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Risk Management Overview Week 2. Review of Project Life Cycle Phases Phase 1: InitiatingDefines and authorizes the project or a project phase Phase 2:

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Presentation on theme: "Risk Management Overview Week 2. Review of Project Life Cycle Phases Phase 1: InitiatingDefines and authorizes the project or a project phase Phase 2:"— Presentation transcript:

1 Risk Management Overview Week 2

2 Review of Project Life Cycle Phases Phase 1: InitiatingDefines and authorizes the project or a project phase Phase 2: PlanningDefines and refines objectives, and plans the course of action required to attain the objectives and scope that the project was undertaken to address Phase 3: ExecutingIntegrates people and other resources to carry out the project management plan for the project Phase 4: Monitoring/ControllingRegularly measures progress to identify variances from the project management plan so that corrective action can be taken when necessary to meet project objectives Phase 5: ClosingFormalizes acceptance of the product, service, or result and brings the project or a project phase to an orderly end PMBOK® p. 41

3 Project Risk “A project risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on at least one of the project’s objectives” – Threat risk – Threat risk has a negative impact on the project’s objective(s). – Opportunity risk – Opportunity risk has a positive impact on the project’s objective(s) such as allowing the project to finish early, with less cost, and with more scope (functionality) than originally planned. PMBOK® p. 238

4 Project Risk Management “Project risk management includes the processes concerned with conducting risk management planning, identification, analysis, responses, and monitoring and control on a project; most of these processes are updated throughout the project. ” PMBOK® p. 237

5 Project Risk Management Objective “The objectives of Project Risk Management are to increase the probability and impact of positive events, and decrease the probability and impact of events adverse to the project.” PMBOK® p. 237

6 Risk Management Areas Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control PMBOK® p. 239

7 Risk Management Areas Risk management planningDecide how to approach, plan, and execute the risk management activities for the project. Standard templates, checklists, etc.. Risk identificationDetermine which risks might affect the project and document their characteristics. Identify at a high-level – about 80% are identified here. Qualitative risk analysisPrioritize risks by evaluating and combining their probability and impacts. Subjective analysis. Quantitative risk analysisAnalyze numerically (expected monetary value) the effect of identified risks on overall project objectives. Objective analysis. Risk response planningDevelop courses of action to reduce threats and increase opportunities to project objectives. Note – this is not the same as risk mitigation. Risk monitoring and controlTrack identified risks, monitor residual risks, identify new risks, execute risk response plans, and evaluate their effectiveness throughout the execution of the project. PMBOK® p. 340

8 Knowledge Areas – Risk Centered Risk IntegrationCommunication Human Resources ProcurementCost Time Quality Scope Adapted from Wideman, 1992

9 Project Life Cycle and Risk Management InitiatingPlanning Executing/ Controlling Closing Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitor/Control Iterate risk identification, analysis and response planning Risk lessons learned When is risk management performed?

10 Stakeholders “individuals and organizations that are actively involved in the project, or whose interests may be affected as a result of project execution or project completion. They may also exert influence over the project’s objectives and outcomes” PMBOK® p. 24

11 Risk Stakeholders Project managerThe person responsible for managing the project. Ultimately responsible for the risk management process. Participates in risk management activities throughout the project. Project sponsorPerson, or group, that provides financial resources for the project. Sets the risk threshold and tolerance for the project. Signs off on the risk management plan. Project team membersThe group performing the work on the project. Participates in all risk management activities throughout the project. CustomersPerson or organization that will use the project’s product. OthersPeople or groups not directly related to the project’s product, but can influence, positively or negatively, the course of the project. PMBOK® p. 26

12 Risk Tolerance Propensity (individual or organization) to operate in an uncertain environment. Risk… – Seeker – embraces risk to realize gains – Tolerant – tolerates risk to ensure success – Averse – avoids risk to avoid failure a html

13 Risk tolerance may change throughout the project depending on problems, crises, regulatory changes, and changes in stakeholders.

