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Risk Management

Int roduct ion


Import ant t o know

Start and finish time Emergency exit rules Participants expectations Ground rules

3
General Rules
● No more than 2 unexcused absence
● Active participation
● No mobile phones
● Respect each other
● Team work

4
Course Object ives
● Define general concepts of risk management
● Risk management in Projects
● Deliver main information about the risk management processes
● Understand risk analysis processes
● Acquire the essential knowledge about why risk management is important

5
Agenda
● Project Risk and Risk Management
● Definitions in Risk Management
● Role of Project Manager in Risk Management
● Plan Risk Management
● Identify Risks
● Perform Qualitative Risk Analysis
● Perform Quantitative Risk Analysis
● Plan Risk Responses
● Monitor & Control Risks
● Benefits of Risk Management

6
Definit ion of Risk Management
Group Discussion

● You are ALWAYS at risk!


Project Risk
Project Risk (also called Individual Risk)…
● is an uncertain event or condition that, if it occurs, has a positive or negative effect on a
project’s objective. (Project Management Institute, PMBOK 5th edition)

Overall Project Risk…


● is the effect of uncertainty on the project as a whole, arising from all sources of uncertainty
including individual risks, representing the exposure of stakeholders to the implications of
variations in project outcome, both positive and negative.
Risk Management
● Risk management involves minimizing the consequences of adverse events as well as
maximizing the results of positive events.

● Risk Management is a part of the project management processes, and consistently following
that process is important for getting the desired results. It allows you to take control of the
project, rather than letting the project control you.
Risk Fact ors

Probabilit y Impact or Amount at St ake Expect ed Timing Ant icipat ed Frequency


(likelihood of t he risk (impact on t he project if it (when it may occur in (how oft en risk event
occurring) occurs) t he project life cycle) may occur)
Risks

Threat

Opportunity

A risk that has a positive impact on a project A risk that has a negative impact on a project is
is known as an opportunity. known as a threat.

Types of Risks Business risks- Normal risks of doing
business that carry the potential of
both gains and losses
● Pure, or insurable, risks- Risks that
present potential for loss only
Know n Unknow ns vs. Unknow n Unknow ns
Known Unknowns Unknown Unknowns

• Cannot predict beforehand


• Identified beforehand
• Out of the scope of project
• In the scope of project
• Consume management reserves
• Consume contingency reserves
in the project budget
in the project budget
• Have no contingency plan in
• Have contingency plan in place to
place, and usually workarounds
deal with, if the risk happens
implemented to deal with the risk
W hat happened t o Nokia?????
Hmm… No Nokia, don’t cry 
● They have not considered the impact of innovations
and market development
● Refused to use of Android when it was firstly offered
● Preferred to go with Symbian
Risk At t it ude
The Risk attitude of an organization or a stakeholder depends on three factors:
• Risk Appet it e – a general, high-level description of the acceptable level of risk
• Risk Tolerance – the degree, amount , or volume of risk that an organization or individual will accept
• Risk Threshold – the specific point at which risk becomes unaccept able
Types of Risk At t it udes
● Risk Averse
● Risk Neutral
● Risk Seeker
Different W ork At t it udes…

?
Japanese at t it ude
● "If one can do it, I can do it.

● If no one can do it, I must do it."


Arabic at t it ude

● "Wallahi if one can do it, let him do it.

● If no one can do it, ya-habibi how can I do it ?"


Local risk percept ion…

Murphy’s Law-
No problem – 100 percent done –
olacağa çarə yoxdu,
Problem yoxdu İnşallah
qismət

It has never
happened, will not More urgent – yanır,
Urgent – tez-bazar
happen – camaatda yanan məsələdi
necə, bizdə də elə
Confusing Risk Terminologies

Risk Rating – 1 to 10
Risk Rating

Risk Score – P x I

Risk Score for the Risk Score


Project – add up scores
Risk Ranking – sort risk
scores from H to L Risk Ranking
Risk Ranking compared
to other projects
Confusing Risk Terminologies cont inued…
Inherent Risk

Contingency Fallback
Secondary Risk
Plan Plan

Risks Residual Risk

Workaround
Emergent Risk

Unknown Risk
Confusing Risk Terminologies cont inued…

vs.

Risk Issue

vs.

