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Risk Management. 2 What is Risk? Websters (Risk) – The possibility of suffering harm or loss; danger. The different types of risk Personal risk - How.

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Presentation on theme: "Risk Management. 2 What is Risk? Websters (Risk) – The possibility of suffering harm or loss; danger. The different types of risk Personal risk - How."— Presentation transcript:

1 Risk Management

2 2 What is Risk? Websters (Risk) – The possibility of suffering harm or loss; danger. The different types of risk Personal risk - How will this risk effect the individual i.e. loss of job, health, family life, and their ability to identify and address risk Professional risk – Will people have the courage to identify and response to risk i.e. peer and or management pressure. What is the culture of your team, program, company? Program risk – Is the risk process so narrow that suboptimum program decisions are made to the detriment of business areas or company goals Company risk – Do you think of things short term or long term, do you look at the impact across the business (car versus horse drawn carriage, great for my program but hurts other business areas) Community risk – How do your decisions impact the community around you locally, regionally, nationally, planet earth (Enron, Mortgage crisis) Identification of the different types of risk may make the difference between success and failure for you, the team, the company, or even the nation in some cases

3 3 Consequences of Risk Negative Personal –Loss of job –Lack of Promotion –Pay freezes –Emotionally destructive (fear, anxiety, passive) Company –Loss of business –Lower profits –Lower stock price –Reduced company viability Country (US – Oil no refiners, or alternate sources of energy) –Lack of vision –Short term focus Positive Personal –Increased opportunities –Promotions –Pay increases –Emotionally lifting (initiative, innovative, courage) Company –Increased business –Higher profits –Stock price –Increased market share/new markets Country (Canada – Oil tar sands, Dutch wind) –Vision –Long Term Focus

4 You create a need for it!! If Risk Management is important, how do we sell Risk Management to management?

5 5 Program Performance Assessment Performance Assessment: 9 = excellence in addressing key characteristics 3 = fair performance in addressing key characteristics 1 = poor performance in addressing key characteristics 198 Program Attributes Assessed from Pre-Proposal thru Contract Completion Survey Tool Program Phases: Pre-Proposal Proposal Pricing delegation Contract requirements Technical performance Contract execution Contract change Database Established

6 6 Risk Management Key to Success Risk Management Area 2 Area 3 Area 4 Good program identified risk, assessment performed, integrated into program plan & tracked throughout life of program 2 areas 3 areas 5 areas What Was Done Well on Programs That Performed Well That Was Missing on Programs That Performed Poorly?

7 7 Consistently Do Poorly on Problem Programs Pre-Proposal Risk & requirements understood 4 other areas Proposal Risk mitigation plan in place 3 other areas Delegation 1 other area Risk mitigation plan in place 1 other area Contract Change 4 other areas Contract Execution & Technical Performance 11 other areas Risk analysis & mitigation plan 4 other areas Score of <4, Scale of Perceived as Areas of General ATK Weakness

8 8 Program Management Survey Results PMs that incorporate Risk Management Plan into their program – 78% Regularly use or implement risk management (monthly or less) – 50% PMs that can find examples of previous program plans, risk analyses, schedules, etc.. to help me do my job – 44%

9 9 Program Management Process Rating Q11) Which of the following items have you incorporated into your program(s)? (Check all that apply.) Many key elements of a Design Plan and Program Plan not applied to programs

10 10 Program Management Process Rating Q12) How Regularly do you use or implement these items? (Check all that apply.)

11 11 What is Risk Management? Definition of Risk Management: Risk management is concerned with the outcome of future events, whose exact outcome is unknown, and with how to deal with these uncertainties, i.e., a range of possible outcomes. In general, outcomes are categorized as favorable or unfavorable, and risk management is the art and science of planning, assessing, and handling future events to ensure favorable outcomes. The alternative to risk management is crisis management, a resource-intensive process that is normally constrained by a restricted set of available options. Risk Management Guide for DoD Acquisition, fifth edition, version 2, June 2003

12 12 What is Risk Management? Types of Risk Management: Hardware – Feasible, stable, and well-understood user requirements and threat; –A close relationship with user, industry, and other appropriate participants; – A planned and structured risk management process, integral to the acquisition process; –An acquisition strategy consistent with risk level and risk-handling strategies; –Continual reassessment of program and associated risks; –A defined set of success criteria for all cost, schedule, and performance elements, e.g., – Acquisition Program Baseline (APB) thresholds; –Metrics to monitor effectiveness of risk handling strategies; –Effective Test and Evaluation Program; and –Formal documentation