14 Which trait(s) describe your style?  Taking risks makes good sense only in the absence of acceptable alternatives.  I generally prefer stimulation over security  I have confidence in my ability to recover from my mistakes, no matter how big.  I believe opportunity generally knocks only once.  It is better to ask for permission than to beg for forgiveness.  Success in management is as much as a matter of luck as ability.  I can handle big losses and disappointment with little difficulty  Given a choice, I would choose a $3,000 annual raise over a $10,000 bonus that I have a one-in-three chance of winning.  I am willing to try anything once.  I seek adventure.  I stick to the rules.

15 Risk Tolerance Game Successful project management is spotting the projects that will succeed and shouting "mine" and for the rest ducking and shouting "yours". uk.freeserve.co.uk/page2.htm

16 The Cost of Uncertainty Uncertainty decreases as the project progresses The cost (amount at stake) of making changes (to address risks) increases as the project progresses Addressing risks later in the project is more expensive than earlier action Goal is to reduce uncertainty early in the project by effective risk management

17 Risk Management Should be Adapted Based on Project size, importance, and complexity Risk tolerance (organizational and stakeholders) Organizational policies and culture External regulatory environment There is no “one size fits all” in project risk management

18 Risk Management Implementation Resistance to risk management – Some companies want to avoid talking about risks – Tendency to deal with risks when they occur – Fear that talking about a risk will make it happen Requires commitment, discipline and participation Many companies stop after identifying and qualifying risks instead of integrating all risk processes into the entire project life cycle.

19 Risk Management Excuses A lack of planning by you does not constitute an emergency for me. uk.freeserve.co.uk/page2.htm

20 Risk Management Planning Planning without action is futile, action without planning is fatal. uk.freeserve.co.uk/page1.htm

21 Risk Management Processes Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning Risk Monitoring and Control PMBOK® p. 239

22 “Risk Management Planning is the process of deciding how to approach and conduct the risk management activities for a project” The risk management plan is a subset of your overall project plan and should be completed early during project planning PMBOK® p. 242

23 Risk Management Planning Inputs Organization assets (policies, lessons learned, etc..) Stakeholder risk tolerance Project Charter Project Scope Risk Management Plan template Tools/ Techniqu es Risk Planning Meetings Outputs Risk Management Plan Updates to project management plan PMBOK® p. 242

24 Risk Management Planning Set overall goals and objectives Determine tolerance level Decide how much money, time, and other resources will need to be allocated for risk management activities Establish templates, checklists, and other tools to be used in risk management for your project Create probably and impact scales Establish importance of risk management Decide basis for evaluating project risk PMBOK® p

25 Risk Planning Inputs Project Management Plan – Project Charter – Project Scope Stakeholder risk tolerance – Used as an input for defining impact scales – Determines formality of your risk plan and processes – Factored in to developing risk responses – May differ from project manager and/or team risk tolerance Risk management plan template

26 What do you do if.. Your customer is not a risk taker, but you (the project manager) believes some risk will always be present and needs to be managed? You (the project manager) thinks the customer is wanting to take too many risks?

27 Risk Management Planning Outputs Risk management plan – Probably and impact scales Changes/updates to the project management plan

28 Define Probability and Impact Define significant ranges for probability scores Define impact definitions for each of the 4 competing demands – Scope, time, cost, quality Base these definitions on: – Historical data – Expert judgment – Risk tolerance – Organizational culture/policies

29 Probability Score Example Probably of Risk Range of ProbabilityProbability Score 81% - 99%5 61% - 80%4 41% - 60%3 21% - 40%2 1% - 20%1 (red) (yellow) (green)

30 Scope Impact Example Impact of Risk on Scope Objective Description of Potential Scope ImpactImpact Scope reduction renders deliverable useless 5 More than 20% of major functionality is affected 4 Major areas of the scope are affected 3 No more than 15% of the scope is affected (minor areas of functionality only) 2 Minor functionality affected 1 (red) (yellow) (green)