Risk Owner Risk Action Owner


Role of Project Manager in Risk Management
● Project Manager’s work should not focus on dealing with problems; it should focus on
preventing them
● To manage risk within their projects in a systematic manner
● To communicate identified risks and risk response strategies with project stakeholders
● To be able to forecast potential project risks
● To manage contingency reserves
● To set a plan to deal with the occurred risks
● To assign risk owners and risk action owners
Challenger Space
Shut t le Launch
● January 1986
● The shuttle was immediately exploded
● The reason:
- Bad weather conditions
- Mechanical issues
Plan
The Risk
Management
Processes Control Identify

The Risk Management process is a


systematic and proactive approach to
taking control of projects by
understanding or decreasing uncertainties
(unknowns).

Respond Analyze
Plan Risk Management
Risk Management Planning
Plan Risk Management —
● Defines how to conduct Risk Management Activities
● Defines and establishes the strategy on how to IDENTIFY, ANALYZE, RESPOND AND MONITOR,
TRACK and CONTROL risks
● Integrate Risk Management with other Project Management activities
Benefit s of Risk Management Planning
● Ensure that the degree, type & visibility of risks are appropriate.
● Obtain agreement & support from stakeholders.
● Risk management process is supported & performed effectively.
Key Areas t o Focus
Tools and Techniques used t o plan
Risk Management
1. Stakeholder risk profile analysis: grade & qualify stakeholder’s risk
Analytical appetite & tolerance.
Techniques 2. Strategic risk scoring sheet: high-level assessment of the risk exposure of
the project.

Expertise from Senior Management, Project Stakeholders,


Expert
Project managers, SMEs, Industry groups & consultants,
Judgement
Professional & Technical Associations

Establish: 1. Risk Management cost & schedule activities; 2.


Meetings Contingency reserve approach; 3. Responsibilities assigned;
4. Templates; 5. Definitions
Result – Risk Management Plan
RISK MANAGEMENT PLAN CONTENT:
● Introduction
● Project Description
● Methodology
● Risk Management Organization
● Roles, responsibility & authority
● Risk Tolerance
● Criteria for success
● Risk Management tools
● Thresholds and their definitions
● Templates
● Communication Plan
● Strategy
● Risk Breakdown Structure
Ident ify Risks
Risk Ident ificat ion Object ive
● It is the process of determining which risk may affect the project & document their characteristics.
● Participants in Identification of risks include:
○ Project Manager
○ Team Member
○ Risk Management Team
○ Customer, SMEs and End Users
○ Project Manager from other projects
○ Stakeholders
○ Risk Management Experts
● It is iterative process, and should be done throughout the project lifecycle.
● Frequency of risk identification varies
Benefit s of Risk Ident ificat ion
● Documentation of existing risks.
● Knowledge and ability it provides team to anticipate events.
Document s needed for Ident ifying Risks
● Risk Management Plan
● Cost Management Plan
● Schedule Management Plan
● Quality Management Plan
● HR Management Plan
● Scope Baseline
● Activity Cost & Duration estimates
● Procurement documents
● Stakeholder Register
● Enterprise Environmental Factors
● Organizational Process Assets
Tools and Techniques t o Ident ify Risks
Checklists,
Assumption
questionnaires Expert judgement Delphi Technique Brainstorming
Analysis
and templates

PROMPT Lists Cause and Effect


Force Field Nominal Group Diagram (also
(PESTLE, TECOP, SWOT analysis
Analysis Technique called Fishbone
SPECTRUM) or Ishikawa)

FMEA / Fault Tree Review Historical


Interviews Affinity Diagram
Analysis Data
Fishbone / Ishikaw a Diagram
Affinit y Diagram
PROMPT List s
SW OT Analysis
INTERNAL EXTERNAL

Strengths Weaknesses Opportunities Threats

What are the What are the What opportunities What threats could
strengths of the weaknesses of the might the project endanger the project?
organization? organization? present?
Risk Met a-Language
● Risk Meta-language is a structured definition of risk which separates cause, risk and effect.
● Example: Because of <cause>, <risk> might occur, which would lead <effect >
● Let's use “Costumer’s Competition” both Cause, Risk and Effect

Cause Risk Effect

Customer’s Competition Customer’s Competition Customer’s Competition


Risk Met a-Language – Example

Cause Risk Effect

Customer’s Competition

Cause Risk Effect

The customer’s which could cause new use which could result in
competition on this project of existing technology that depletion of resource time
is more scientifically we have little experience to create a change order
advanced than the with to be requested by the and learn the skills
customer customer
Risk Met a-Language – Example

