PROJECT RISK MANAGEMENT ENGINEERING MANAGEMENT FALL 2007 JAVIER ABADIA

PROJECT MANAGEMENT A Project is a temporary endeavor undertaken to create a unique product, service or result. Projects are a means of organizing activities that cannot be addressed within the organization’s normal operational limits. Projects are often utilized as a means of achieving an organization’s strategic plan. Project Management is the application of knowledge, skills, tools and techniques to project activities to meet project requirements.

PROJECT MANAGEMENT KNOWLEDGE AREAS PROJECT INTEGRATION MANAGEMENT DEVELOP PROJECT CHARTER DEVELOP PRELIMINARY PROJECT STATEMENT DEVELOP PROJECT MANAG. PLAN DIRECT AND MANAGE PROJECT EXECUTION MONITOR AND CONTRO PROJECT WORK INTEGRATED CHANGE CONTROL CLOSE PROJECT PROJECT SCOPE MANAGEMENT SCOPE PLANNING SCOPE DEFINITION CREATE WBS SCOPE VERIFICATION SCOPE CONTROL PROJECT TIME MANAGEMENT ACTIVITY DEFINITION ACTIVITY SEQUENCING ACTIVITY RESOURCE ESTIMATING ACTIVITY DURATION ESTIMATING SCHEDULE DEVELOPMENT SCHEDULE CONTROL PROJECT COST MANAGEMENT COST ESTIMATING COST BUDGETING COST CONTROL PROJECT QUALITY MANAGEMENT QUALITY PLANNING PERFORM QUALITY ASSURANCE PERFORM QUALITY CONTROL PROJECT HUMAN RESOURCE MANAGEMENT HUMAN RESOURCE PLANNING ACQUIRE PROJECT TEAM DEVELOP PROJECT TEAM MANAGE PROJECT TEAM PROJECT COMMUNICATIONS MANAGEMENT COMMUNICATIONS PLANNING INFORMATION DISTRIBUTION PERFORMANCE REPORTING MANAGE STAKEHOLDERS PROJECT RISK MANAGEMENT RISK MANAGEMENT PLANNING RISK IDENTIFICATION QUALITATIVE RISK ANALYSIS QUANTITATIVE RISK ANALYSIS RISK RESPONSE PLANNING RISK MONITORING AND CONTROL PROJECT PROCUREMENT MANAGEMENT PLAN PURCHASE AND ACQUISITIONS PLAN CONTRACTING REQUEST SELLER RESPONSES SELECT SELLERS CONTRACT ADMINISTRATION CONTRACT CLOSURE

PROJECT RISK MANAGEMENT No amount of planning can overcome risk. Plans are essentially things to do, what is missing from plans is what can go wrong. Risk is the chance that an undesirable event will occur and the consequences of all its possible outcomes. Project risk are those events that if materialized can kill or delay a project.

PROJECT RISK MANAGEMENT Risk management attempts to recognize and manage potential problems during the project implementation. Identifies as many risk events as possible, minimizes their impact, manage response to those events if materialized and provides contingency funds to cover risk events that actually materialize.

RISK EVENT GRAPH

RISK MANAGEMENT Risk management is a proactive approach rather than reactive. Is a preventive process designed to reduce undesired events and to minimize negative consequences associated with those events. Successful management of project risk gives the project manager better control over the future and significantly improve chances of reaching project objectives on time, within budget, and meeting required technical (functional) performance.

RISK MANAGEMENT PLANNING This is the process necessary for deciding how to approach, plan and execute the risk management activities for a project. Inputs: Enterprise environmental factors Organizational process assets Project scope statement Project management plan Outputs: Risk Management Plan

RISK IDENTIFICATION This is the process necessary for determining which risk might affect the project and documenting their characteristics. Inputs: Enterprise environmental factors Organizational process assets Project scope statement Risk management plan Project management plan Outputs: Risk register

RISK IDENTIFICATION The risk management process begins by trying to generate a list of all the possible risks that could affect the project. The risk management team uses brainstorming and other identifying techniques to identify potential problems Keep open mind and generate as many probable risks as possible Don’t focus on consequences but in the events that could produce consequences

RISK IDENTIFICATION An effective tool for identifying specific risks is the work breakdown structure (WBS) Use assumption analysis as a tool that explores the validity of assumptions as they apply to the project Use diagramming techniques: Cause and effect diagrams, System or process flow charts, influence diagrams The preparation of the risk register begins in the risk identification process: List of identified risks, list of potential responses, root causes of risk.

