1. Chapter 7 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-1 Risk Management

2. 1- Introduction: Risk Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-2 Risk management - the art and science of identifying, analyzing, and responding to risk factors throughout the life of a project and in the best interest of its objectives. Project risk – any possible event that can negatively affect the viability of a project

3. Risk Vs Amount at Stake Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-3 Phase 1 Conceive (C) Phase 2 Develop (D) Phase 3 Execute (E) Phase 4 Finish (F) Time $ Value Increasing Risk Total Project Life Cycle Amount at stake PlanProduce Opportunity and risk Period of highest risk impact Combined risk impact

4. Process of Risk Management Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-4 What is likely to happen? What can be done? What are the warning signs? What are the likely outcomes? Risk is based on a simple equation: Project Risk = (Probability of Event)(Consequences of Event)

5. 2- Four Stages of Risk Management Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-5 1. Risk identification 2. Analysis of probability and consequences 3. Risk mitigation strategies 4. Control and documentation

6. Risk Clusters Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-6 Risk fall into one or more classifications: Financial Technical Common Types Absenteeism Resignation Staff pulled away Time overruns Skills unavailable Ineffective Training Specs incomplete Change orders Commercial Execution Contractual/Legal

7. Risk Factor Identification Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-7  Brainstorming meetings:  Brainstorming meetings: Bringing the members of the project team, clients and top management can generate a good list of potential risk factors.  Expert opinion  Expert opinion: The more quantifiable method is referred to Delphi approach. It collects and consolidates the judgments of isolated anonymous respondents.  Past history:  Past history: Experience can be used not only to identify risk factors but their leading indicators as well.  Multiple (or team based) assessments  Multiple (or team based) assessments: A team based approach to risk factor identification encourages identification of a more comprehensive set of potential project risks.

8. Risk Impact Matrix Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-8 Consequences Likelihood High Low High

9. Project Risk Scoring 1. Identify factors and assess the probability (P f ) and consequences (C f ) of failure 2. Calculate overall probability & consequence 3. Calculate overall risk factor 7-9 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

10. Risk evaluation 7-10 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

11. Risk evaluation Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-11

12. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-12

13. Risk Mitigation Strategies Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-13 Accept Rik: Accept Rik: The decision “ to do nothing” is a reasoned calculation, not the result of inattention or incompetence. Minimize Risk : Minimize Risk : The risk for Boeing in the event of faulty parts leading to a catastrophic failure are huge. Share Risk: Share Risk: risk may be allocated proportionally among multiple members of the project. Transfer risk: Transfer risk: in some circumstances, when it is possible to change the nature of the risk, either through elimination or minimization, it may be possible to shift the risks bound up in a project to another party.

14. Risk Mitigation Strategies Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-14 Contingency Reserves Contingency Reserves : include managerial or financial methods to mitigate risk. Task contingency Task contingency : is used to offset budget cutbacks, schedule overruns, or other unforeseen circumstances occurring to individuals tasks. These budget can be a very valuable form of risk management. Managerial contingency Managerial contingency : is budget safety measures that address higher level risks. Mentoring: Mentoring: junior or inexperienced project personnel are paired with senior managers in order to help them learn best practices. Cross training: Cross training: it requires that the team members not only learn their own duties but also the roles of others.

15. Control & Documentation Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-15 Help managers classify and codify risks, responses, and outcomes Change management report system answers Identify clearly the source of risk. What? Identify clearly the source of risk. Assign a project team member direct responsibility for following the issue and maintaining the ownership regarding its resolution. Who? Assign a project team member direct responsibility for following the issue and maintaining the ownership regarding its resolution. Establish a clear time frame. When? Establish a clear time frame. Pinpoint the most likely reason for the risk. Why? Pinpoint the most likely reason for the risk. Create a detailed plan for how the risk is to be abated. How? Create a detailed plan for how the risk is to be abated.

16. Project Risk Analysis & Management Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-16 Extends risk management over project’s life cycle Key Features of PRAM  Risk management follows a life cycle  Risk management strategy changes over the project life cycle  Synthesized, coherent approach

17. Nine Phases of Risk Assessment Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-17 1.Define 2.Focus 3.Identify 4.Structure 5.Clarify ownership of risks 6.Estimate 7.Evaluate 8.Plan 9.Manage

18. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7-18