Cause Risk Effect

Customer’s Competition

Cause Risk Effect

We are being asked by our which means the causing the loss of about
customer to come up with customer’s competition 50% of the work at the time
a unique product that will may retaliate with a new this occurs and extensive
create a totally new product of its own before redesign and additional
market. Unfortunately, the we finish this one cost
customer has competitors
that are cash rich
Risk Met a-Language – Example

Cause Risk Effect

Customer’s Competition

Cause Risk Effect

This project is so unique which may cause everyone leading to the customer’s
that we might be asked to to learn about the project competition announcing a
write about it in trade new product of its own,
magazines creating a risk that we
need to add scope to the
existing project
Result – Risk Regist er
Risk regist er (2)
Qualit at ive Risk Analysis
Qualit at ive Risk Analysis Object ives
● Process of prioritizing risks for further analysis or action, by assessing & combining their
probability and impacts
● Assesses priority of identified risks using:
○ Their relative probability & impact
○ Timeframe for response
○ Risk Tolerance
● Reflects the risk attitude of stakeholders.
● Bias should be identified and corrected during this process.
● It is a rapid & cost effective to establish priority for Risk Response Planning and Quantitative
Analysis.
Benefit s of Qualit at ive Risk Analysis
● Enables Project manager to reduce level of uncertainty & to focus on high priority risks.
● Categorize sources of risks.
● Identifying common effects allows identification of areas having greatest risk exposure.
Document s needed for Qualit at ively Analyzing
t he Risks
● Risk Management Plan
● Scope baseline
● Risk Register
● Enterprise environmental factors
● Organizational process assets
Tools and Techniques t o Qualit at ively Analyze
t he Risks

Risk
Risk data
Probability and Probability and Risk Risk Urgency
quality
Impact Impact Matrix Categorization Assessment
assessment
Assessment

Analytic
Expert Estimating Past Project
Hierarchy
Judgement Techniques Information
Process
Probabilit y and Impact Mat rix
● Qualitative risk analysis
is subjective, and the
results may be biased.
Risk Cat egorizat ion based on Risk Breakdow n
St ruct ure [RBS]
Result – Qualit at ive Risk Analysis
● Risk Register Updates:
○ Assessments for each risk
○ Risk ranking
○ Risk urgency
○ Risk categorization
○ Watch list for low priority risks
Quant it at ive Risk Analysis
Quant it at ive Risk Analysis Object ives
● Numerically analyze the effect of identified risks on the overall project objective.
● Evaluate the aggregate effect of all risks.
● Might not be feasible due to lack of sufficient data.
● Might not conducted because of small size of project
Benefit s of Quanit at ive Risk Analysis
● Provides quantitative risk information to support decision making in order to reduce uncertainty.
Document s needed for Quanit at ively Analyzing
t he Risks
● Risk Management Plan
● Schedule Management Plan
● Risk Register
● Enterprise environmental factors
● Organizational process assets
Tools and Techniques t o Quant it at ively
Analyze t he Risks

Decision
Probability Sensitivity EMV
Interviewing Tree
Distributions Analysis Analysis
Analysis

FMEA / Fault
Monte Carlo Expert Historical
Tree
Analysis Judgement Information
Analysis
Int erview ing
● Interviewing relevant stakeholders helps determine the three-point estimates (Pessimist, Most
Likely, Optimist) for each WBS element for triangular, beta or other distributions.

Weighted Three-Point
= (O+4M+P) / 6 = (O+M+P) / 3
Average Estimates
Mont e Carlo Analysis
● Monte Carlo Simulation is used when there are continuous probability distribution iterations
performed to calculate the possible impact on project objectives. It translates uncertainties into
impacts to the total project.

OUTPUTS

The probability of completing the


The probability of any activity
project on any specific day and for
actually being on the critical path
any specific amount of cost
Example – Mont e Carlo Analysis
Expect ed Monet ary Value (EMV)
● The concept of expected monetary value is used to determine what the overall probable
circumstance will be as a result of the events. EMV is the probability weighted average of all
possible outcomes and is calculated as Probability times Impact.