QUALITATIVE RISK ANALYSIS This is the process necessary for prioritizing risks for subsequent further analysis or action by assessing and combining their probability of occurrence and impact. Inputs Organizational process assets Project scope statement Risk management plan Risk register Outputs Risk register updates.

QUALITATIVE RISK ANALYSIS Includes methods for prioritizing the identified risks for further action Assesses the priority of identified risk using their probability of occurring, the corresponding impact on project objectives and other factors such as the time frame and risk tolerance of the project constraints of cost, schedule, scope, and quality. The risk register is updated with information from Qualitative risk analysis.

QUALITATIVE RISK ANALYSIS TOOLS Risk probability and Impact Assessment: Investigates the likelihood that each specific risk will occur Probability and impact matrix: Specifies combinations of probability and impact that lead to rating the risks as low, moderate, or high priority Risk Data Quality Assessment: Evaluate the degree to which the data about risk is useful for risk management. Risk Categorization: Risks to the project can be categorized by sources of risk, the area of the project affected, or other useful category Risk Urgency Assessment: Risks requiring near-term responses may be considered more urgent to address.

QUANTITATIVE RISK ANALYSIS This is the process necessary for numerically analyzing the effect on overall project objectives of identified risks. Inputs Organizational process assets Project scope statement Risk management plan Risk register Project management plan: Schedule management Plan, cost management plan Outputs Risk register updates

QUANTITATIVE RISK ANALYSIS Is performed on risks that have been prioritized by the qualitative risk analysis process as potentially and substantially impacting the project’s competing demands. A numerical rating is assigned to those risks. Data is gathered using pessimistic and optimistic scenarios. Sensitivity analysis helps to determine which risks have the most potential impact on the project. Other tools like Expected monetary value analysis (EMV) and decision tree analysis can be used. This process also provide updates for the Risk register

RISK RESPONSE PLANNING This is the process necessary for developing options and actions to enhance opportunities and to reduce threats to project objectives Inputs Risk management plan Risk register Output Risk register updates Project management plan updates Risk-related contractual agreements

RISK RESPONSE PLANNING When a risk event is identified and assessed, a decision must be made concerning which response is appropriate for the specific event. Responses can be classified as mitigating, transferring, sharing, or retaining Mitigating: Reduce the likelihood that the event will occur and/or reduce the impact that the event would have on the project. Transferring: Passing the risk to another party. Sharing: Allocates proportion of the risk to different parties. Retaining: In some cases a conscious decision is made to retain the risk of an event occurring.

RISK RESPONSE PLANNING: Contingency planning A contingency planning is an alternate plan that will be used if a possible foreseen risk event becomes a reality Contingency plan represents preventive actions that will reduce or mitigate the negative impact of the risk event. Answer the questions of what, where, when, and how much action will take place. Conditions for activating and implementation of the contingency plan should be decided and clearly documented. Include the cost estimate and the source of funding Include the risk response planning and the contingency plan results in the Risk register updates.

RISK MONITORING AND CONTROL This is the process necessary for identifying, analyzing, and planning for newly arising risks, keeping track of the identified risks, monitoring trigger conditions for contingency plans. Inputs Risk management plan Risk register Approved change requests Work performance information Performance reports Outputs Risk register updates Requested changes Recommend corrective and preventive actions. Organizational process assets (updates) Project management plan updates

RISK MONITORING AND CONTROL TOOLS AND TECHNIQUES Risk reassessment : Identification of new risks Risk audits : Examine and document the effectiveness of risk responses and the risk management process Variance and trend analysis : Review trends using performance data Technical performance measurement : Compares technical accomplishments during project execution to the project management plan’s schedule of technical achievement Reserve analysis : Compares the amount of the contingency reserves remaining to the amount of risk remaining at any time in the project. Status Meetings : Include risk management in the agenda of periodic status meetings.

CONCLUSIONS Project Risk Management includes the processes concerned with conducting risk management planning, identification, analysis, responses, and monitoring and control on a project. 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.