PROJECT RISK PROJECT RISK MANAGEMENTMANAGEMENT

ENGINEERING MANAGEMENTENGINEERING MANAGEMENT

FALL 2007FALL 2007

JAVIER ABADIAJAVIER ABADIA

PROJECT MANAGEMENTPROJECT MANAGEMENT

A Project is a temporary endeavor undertaken A Project is a temporary endeavor undertaken to create a unique product, service or result.to create a unique product, service or result.

Projects are a means of organizing activities Projects are a means of organizing activities that cannot be addressed within the that cannot be addressed within the organization’s normal operational limits.organization’s normal operational limits.

Projects are often utilized as a means of Projects are often utilized as a means of achieving an organization’s strategic plan.achieving an organization’s strategic plan.

Project Management is the application of Project Management is the application of knowledge, skills, tools and techniques to knowledge, skills, tools and techniques to project activities to meet project project activities to meet project requirements.requirements.

PROJECT MANAGEMENTKNOWLEDGE AREAS

PROJECT INTEGRATION MANAGEMENTDEVELOP PROJECT CHARTER

DEVELOP PRELIMINARY PROJECT STATEMENT

DEVELOP PROJECT MANAG. PLANDIRECT AND MANAGE PROJECT EXECUTION

MONITOR AND CONTRO PROJECT WORKINTEGRATED CHANGE CONTROL

CLOSE PROJECT

PROJECT SCOPE MANAGEMENTSCOPE PLANNINGSCOPE DEFINITION

CREATE WBSSCOPE VERIFICATION

SCOPE CONTROL

PROJECT TIME MANAGEMENTACTIVITY DEFINITION

ACTIVITY SEQUENCINGACTIVITY RESOURCE ESTIMATINGACTIVITY DURATION ESTIMATING

SCHEDULE DEVELOPMENTSCHEDULE CONTROL

PROJECT COST MANAGEMENTCOST ESTIMATINGCOST BUDGETINGCOST CONTROL

PROJECT QUALITY MANAGEMENTQUALITY PLANNING

PERFORM QUALITY ASSURANCEPERFORM QUALITY CONTROL

PROJECT HUMAN RESOURCEMANAGEMENT

HUMAN RESOURCE PLANNINGACQUIRE PROJECT TEAMDEVELOP PROJECT TEAMMANAGE PROJECT TEAM

PROJECT COMMUNICATIONSMANAGEMENT

COMMUNICATIONS PLANNINGINFORMATION DISTRIBUTIONPERFORMANCE REPORTINGMANAGE STAKEHOLDERS

PROJECT RISK MANAGEMENTRISK MANAGEMENT PLANNING

RISK IDENTIFICATIONQUALITATIVE RISK ANALYSIS

QUANTITATIVE RISK ANALYSISRISK RESPONSE PLANNING

RISK MONITORING AND CONTROL

PROJECT PROCUREMENT MANAGEMENTPLAN PURCHASE AND ACQUISITIONS

PLAN CONTRACTINGREQUEST SELLER RESPONSES

SELECT SELLERSCONTRACT ADMINISTRATION

CONTRACT CLOSURE

PROJECT RISK MANAGEMENTPROJECT RISK MANAGEMENT

No amount of planning can overcome No amount of planning can overcome risk.risk.

Plans are essentially things to do, what is Plans are essentially things to do, what is missing from plans is what can go wrong.missing from plans is what can go wrong.

Risk is the chance that an undesirable Risk is the chance that an undesirable event will occur and the consequences of event will occur and the consequences of all its possible outcomes.all its possible outcomes.

Project risk are those events that if Project risk are those events that if materialized can kill or delay a project.materialized can kill or delay a project.

PROJECT RISK MANAGEMENTPROJECT RISK MANAGEMENT

Risk management attempts to recognize Risk management attempts to recognize and manage potential problems during and manage potential problems during the project implementation.the project implementation.

Identifies as many risk events as Identifies as many risk events as possible, minimizes their impact, possible, minimizes their impact, manage response to those events if manage response to those events if materialized and provides contingency materialized and provides contingency funds to cover risk events that actually funds to cover risk events that actually materialize.materialize.

RISK EVENT GRAPHRISK EVENT GRAPH

Risk

Project life cycle

High

Low

Chances of risks

ocurring

Cost to fixRisk event

Cost

RISK MANAGEMENTRISK MANAGEMENT

Risk management is a proactive approach Risk management is a proactive approach rather than reactive.rather than reactive.

Is a preventive process designed to reduce Is a preventive process designed to reduce undesired events and to minimize negative undesired events and to minimize negative consequences associated with those events.consequences associated with those events.

Successful management of project risk gives Successful management of project risk gives the project manager better control over the the project manager better control over the future and significantly improve chances of future and significantly improve chances of reaching project objectives on time, within reaching project objectives on time, within budget, and meeting required technical budget, and meeting required technical (functional) performance. (functional) performance.

RISK MANAGEMENT PLANNINGRISK MANAGEMENT PLANNING

This is the process necessary for deciding This is the process necessary for deciding how to approach, plan and execute the how to approach, plan and execute the risk management activities for a project.risk management activities for a project.

