1. Project Risk Planning Chapter 10 Contemporary Project Management Kloppenborg © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2. ChapterVignette ChapterVignette Texas Medical Center TMC is composed of 49 not-for-profit institutions dedicated to the highest standards of patient care, research, and education. Currently 11 major construction projects are underway. TMC forms the seventh largest downtown business district in the United States. Contractors must have a plan in place detailing how they are going to secure their construction sites in the event of a hurricane.

3. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. At the end of this chapter… Describe risk management planning, risk identification, risk analysis, and risk response planning. Identify and classify risks for a project. Populate a risk register. Describe various risk assessment techniques and tell when each is appropriate to use. Prioritize each risk on a project using an appropriate assessment technique. Develop and defend at least one strategy for each of the high priority risks on a project. Compare and contrast the various strategies for dealing with risks.

4. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The purpose of risk management is to reduce the overall project risk to a level that is acceptable to the project sponsor and other stakeholders.

5. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Plan Risk Management First understand the project’s objectives Realize what project success is Project success measures include: Plan risk management – “the process of defining how to conduct risk management activities for a project.” PMBOK® Guide

6. Plan Risk Management Planning requires an understanding of project success Project success measures include: Meeting Agreements Cost, schedule, and specifications met Customer’s Success Needs met, deliverables used, customer satisfied Performing Organization’s Success Market share, new products, new technology Project Team’s Success Loyalty, development, satisfaction Meeting Agreements Cost, schedule, and specifications met Customer’s Success Needs met, deliverables used, customer satisfied Performing Organization’s Success Market share, new products, new technology Project Team’s Success Loyalty, development, satisfaction

7. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Plan Risk Management Did the project help the performing organization? Performing organization – “the enterprise whose personnel are most directly involved in doing the work of the project.” PMBOK® Guide

8. Specific Project Stakeholder Priorities

9. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Risk Management Planning and Stakeholder Priorities Understand what the project plan calls for Understand in what area would the most important stakeholders like to improve Understand where stakeholders are willing to sacrifice to enable improvements

10. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Understanding the Project Risk A risk is anything that may impact the project team’s ability to achieve the general project success measures and the specific project stakeholder priorities. A negative impact poses a threat threat – “a condition or situation unfavorable to the project…a risk that will have a negative impact on a project objective if it occurs.” PMBOK® Guide

11. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Understanding the Project Risk A positive impact poses an opportunity A project manager proactively seeks to eliminate/reduce the impact of threats and capitalize on opportunities opportunity – “a condition or situation favorable to the project … a risk that will have a positive impact on a project objective if it occurs.” PMBOK® Guide

12. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Risk Management Planning The risk management plan is useful for communicating with project stakeholders and for follow up analysis Risk management plan– “the document describing how project risk management will be structured and performed on a project.” PMBOK® Guide

13. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Risk Management Plan Guidance for an IT Consulting Company 1. Decide what level of risk premium to charge for the project. The team must rate factors such as project size, complexity, technology, and type. The combined ratings will dictate that a risk premium of 0, 10, or 20 percent be added to the estimated project cost or, for very risky projects, executive approval is mandated. 2. Mitigate risk external to the firm through contract clauses and risk internal to the firm through agreements. 3. Manage the risk very carefully through specifically designed weekly conference call meetings and reports. Risk management includes guidance on how to perform three risk management activities:

14. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Roles and Responsibilities Encourage wide participation in risk management activities The more perspectives considered, the more likely important risks will be uncovered Participation in project risk planning encourages buy-in to a risk management approach The risk management plan defines who has responsibility for each risk management activity

15. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Categories and Definitions Risks may be considered by association with a specific project life cycle stage More project risks are uncovered early in the life of a project The cost per risk discovered early is less Risks discovered late in a project can be expensive

16. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Risks Over the Project Life Cycle

17. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Categories and Definitions Risks may be categorized by their impact on a project objective (cost, schedule, scope, quality) Risks may be classified as external/internal to the organization Risks may be classified by what is known about each

18. International Construction Project Risk Factors

19. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Information Systems Project Risk Factors

20. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Information Systems Project Risk Factors

21. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Information Systems Project Risk Factors

22. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Categories and Definitions A “known known” can be planned and managed with certainty “Known unknowns” can be identified and may or may not happen –Identify the risk and establish contingency reserves “Unknown unknowns” are true uncertainties –Negotiate a management reserve based on project manager and key stakeholders understanding of the project Cement will harden Bad weather will happen 100-year flood

23. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Identify Risks Information gathering Reviews Understanding relationships Risk register Identify risks – “the process of determining which risks might affect the project and documenting their characteristics.” PMBOK® Guide

24. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Information Gathering A brainstorming activity considering “what could go wrong” Use classic rules for brainstorming Variations and extensions of possible risks can help to identify additional risks Interview stakeholders

25. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Information Gathering Use a SWOT analysis Use the Delphi technique Use a structured review – review a variety of project and other documents to uncover possible risks SWOT analysis – “an information gathering technique used to examine the project from perspectives of each project’s strengths, weaknesses, opportunities, and threats to increase the breadth of risks considered.” PMBOK® Guide Delphi technique– “an information gathering techniques used as a way to reach a consensus of experts on a subject … Responses are summarized and recirculated for further comment.” PMBOK® Guide

26. Reviews

27. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Understanding Relationships Learn the cause and effect relationships of risk events –Use a flow chart that shows how people, money, data, or materials flow from one person/location to another Consider why a certain risk event may happen through root cause analysis –“Why might this happen?” Root cause analysis – “an information gathering techniques used as a way to reach a consensus of experts on a subject … Responses are summarized and recirculated for further comment.” PMBOK® Guide

28. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Understanding Relationships Understand triggers A trigger may be specific to an individual risk Triggers can be general indications of problems for the project as a whole Triggers – “indications that a risk has occurred or is about to occur.” PMBOK® Guide

29. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Triggers for a Project as a Whole Project manager displays lack of self-esteem. Team members do not show enthusiasm for project. Project was started with inadequate time for planning. Communications are overly general, with little focus. Reports yield little information about true project status. Little effort has been given to risk management.

30. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Risk Register The primary output of risk identification is the risk register The risk register includes risk categories, identified risks, potential causes, potential responses The risk register is a living document Risk register – “the document containing the results of the qualitative risk analysis, quantitative risk analysis, and risk response planning. The risk register details all identified risks, including description, category, cause, probability of occurring, impact(s) on objectives, proposed responses, owners, and current status.” PMBOK® Guide

31. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Partial Risk Register

32. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Risk Analysis Perform qualitative risk analysis Perform quantitative risk analysis Risk register updates

33. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Qualitative Risk Analysis How likely is a risk to happen? How big will the impact be? When is the risk likely to occur? How easy will it be to notice and correctly interpret the trigger? Perform qualitative risk analysis – “the process of prioritizing risks for subsequent further analysis or action by assessing and combining their probability and impact.” PMBOK® Guide

34. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Qualitative Risk Assessment

35. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Qualitative Risk Analysis Determine cause and effect relationships –Part of root cause analysis –It may be easier to change the effect by changing the underlying cause –Use a cause and effect diagram (fishbone diagram)

36. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cause and Effect Diagram

37. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cause and Effect Diagram List the risk as the effect in a box at the head of the fish Name the big “bones” Complete the smaller “bones” as responses to asking why the big “bones” may be a problem

38. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Perform Quantitative Risk Analysis Bigger, more complex, riskier, more expensive projects may benefit from the rigor of quantitative structured techniques Use when it is critical to predict the probability of completing a project on-time, on-budget, at the agreed upon scope and/or agreed upon quality Quantitative risk analysis – “the process of numerically analyzing the effect of identified risks on overall project objectives.” PMBOK® Guide

39. Common Quantitative Risk Analysis Techniques

40. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Criteria for Selecting a Quantitative Risk Technique Methodology Use the explicit knowledge of the project team members. Allow quick response. Help determine project cost and schedule contingency. Help foster clear communication. Easy to use and understand.

41. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Risk Register Updates Add the probability of each risk occurring and its impact to the register Document results of quantitative risk analysis in the risk register

42. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Plan Risk Responses Strategies for Responding to Risks Risk Register Updates Plan risk responses – “the process of developing options and actions to enhance opportunities and reduce threats to project objectives.” PMBOK® Guide

43. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategies for Responding to Risks Project risk response strategy decisions must be made with a thorough understanding of the priorities key stakeholders have for cost, schedule, scope, and quality

44. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Common Project Risk Strategies

45. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Risk Register Updates The project manager sees that the risk register is updated with the results of the response planning For each risk the response strategy is noted Assign a single person as the “owner” of each risk Include any changes to the project schedule, budget, resource assignments and communications plan

46. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary All projects have some risks Risk planning should use an appropriate level of detail to plan for major risks Risk planning begins with an understanding of project success Risk management planning is part of the overall project management plan Risk identification includes gathering information on potential risks

47. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary Identified risks are documented in a risk register Identified risks are next analyzed Risk response planning involves determining how to respond to each of the major risks Risk response strategies include avoid, transfer, mitigate, accept, research, and exploit

48. Risk Management on a Satellite Development Project Planning Establish the process for dealing with risk and change Day-long clinic Criteria for evaluating probabilities of occurrence Compared methods to industry standards Execution Integrated approach to identification, analysis, and response to risks Using a risk management database tool to log each risk as a record in the database PM in Action Example Systematically working with the risks of the project allowed us to prepare responses to the risks if and when they occurred.

49. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Risk Management Worksheet PM in Action Example

50. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Risk Management on a Satellite Development Project Risk management reviews Review logged risks, actions and impacts of risks Review prioritized report of all project’s risks Avenue to resolve high-priority risks of the project Identification of potential risks for related projects PM in Action Example