EM V= P x I

● It helps determine which risks need the most attention and should therefore be moved into the
Plan Risk Responses Process.
QUANTITATIVE RISK ANALYSIS FORM

Example
● Chart shows that activities B
and C have the most cost risk on
the project, so these activities
will move into the Plan Risk
Responses Process.
● The ones in the brackets are
opportunities (as they are
benefits or savings, they are
subtracted from EMV).
Decision Tree
A decision t ree—
● Is an appropriate method for making decisions when future events are not certain, using the probability
and impact of all risks, and combining their effect to derive an overall project measure such as value or
cost:
○ It takes into account future events
○ It calculates the expected monetary value
○ It involves mutual exclusively
Example – Decision Tree w it h Probabilit y
Example – Decision Tree w it h EMV
Exercise

● You need to fly from one city to


another. You can take airline A or B.
Considering the data provided,
which airline would you take and
what is the expected monetary value
of your decision.
Solut ion
Document ing t he Analysis: Risk Regist er Tool
w it h Complet e Analysis (Sample)
Result – Quant it at ive Risk Analysis
● Risk Register Updates:
○ probabilistic analysis of the project
○ probability of achieving time & cost objectives
○ prioritized list of quantified risks
○ trends in quantitative risk analysis results
● Project Documents Updates:
○ amount of contingency time & cost reserves needed
○ possible realistic completion dates and project costs
○ quantified probability of meeting project objectives
Difference bet w een Qualit at ive and
Quant it at ive Risk Analysis
Qualit at ive Risk Analysis Quant it at ive Risk Analysis
● Addresses individual risks ● Predicts outcome based on combined effect
● Assesses probability of occurrence & impact of risks
on objectives ● Uses Probability Distribution to characterize
● Prioritizes individual risks the P&I of risks
● Adds to risk register vs. ● Uses quantitative method and specialized
● Followed by Quantitative Risk Analysis tools and software
● Estimates likelihood of meeting targets and
contingency needed
● Identifies risk that have the highest effect on
overall project risk
Risk Response
Plan Risk Responses
● It is the process of developing options and actions to enhance opportunities and reduce threats.
● Identification of a risk owner happens in this process.
● Risk Response should be:
○ appropriate for the significance of the risk
○ cost effective
○ realistic
○ agreed-upon
○ owned
Benefit s of Qualit at ive Risk Analysis
● It addresses the risk by priority.
● Allocates resources and activities into the schedule, budget and the project management plan.
Document s needed for Risk Response Planning
● Risk Management Plan
● Risk Register
● Historical Records
Tools and Techniques t o Plan Risk Responses

Contingent Contingency
Strategy for Strategies for Contingency
Response Brainstorming Checklist Reserve
Threats Opportunities Planning
Strategies Analysis

Industry
Critical Chain EMV / Decision Delphi Force Field Nominal Group
Knowledge Interviews
Method Tree Technique Analysis Technique
base

Root Case Scenario Historical Expert


PROMPT Lists
Analysis Analysis Information Judgement
St rat egies for Threat s
● Avoid – aims to eliminate the threat and reduce the probability to zero, or the impact, or both
● Mitigate – reduces the probability or impact of the threat
● Transfer – transfers the risk to the third party, along with the ownership of response
● Accept – deals with the threat if it occurs – but take no proactive steps

Risk Definition Strategy


The vendor may not be able to deliver AVOID - Don’t use the vendor. Build it in-
house
Team members may quit the company MITIGATE - Offer incentives so that chances
of them quitting is reduced
Materials may get damaged during TRANSFER - Purchase insurance for the
transit materials
Example
Avoid- Cancel the trip Mitigate- Use Shark Baits

Adventurous trip to go to swim with


the sharks and take exotic photos.
Deadly shark attack has been
identified as the main threat for this
trip

Transfer- Hire Accept Actively- To take a spare Gun


Professional Accept passively- To do Nothing
St rat egies for Opport unit ies
● Exploit – ensures that the opportunity is realized and makes the likelihood of the event = 100%
● Enhance – increases the likelihood and the positive impact of the opportunity
● Share – allocates ownership to a 3rd party who is able to provide benefit to the project
● Accept – deals with the opportunity if it occurs – but take no proactive steps

Risk Definition Strategy


John is the best person for this task EXPLOIT - Adjust the schedule so that John
is made available to work on this task
Client will offer bonus if we complete 1 week ENHANCE - Add additional resources to the
earlier project thereby increasing our chances of
finishing early
We can deliver required number of material if PARTNERSHIP – collaborate with Company
we involve Company X into production X to deliver the required number of material
Example
Customer offered to pay Exploit - Allocate Enhance- Train
$ 20 000 bonus if the senior programmer our programmers
program coding is
completed two months
earlier than planned