Inputs:Inputs: Enterprise environmental factorsEnterprise environmental factors Organizational process assetsOrganizational process assets Project scope statementProject scope statement Project management planProject management plan

Outputs:Outputs: Risk Management Plan Risk Management Plan

RISK IDENTIFICATIONRISK IDENTIFICATION This is the process necessary for This is the process necessary for

determining which risk might affect the determining which risk might affect the project and documenting their project and documenting their characteristics.characteristics.

Inputs:Inputs: Enterprise environmental factorsEnterprise environmental factors Organizational process assetsOrganizational process assets Project scope statementProject scope statement Risk management planRisk management plan Project management planProject management plan

Outputs:Outputs: Risk registerRisk register

RISK IDENTIFICATIONRISK IDENTIFICATION

The risk management process begins by The risk management process begins by trying to generate a list of all the possible trying to generate a list of all the possible risks that could affect the project.risks that could affect the project.

The risk management team uses The risk management team uses brainstorming and other identifying brainstorming and other identifying techniques to identify potential problemstechniques to identify potential problems

Keep open mind and generate as many Keep open mind and generate as many probable risks as possibleprobable risks as possible

Don’t focus on consequences but in the Don’t focus on consequences but in the events that could produce consequencesevents that could produce consequences

RISK IDENTIFICATIONRISK IDENTIFICATION An effective tool for identifying specific risks An effective tool for identifying specific risks

is the work breakdown structure (WBS)is the work breakdown structure (WBS) Use assumption analysis as a tool that Use assumption analysis as a tool that

explores the validity of assumptions as they explores the validity of assumptions as they apply to the projectapply to the project

Use diagramming techniques: Cause and Use diagramming techniques: Cause and effect diagrams, System or process flow effect diagrams, System or process flow charts, influence diagramscharts, influence diagrams

The preparation of the risk register begins The preparation of the risk register begins in the risk identification process: List of in the risk identification process: List of identified risks, list of potential responses, identified risks, list of potential responses, root causes of risk.root causes of risk.

QUALITATIVE RISK ANALYSISQUALITATIVE RISK ANALYSIS

This is the process necessary for prioritizing This is the process necessary for prioritizing risks for subsequent further analysis or risks for subsequent further analysis or action by assessing and combining their action by assessing and combining their probability of occurrence and impact.probability of occurrence and impact. InputsInputs

Organizational process assetsOrganizational process assets Project scope statementProject scope statement Risk management planRisk management plan Risk registerRisk register

OutputsOutputs Risk register updates.Risk register updates.

QUALITATIVE RISK ANALYSISQUALITATIVE RISK ANALYSIS

Includes methods for prioritizing the Includes methods for prioritizing the identified risks for further actionidentified risks for further action

Assesses the priority of identified risk Assesses the priority of identified risk using their probability of occurring, the using their probability of occurring, the corresponding impact on project corresponding impact on project objectives and other factors such as the objectives and other factors such as the time frame and risk tolerance of the time frame and risk tolerance of the project constraints of cost, schedule, project constraints of cost, schedule, scope, and quality.scope, and quality.

The risk register is updated with The risk register is updated with information from Qualitative risk analysis.information from Qualitative risk analysis.

QUALITATIVE RISK ANALYSIS QUALITATIVE RISK ANALYSIS TOOLS TOOLS

Risk probability and Impact Assessment:Risk probability and Impact Assessment: Investigates Investigates the likelihood that each specific risk will occurthe likelihood that each specific risk will occur

Probability and impact matrix:Probability and impact matrix: Specifies combinations Specifies combinations of probability and impact that lead to rating the risks of probability and impact that lead to rating the risks as low, moderate, or high priorityas low, moderate, or high priority

Risk Data Quality Assessment:Risk Data Quality Assessment: Evaluate the degree to Evaluate the degree to which the data about risk is useful for risk which the data about risk is useful for risk management.management.

Risk Categorization:Risk Categorization: Risks to the project can be Risks to the project can be categorized by sources of risk, the area of the project categorized by sources of risk, the area of the project affected, or other useful categoryaffected, or other useful category

Risk Urgency Assessment:Risk Urgency Assessment: Risks requiring near-term Risks requiring near-term responses may be considered more urgent to responses may be considered more urgent to address.address.

QUANTITATIVE RISK ANALYSISQUANTITATIVE RISK ANALYSIS

This is the process necessary for This is the process necessary for numerically analyzing the effect on overall numerically analyzing the effect on overall project objectives of identified risks.project objectives of identified risks.

InputsInputs Organizational process assetsOrganizational process assets Project scope statementProject scope statement Risk management planRisk management plan Risk registerRisk register Project management plan: Schedule Project management plan: Schedule

management Plan, cost management planmanagement Plan, cost management plan OutputsOutputs

Risk register updatesRisk register updates

QUANTITATIVE RISK ANALYSISQUANTITATIVE RISK ANALYSIS

Is performed on risks that have been prioritized by Is performed on risks that have been prioritized by the qualitative risk analysis process as potentially the qualitative risk analysis process as potentially and substantially impacting the project’s and substantially impacting the project’s competing demands.competing demands.

