Risk Management for Project Managers Gini Van Siclen
Objectives Understand concept of risk Understand the risk management process Show how the risk management process fits into project management Keep material consistent with the Project Management Institute Body of Knowledge (PMBOK)
What Is Risk Management? The systematic process of Identifying Analyzing, and Responding to project risk
What Is Project Risk? An uncertain event or condition that, if it occurs, has a POSITIVE or NEGATIVE effect on a project objective.
Components of Risk Event –Something happens Impact –It can be good (opportunity) or bad (threat) Probability –We don’t know if the event will happen.
Why Bother With Risk Management? Minimize crisis management! Increase probability of success Increase profit Prevent or minimize problems Increase profitability Reduce stress!
Who Does What? Project Manager: Make risk management happen! Integrate with project! Team: Learn and follow process Identify, analyze and respond to risk Report status on process
THIS IS IMPORTANT!!!!! Risk Management is NOT a substitute for good planning!!!! Risk Management is a Life Cycle activity! The sooner you start, the better.
More About Risk: Its Characteristics It depends on The situation The magnitude of the loss or gain interdependencies Timing Values
Type of Risks Business (chance for loss or gain) Pure (insurable) Known (identified) Unknown (not identified!)
Risk Management Process Plan for risk management Identify risks Analyze risks (qualify or quantify, then prioritize) Develop plan of action Execute plan Evaluate Document Keep going!
Identifying the Risks is Essential! If you don’t identify them you can’t do anything about them! You need your team to do this! They know things you don’t! Use whatever project info you have to identify risks (WBS, contract, supplier management plan, staffing plan, schedule, cost estimates, etc.!!!)
Risk Identification and Grammar A risk statement is actually a scope statement--be very clear and precise! Example: which do you prefer: “test failures” or “Failures may occur during the final test causing an impact on schedule” Use complete sentences, and state the event and the area of impact.
Techniques for Identifying Risks Nominal Group Technique Crawford Slip Expert Interview Delphi Technique Analogy Checklists or templates Brainstorming
Organizing All This New Information Use the Affinity Diagram! Organizes a large set of information in a very short time Group technique, mostly silent! It’s amazing!
What Next? We’ve identified all these risks, now what? Time to decide which ones require further attention: we have to: Analyze and Prioritize the risks.
Analysis Techniques Narrative (describe the probability and impact the best you can) Qualitative (high, medium low) Quantitative (expected value, life cycle costing, simulation, profitability measures, decision trees, etc.)
Best Practice Identify the best case Identify the worst case You have to know how bad it can really get to decide whether to continue with the project!
Triple Constraint Cost Schedule Quality These are all the areas that can be affected by risk!
Schedule Impacts Resources, duration expansions, other delays Interdependencies in the network JanFebMarAprMayJunJulySepOctNovDec Phae 1 Phase 2 Phase 3
Risk Analysis Tools Expert judgment Financial measures Expected value Decision trees PERT Monte Carlo simulations Qualitative Analysis techniques
Prioritizing Risks Filter--important questions Risk Assessment Models--go/no go decisions early on Pairwise comparisons (comparative risk ranking) Expected value Qualitative analysis
NOTE!!!! Prioritizing requires teamwork! Engineering, manufacturing, design, services, quality, etc.--all these people need to be talking to each other!
What’s Next? We’ve identified, analyzed and prioritized. Now what? Plan your response!
Response Strategies for Threats Accept Avoid Mitigate (reduce probability or impact) Transfer (insurance, subcontract, etc.)
Response Strategies for Opportunities Pursue Ignore Enhance
Because Stuff Happens…. Possible response strategies have to be reviewed by team members. The law of unintended consequences is always at work! Compare planned response strategies to those for other risks and to the triple constraint.
Reserves Reserves: provision in the project plan to set aside $ or other resources to mitigate cost and/or schedule impact Management reserves: a separately planned quantity used to allow for future situations that are impossible to predict, “unknown unknowns” Contingency reserves: the amount of money or time needed above the estimate to reduce the risk of overruns of project objectives to a level that is acceptable to the organization. These are PMI definitions.
Putting It All Together Execute the risk management plan Evaluate how the strategies are working; have things changed? Document results
Risk Response Some strategies will result in work to be added to the project plan as preventive measures Some strategies will be implemented only if certain other events (triggers, early warnings) happen
Early Warnings or Triggers Changes in project (customer, scope, requirements, stakeholder attitude, organization, etc.) Team morale Project variances Defined events resulting from team analysis
Do Some Project Management Risk management adds work to your project! Update the WBS, project plan, staffing plans, schedule, cost estimates, etc. Assign resources! (if you don’t assign someone it won’t get done!) Bring top ten risks to regular status meetings
Evaluating Risk Response Strategies Is the strategy working as we thought? Is impact acceptable? Is probability acceptable? Have tolerances changed? Has the risk gone away? Has the probability changed? Has the impact changed?
When Should We Reassess? Anytime there’s a major change (customer, organizational, requirements, staff, etc.) At project change of phase, major milestone achievement Anytime you perceive necessary
Why Documentation? Provides support for getting resources! Provides lessons learned for future projects! Facilitates communication within team and externally! To support change control! Can save your bacon! It’s the professional thing to do!
If You Don’t Do Risk Management … You’re right back where you started!