Share- Contract Accept - Doing


the program coding Nothing
Management reserves
● A separately planned quantity of money or time intended to reduce the impact of missed cost,
schedule, or performance objectives that are impossible to plan for; “unknown unknowns”
● Budgets reserved for unplanned changes to project scope and cost
Cont ingency reserves
● Quantity of money or time that is intended to reduce the impact of missed cost, schedule, or
performance objectives, which can only be partly planned; “known unknowns”
● Allowances for unplanned but potentially required changes that can result from realized risks
identified in the risk register
Result – Risk Response Planning
● Project Management Plan Updates
● Project Documents Updates:
○ Assumption log update
○ Technical Documentation update
○ Change Request
● Risk Register Updates:
○ Risk Owner & responsibilities
○ Agreed upon response strategies
○ Specific actions
○ Trigger conditions, symptoms and warning signs
○ Budget & schedule activities
○ Contingency Plans and triggers
○ Fallback plans
○ Residual Risks
○ Secondary Risks
○ Contingency Reserves
Monit or & Cont rol Risks
Monit or & Cont rol Risks
● Objective of M&C Risks is –
○ Implementing risk response plans
○ Monitoring residual risks
○ Identifying new risks
○ Evaluating risk process effectiveness
Benefit s of Monit or & Cont rol Risks
● Improves efficiency of the risk
● Continuously optimize risk responses
Tools and Techniques t o M&C Risks

Technical
Risk Variance &
Risk Audit Performance
Reassessment Trend Analysis
Measurement

Reserve Critical Chain


Meetings
Analysis Method
Reserve Analysis
A Risk Reserve Report – keeps a running balance of the remaining reserve and helps the project
manager control the reserve.

Reserve used Used Used Contingency Management


for Contingency Management Balance Balance
Reserve Reserve
A $ 2000 $19 600 $5 000

B $ 8000 $11 600 $5 000

C $600 $11 600 $4 400


Result – M&C Risks
● Work Performance Information
● Change Requests
● Project Management Plan Updates
● Risk Register Updates
○ Outcomes of Risk reassessment, audits and reviews
○ Actual outcomes of risk & risk responses
● Organizational Process Assets
○ Templates for Risk Management Plan, Risk Register
○ Risk Breakdown Structure
○ Lesson Learned
Communicat ion in Risk Management
Risk Communicat ion examples

Disasters
• A government agency calculates the risk of an earthquake based
on the frequency of historical earthquakes in a region.
• They regularly communicate the risks to the public in a variety of
media in order to encourage preparation such as earthquake
resistant construction.
Kyushu Island in Japan
● The most dangerous Place
● 90% of all earthquakes in in the world happen here
● People living in that Island doesn’t think about
leaving it
● Are always ready for the disaster risks
Risk Communicat ion examples

Environment
• A city warns of forecast poor air quality and communicates
restrictions put in place to mitigate the situation.
China Environment al Pollut ion
● Industrialization
● Soil Contamination
● Waste
● Electronic Waste
● Water / Air Pollution

MITIGATION!!! ACTION PLAN!!!


China has implemented drastic and often costly and
controversial measures to curb air pollution in
recent years, like shutting down coal-fired power
stations in Beijing.
Risk Communicat ion examples

Safety
• A construction company conducts mandatory annual safety
training for all employees that includes a breakdown of the most
common safety risks related to different types of construction
sites.
• Training is aimed at creating awareness of common risks and
communicates actions that can be taken to reduce risk
Met hods of Communicat ing Risks
● Risks can be communicated to stakeholders using the following methods:
○ Project Management Plan
○ Project Monthly Reports
○ Activity Status Reports
○ Bar Charts
○ Risk Register
○ Activity Estimating Form
Benefit s of Risk Management
● It allows you to spot the areas in trouble and need attention
● There are fewer surprises – early awareness of potential problems
● Better decision making by management
● Less guesswork
● Less surprises
● Aware and focused team
● Fewer cost and assigned budget for managing risks
● Much higher expectation of success
So, w hat is a risk? 
Recommendat ion

Always be proactive, not reactive!


Thanks!

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