31 Time Impact Example Impact of Risk on Time Objective Description of Potential Time ImpactImpact > 20% schedule delay 5 11 – 20% schedule delay 4 6 – 10% schedule delay 3 1 – 5% schedule delay 2 Delays are insignificant (less than 1% schedule delay) 1 (red) (yellow) (green)

32 Cost Impact Example Impact of Risk on Cost Objective Description of Potential Cost ImpactImpact > 25% cost increase 5 16 – 25% cost increase 4 6 – 15% cost increase 3 1 – 5% cost increase 2 Cost increase is insignificant (less than 1% increase) 1 (red) (yellow) (green)

33 Cost Impact Example Impact of Risk on Cost Objective Description of Potential Cost ImpactImpact > 25% cost increase 5 16 – 25% cost increase 4 6 – 15% cost increase 3 1 – 5% cost increase 2 Cost increase is insignificant (less than 1% increase) 1 (red) (yellow) (green)

34 Quality Impact Example Impact of Risk on Quality Objective Description of Potential Quality ImpactImpact Project deliverable is rendered unusable 5 Quality reduction affects major functionality, less than 90% functionality meets quality standards 4 Quality reduction affects major functionality – require customer approval 3 Major functionality not affected, 90 – 96% functionality meets quality standards 2 Major functionality is not affected, at least 97% functionality meets quality standards 1 (red) (yellow) (green)

35 Create Probability and Impact Scales Some things that don't count are counted, many things that count aren't counted. uk.freeserve.co.uk/page1.htm

36 Tailor Risk Management to Your Project Do we need a risk management officer? Do we advisors or risk experts from outside the project? Do we need a formal quantitative risk assessment? How often do we need formal risk meetings? Risk management processes are determined by the size, complexity, and organizational impact of the project.

37 The Risk Management Plan (RMP) The RMP does not address individual risks The RMP does address the processes for how risks will be identified, analyzed, responded to, and monitored throughout the project life cycle. Include risk management activities in the project WBS, schedule, and budget. Establish risk objectives for the team. Risk communication plan. How frequently will risks be addressed.

38 Create a Risk Management Plan People make a plan work, a plan alone seldom makes people work (Confucius).

39 Project Charter Example Table 5-2 Schwalbe, 2007 p. 185

40 Project Charter Example Schwalbe, 2006 pp

41 Project Charter Example Schwalbe, 2006 pp

42 Project Scope Statement Schwalbe, 2007 p. 187

43 Sample Scope Management Plan Example Schwalbe, 2007 p.184

44 Work Breakdown Structure (WBS) Example Schwalbe, 2006 p. 185

45 Work Breakdown Structure (WBS) Example Schwalbe, 2006 p. 176

46 Work Breakdown Structure (WBS) Example – Tabular Format 1.0 Concept 1.1 Evaluate current systems 1.2 Define Requirements Define user requirements Define content requirements Define system requirements Define server owner requirements 1.3 Define specific functionality 1.4 Define risks and risk management approach 1.5 Develop project plan 1.6 Brief Web development team 2.0 Web Site Design 3.0 Web Site Development 4.0 Roll Out 5.0 Support Schwalbe, 2006 p. 177

47 Project Schedule Example – Gantt Chart Schwalbe, 2006 p. 179

48 Project Cost Budget Estimates Example Schwalbe, 2006 presentation slide

49 Return on Investment Example Schwalbe, 2006 p. 126

50 Stakeholder Analysis Example Schwalbe, 2006

51 Stakeholder Analysis Example Schwalbe, 2006

52 References Information Technology Project Management, Fourth Edition (2006) and Fifth Edition (2007) by Kathy Schwalbe Risk Management Handbook, Project Management Institute, Newtown Square, PA, 1992, by R.M. WidemanProject Management Institute Management Concepts


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