Project Risk Management CHAPTER 14 Project Risk Management

Risk Event Graph

Risk Management Process

Risk Management Process (cont.) Step 1: Establishing the risk context Step 2: Risk identification Step 3: Risk analysis Step 4: Risk evaluation Step 5: Risk treatment Step 6: Contingency planning

Step 1: Establishing the Risk Context What is the organisation’s context for risk? How does this affect the project environment? How are ‘individual’ risk tolerances levelled? Do you use the ‘As Low As Reasonably Possible’ (ALARP) approach?

Step 2: Risk Identification WBS RBS Risk Profiles Lessons learned Delphi method SWOT Others…

Step 2: Risk Identification (cont.) The Risk Breakdown Structure (RBS)

Step3: Risk Analysis Probability refers to the probability of the event. (This is otherwise known as the likelihood of the risk occurring.) Impact refers to the impact of the event. (This is otherwise known as the consequence of the risk if the event occurs.)

Simple ‘inherent’ risk analysis Step 3: Risk Analysis Simple ‘inherent’ risk analysis

Step 3: Risk Analysis (cont.) Impact considered over multiple criteria

Step 3: Risk Analysis (cont.) Decision tree analysis

Step 4: Risk Evaluation The purpose of risk evaluation is to assist in making decisions, based on the outcomes of the risk analysis, about which risks need treatment and the priority for treatment implementation. Risk evaluation involves comparing the level of risk found during the analysis process with risk criteria established when the context was considered. Based on this comparison, the need for treatment can be considered. (AS/NZS/ISO 31000:2009)

Step 5: Risk Treatment for Threat Risks Mitigating risk Avoiding risk Transferring risk Accepting (retaining) risk

Step 5: Risk Treatment (cont.) Mitigation and residual risk assessment

Step 5: Risk Treatment for Opportunity Risks Exploit Share Enhance Accept

Step 6: Contingency Planning A contingency plan is an alternative plan that will be used if a possible foreseen risk event becomes a reality (an issue).

Step 6: Contingency Planning (cont.) Risk contingency plan

Step 6: Contingency Planning (cont.) Common methods for handling risk Technical risks Schedule risks Cost risks Funding risks

Contingency Funds and Risk Budget reserves Management reserves Time buffers How are risk contingencies managed in your organisations?

Risk Management Plan Risk context Risk methodology Risk roles and responsibilities Risk escalation process Risk reporting Risk audits and health checks Lessons learned

Risk Monitoring and Review

Key Terms Monte Carlo technique 5 Whys opportunity risk ALARP PERT AS/NZS/ISO 31000:2009 assumptions constraints contingency plan contingency planning decision trees decision tree analysis Delphi Method Failure Mode and Effects Analysis (FMEA) impact (consequence) mitigation strategy (risk response) Monte Carlo technique opportunity risk PERT PERT simulation probability (likelihood) risk analysis risk breakdown structure (RBS) risk context risk evaluation risk identification Risk Management Plan risk monitoring and review risk profile Risk Register risk severity matrix root cause analysis threat risk