A numerical rating is assigned to those risks.A numerical rating is assigned to those risks. Data is gathered using pessimistic and optimistic Data is gathered using pessimistic and optimistic

scenarios.scenarios. Sensitivity analysis helps to determine which risks Sensitivity analysis helps to determine which risks

have the most potential impact on the project.have the most potential impact on the project. Other tools like Expected monetary value analysis Other tools like Expected monetary value analysis

(EMV) and decision tree analysis can be used.(EMV) and decision tree analysis can be used. This process also provide updates for the Risk This process also provide updates for the Risk

registerregister

RISK RESPONSE PLANNINGRISK RESPONSE PLANNING

This is the process necessary for This is the process necessary for developing options and actions to enhance developing options and actions to enhance opportunities and to reduce threats to opportunities and to reduce threats to project objectivesproject objectives

InputsInputs Risk management planRisk management plan Risk registerRisk register

OutputOutput Risk register updatesRisk register updates Project management plan updatesProject management plan updates Risk-related contractual agreementsRisk-related contractual agreements

RISK RESPONSE PLANNINGRISK RESPONSE PLANNING When a risk event is identified and assessed, a When a risk event is identified and assessed, a

decision must be made concerning which decision must be made concerning which response is appropriate for the specific event.response is appropriate for the specific event.

Responses can be classified as mitigating, Responses can be classified as mitigating, transferring, sharing, or retainingtransferring, sharing, or retaining

Mitigating: Reduce the likelihood that the event Mitigating: Reduce the likelihood that the event will occur and/or reduce the impact that the event will occur and/or reduce the impact that the event would have on the project.would have on the project.

Transferring: Passing the risk to another party.Transferring: Passing the risk to another party. Sharing: Allocates proportion of the risk to Sharing: Allocates proportion of the risk to

different parties.different parties. Retaining: In some cases a conscious decision is Retaining: In some cases a conscious decision is

made to retain the risk of an event occurring.made to retain the risk of an event occurring.

RISK RESPONSE PLANNING: RISK RESPONSE PLANNING: Contingency planningContingency planning

A contingency planning is an alternate plan that will A contingency planning is an alternate plan that will be used if a possible foreseen risk event becomes a be used if a possible foreseen risk event becomes a realityreality

Contingency plan represents preventive actions that Contingency plan represents preventive actions that will reduce or mitigate the negative impact of the risk will reduce or mitigate the negative impact of the risk event.event.

Answer the questions of what, where, when, and how Answer the questions of what, where, when, and how much action will take place.much action will take place.

Conditions for activating and implementation of the Conditions for activating and implementation of the contingency plan should be decided and clearly contingency plan should be decided and clearly documented.documented.

Include the cost estimate and the source of fundingInclude the cost estimate and the source of funding Include the risk response planning and the Include the risk response planning and the

contingency plan results in the Risk register updates.contingency plan results in the Risk register updates.

RISK MONITORING AND RISK MONITORING AND CONTROLCONTROL

This is the process necessary for identifying, analyzing, and This is the process necessary for identifying, analyzing, and planning for newly arising risks, keeping track of the planning for newly arising risks, keeping track of the identified risks, monitoring trigger conditions for identified risks, monitoring trigger conditions for contingency plans.contingency plans.

InputsInputs Risk management planRisk management plan Risk registerRisk register Approved change requestsApproved change requests Work performance informationWork performance information Performance reportsPerformance reports

OutputsOutputs Risk register updatesRisk register updates Requested changesRequested changes Recommend corrective and preventive actions.Recommend corrective and preventive actions. Organizational process assets (updates)Organizational process assets (updates) Project management plan updatesProject management plan updates

RISK MONITORING AND CONTROL RISK MONITORING AND CONTROL TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES

Risk reassessment :Risk reassessment : Identification of new risks Identification of new risks Risk audits :Risk audits : Examine and document the Examine and document the

effectiveness of risk responses and the risk effectiveness of risk responses and the risk management processmanagement process

Variance and trend analysis :Variance and trend analysis : Review trends using Review trends using performance data performance data

Technical performance measurement :Technical performance measurement : Compares Compares technical accomplishments during project technical accomplishments during project execution to the project management plan’s execution to the project management plan’s schedule of technical achievementschedule of technical achievement

Reserve analysis :Reserve analysis : Compares the amount of the Compares the amount of the contingency reserves remaining to the amount of contingency reserves remaining to the amount of risk remaining at any time in the project.risk remaining at any time in the project.

Status Meetings :Status Meetings : Include risk management in the Include risk management in the agenda of periodic status meetings.agenda of periodic status meetings.

CONCLUSIONSCONCLUSIONS

Project Risk Management includes the Project Risk Management includes the processes concerned with conducting risk processes concerned with conducting risk management planning, identification, management planning, identification, analysis, responses, and monitoring and analysis, responses, and monitoring and control on a project.control on a project.

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