13 13 What is Risk Management? Types of Risk Management: Software Risk Management – Identify software risk. –Estimate the time and resources required to develop new software, resulting in potential risks in cost and schedule. –Test software completely because of the number of paths that can be followed in the logic of the software. –Develop new programs because of the rapid changes in information technology and an –ever-increasing demand for quality software personnel. People – Needs/Desires – Determine relationships – Relative power/influence –Trust

14 What is the Risk Management Process

15 15 Defenses are Never Perfect Source: James Reason, Managing the Risks of Organizational Accidents, 1997, p. 9 Potential losses (people and assets) But the reality is more like this. Mishap We perceive our ideal system of defenses like this. What we dont Know or dont Believe Can and Will Hurt Us

16 16 People Facilities Materials When Events Line Up, the Consequences Can Be Devastating Adapted from : James Reason, Managing the Risks of Organizational Accidents, 1997, p. 12 Mishap Process Design Product Design Defenses in depth Program Plan Event s A Hole is a Risk – A Weakness In a Plan – Any Plan Requirements (unspoken & spoken)

17 17 Requirements Design Engineering and Process Design Close Holes Voice of Customer (VOC) Requirements Definition Product Design Process Design Design FMEA / FTA Manufacturing Process FMEA Systems Engineering Process Control Peer Review Manufacturing Engineering and Process Design Have High Leverage Product Inspections Only Close Small Holes Defensive Barrier Ham and Swiss on Rye Process = ALL Processes, not just Hardware/Manufacturing To Close a Hole REQUIRES a Change – The Right Change at the Right Time

18 18 Where are the Holes? The Essence of Mission Assurance Eliminate the Holes Shrink the Holes Make sure the Holes dont Line up The Essence of Risk Management Find/Define the Holes So That We Can … Eliminate, Shrink, etc… The Result is Mission Success

19 19 Risk Management Model Plan Manage Risk Manage Incidents Target Condition Manage Risk Plan Incident Management Current Condition

20 20 Risk Management If I know the risks I face, I can make better decisions If I know the risks up front, I can apply my resources in a planned manner rather than just reacting to problems with scarce resources –A Key Role of a Leader is to Apply Resources at the DECISIVE Point and Time to Achieve Victory If I know the risks & appropriately mitigate the risks, I have more confidence that I will achieve Mission Success – I plug the holes in the Swiss Cheese

21 21 What Happened We found many Risk Management Tools We found no inclusive and defined Process – How to Identify the Risks was Missing – All Levels, All People, Simple & Complex We defined the Principles We defined the Process – Based on and consistent with the Principles We designed a simple tool to support the process

22 22 Emerging Risk Management Principles Have a Plan IMP/IMS, Product/Process Design, Material Plan, etc. Actions to Mitigate Risks get Rolled Back into the Plan Understand the Plan/Process Look at each step/item in a methodical fashion Include the Right People Can be Very Difficult, but is Critical to Success Thorough Discussion and Review Risk Management is an Individual Behavior Control Change – Make Changes Proactively There is a Cost for every Mitigation – Plan The Resources Solid Cost/Benefit Decisions are Necessary Planned Use of Resources vs. Ad Hoc Head in the Sand Take Planned Action – Plan And Make Change Plan the work, work the plan Follow up Hold teams and individuals accountable

