced or cut.

08/02/2012 16



Contingency Funding

• Contingency fundsare established to cover projectrisks whether identified or not. They are typicallydivided into:

– Budget Reserves : Set up for specific work packages orsegments of a project found in the baseline budget or workbreakdown structure

– Management Reserves: Funds that are needed to covermajor unforeseen risks and, hence, are applied to the totalproject. Example: Scope change.

08/02/2012 17



Contingency Fund Estimates (000 $)

08/02/2012 18



Time Buffers

• PMs use time buffers to cushion against potential delays in the project.

• Like contingency funds, the amount of time is dependent upon the inherentuncertainty of the project.

• The more uncertain the project the more time should be reserved for theschedule.

• The strategy is to assign extra time at critical moments in the project.

• In the face of overall schedule uncertainty, buffers are sometimes added

to the end of the project. 08/02/2012 19



• Typically the results of the first three steps of the risk managementprocess are summarized in a formal document often called the riskregister.

• A risk register details all identified risks, including descriptions,category, and probability of occurring, impact, responses,contingency plans, owners, and current status.

• The register is the backbone for the last step in the risk management

process: Risk control.• Risk control involves executing the risk response strategy,

monitoring triggering events, initiating contingency plans &watching for new risks.

•

A major element of the risk control process is change management.08/02/2012 20

Step 4: Risk Response Control



• Changes may come from many sources: PM, projectcustomer, owner, team members & risk occurrence.

• Most changes easily fall into: Scope changes,contingency plans implementation or improvements.

• Because change is inevitable, a well-defined changereview and control process should be set up early in

the project planning cycle.08/02/2012 21

Change Control Management



• Change management systems involve reporting, controlling& recording changes to the project baseline. In practice theyare designed to:

1. Identify proposed changes.

2. List expected effects of proposed change(s) on schedule and budget.

3. Review, evaluate & approve/disapprove changes formally.

4. Negotiate & resolve conflicts of change, conditions & cost.5. Communicate changes to parties affected.

6. Assign responsibility for implementing change.

7. Adjust master schedule and budget.

8. Track all changes that are to be implemented.08/02/2012 22

Change Management System



08/02/2012 23

Change Control Process



08/02/2012 24

Change Request Form



08/02/2012 25

Change Request Log



Benefits of Change Management

08/02/2012 26

1. Inconsequential changes are discouraged by the formal process.

2. Costs of changes are maintained in a log.

3. Integrity of the WBS and performance measures is maintained.

4. Allocation and use of budget and management reserve funds aretracked.

5. Responsibility for implementation is clarified.

6. Effect of changes is visible to all parties involved.

7. Implementation of change is monitored.

8. Scope changes will be quickly reflected in baseline andperformance measures.



08/02/2012 27

managing risks-engineering project management

Documents