23 23 Risk Management Process Flow Given a current condition and desired end state Evaluate risks for probability of occurrence and severity of consequence Risk Requires Action? Risk Tracker Perform Actions (Work the Plan) Update Process or Plan Periodic Program Risk Review Identify and Assess Risks to the Plan Communicate the Risks (Reviews, Boards, Change Control, etc.) Risk Identification No Yes Risk –An event that could happen to prevent me from reaching my goal. Condition –The reason this risk makes you uncomfortable. Consequence –The result if the risk event happens. Severity –The measure of the magnitude of the effect of the risk event (consequence) on Cost, Schedule, TechnicalPerformance, AUPC,& Safety. Likelihood –The subjective measure of probability that the risk event will occur. For each step- feature, define 6 Ms, 3 Ws & Success Criteria Brainstorm potential risks for each step- feature with multi- disciplinary team Plan actions to reduce probability, reduce severity, plan contingencies or further understand risk Map/Define the process– ID critical features *** FMEA, PFMEA, FMECA-type methodology *** TheMap/Definestep can use a number of tools such as process flow charts, program plans, Integrated Master Plans, Design Trees, etc, to guide the risk identification effort. Determine root causes of the risk Risk Assessment Risk Handling 10/16/06 voc Risk Levels Likelihood Severity Control Alternatives Identify options Identify resources Assess costs, benefits and impacts Plan actions Impacts Cost Schedule Performance Update the Plan IMP/IMS Design Process Budget EAC Reviews

24 24 8/30/06

25 25 Planning & Resource Allocation Have a Plan, Work the Plan, Follow-up on the Plan –Risk Management is Dependent on having a Plan -The Plan is the IMP/IMS for a Program, the Design for a Product or Process, the BOM for Materials, etc. -The process looks at each step in the plan to Identify Risks –All Risk Handling Actions must be worked back into the Original Plan for application of Resources and Follow-up (IMP/IMS, Design, etc.) Planned Use of Resources is Critical to Effective Management of the Process –Resources are Always Limited so Planning is necessary to Assure that Risk Handling Actions will actually be Implemented –Leaders Allocate Resources – It is Inappropriate to merely bully subordinate and supporting organizations to implement Change without Allocating Sufficient Resources

26 26 The Process is Universal and Necessary Risk Management is universally applicable to and necessary in all parts of our processes. Too often it is only used at the Program level. People Facilities Materials Adapted from : James Reason, Managing the Risks of Organizational Accidents, 1997, p. 12 Mishap Process Design Product Design Defenses in depth Program Plan Event s Requirements (unspoken & spoken)

27 27 Accountability From Bottom to Top Program Manager Executive Management Functional Leadership Teams Individuals ATKCustomer Supporting Organizations BuildersDesigners Functional TeamsIPTs Given a sound process and training, Risk Management is an individual behavior. The process linked with the right behavior = Success. This individual behavior is the foundation of Risk Management. Pull

28 28 View from the Top How Leadership Views, Discusses and Responds to Identified Risks will Determine the Effectiveness of Handling Plans and will Determine Future Willingness to Identify Risks.

29 29 Risk Management Process Focus Risk Management Process –Implement a thorough risk management process –Keep reporting simple –Focus on reducing or eliminating risk through proactive risk management and initiating risk mitigation activities –Minimize the temptation to accept risk

30 30 Risk Management Process & Responsibilities Any Stakeholder TD, RM IPT Leads TD, RM IPT Leads RMB, RM IPT Leads RM, TD IPT Leads RM, TD IPT Leads

31 31 Alliant Techsystems Proprietary Weekly Inputs to Risk Assessment Risk Clarification & Clean up Inclusion into Risk Tracker Risk Management Board RMB Co-chaired by xxx RMB Members: RMB Advisors: RMB Facilitators: Opportunity Data Base DFM/DFAs Requirements Walkthrough Analysis Design, Manufacturing Capability Assessment Program Office (continued) ContractsProduction TransitionFinanceQualityMaterials Program Office Systems Engineering Electrical Mechanical Systems Design Integration Test & Evaluation GN&C / Aero / SW / GPS Lessons Learned Trade Studies

32 32 The Benefits of a robust Risk Management Process How can you make risk work for you It is a common trait of management to award people who put out fires more then they do the people who do things the right way such that you do not have fires. –Unfortunately it is also true that the people who put out fires may have gathered the kindling and lit the match that started the fire in the first place through poor risk management or no risk management Good risk management helps give you visibility for doing the right things –It highlights the risks –It identifies the consequences –It enables healthy discussion on strategies and actions for addressing risk –It enables the individual to get the credit for doing the right things the first time

33 33 The Benefits of a robust Risk Management Process Actual Benefits from following Good Risk Management Practices Schedule –It highlights the critical path –Identifies what is driving the critical path –Gets people talking and addressing the risk –It gives you time to address the risk Money –It gives you a forum to discuss money in a non threatening manner –It provides reasons for making money available –It gives you time to address the risk Reference viewgraph 3

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