Chapter 12 Project Risk Management Project Management Chapter 12 Project Risk Management Dr. Jana Jagodick Polytechnic of Namibia, 2012

Session will cover What is risk management? Identify risks in a project Assess the risks Mitigate the risks - contingency planning Project recovery Dr. Jana Jagodick Polytechnic of Namibia, 2012

Terms hazard: a rare or extreme event that adversely effects the successful completion of the project vulnerability: the degree of loss to a given element that is at possible risk from the impact of a hazard risk: the expected losses that a particular phenomenon might cause or the existence of significant uncertainty probability: the degree to which the risk event is likely to occur Dr. Jana Jagodick Polytechnic of Namibia, 2012

Terms…… frequency: the number of times a particular risk can impact on a project severity: the impact of a risk on a project risk mitigation: defining the necessary steps to counter threats risk response: the development of measures to counteract risk in a project Dr. Jana Jagodick Polytechnic of Namibia, 2012

Concept Risk management attempts to minimise the impact of adverse events and to maximise the likelihood of positive outcomes, so that the project is successfully completed Dr. Jana Jagodick Polytechnic of Namibia, 2012

Risk Management Dilemma HIGH chances of risk occuring Risk cost to fix the risk event LOW Project life cycle Dr. Jana Jagodick Polytechnic of Namibia, 2012

Risk Management Dilemma The chances of a risk event occurring e.g. error in cash flow, time or cost estimates being wrong are greatest in the concept and planning stages BUT are much harder to anticipate! Dr. Jana Jagodick Polytechnic of Namibia, 2012

3 elements to risk management risk assessment – identification & analysis of risk risk mitigation – pre-emptive & contingency actions risk response – plan for resolving critical risks Dr. Jana Jagodick Polytechnic of Namibia, 2012

Risk Assessment Identification, quantifying and evaluation of the probability of the occurrence of risk events and the impact of these events on a project What are the possible consequences and how likely are they to occur? Risk assessment is proactive and reactive! Dr. Jana Jagodick Polytechnic of Namibia, 2012

Risk Identification Determining risks likely to affect a project Internal risks – aspects that the project team can control or influence (staff assignment, cost estimates) External risks – beyond the control of the project team (market shift, government legislation) Positive and negative outcomes Dr. Jana Jagodick Polytechnic of Namibia, 2012

Risk Assessment Likelihood x Severity x Frequency Uses traffic lights to indicate biggest threats Dr. Jana Jagodick Polytechnic of Namibia, 2012

Risk Assessment LIKELIHOOD IMPACT THREAT X inadequate funding low medium high inadequate funding   X lack of technical skills in client's business unit natural disaster Dr. Jana Jagodick Polytechnic of Namibia, 2012

Risk Mitigation V Reactive/ contingency Pre-emptive Will reduce the chance that a threat will be realised or a risk will occur (likelihood) Will reduce the impact of the threat if it occurs (severity) Dr. Jana Jagodick Polytechnic of Namibia, 2012

Contingency planning Evaluates alternative strategies for possible foreseen events before they occur and selects the best alternative Don’t confuse with contingency (buffer) that you build in to a cost estimate or time plan Dr. Jana Jagodick Polytechnic of Namibia, 2012

your Project Management course? Contingency Planning Risk management planning for a known event Preventative actions to reduce or mitigate the negative impact of the risk event Evaluates alternative strategies for possible foreseen events before the risk events occur, and selects the best option Must be communicated to all stakeholders in order to avoid ‘surprises’ and are activated by ‘a trigger event’. Must be well documented what will you do if you fail your Project Management course? Dr. Jana Jagodick Polytechnic of Namibia, 2012

Who’s responsible for risk mgmt? Many people in the project will have some responsibility for risk management. PM risk manager Steering committees Project team members Risk cannot be managed by one individual – it is a communal activity involving a range of people associated with the project Dr. Jana Jagodick Polytechnic of Namibia, 2012

Who’s responsible for risk mgmt? PM has overall responsibility like: the development of a risk management plan continual monitoring to identify new or increasing risks monitoring of the effectiveness of the risk management plan regular reports to sponsors and steering committees For big projects the PM might appoint a risk manager, but the PM still maintains overall responsibility Dr. Jana Jagodick Polytechnic of Namibia, 2012

Risk mitigation examples Pre-emptive - In a project where you are encouraging people to walk and cycle to work, you might include a bicycle shed to ensure that people have somewhere safe to lock up their bikes Contingency actions - for example, if your bike gets stolen, enlisting people to help you find it Oil rig, where pre-emptive action is to ensure that no fire causing materials are used on the oil rig. Contingency actions would be to have a life raft at every station, for a quick getaway. Dr. Jana Jagodick Polytechnic of Namibia, 2012

Risk management plan The risk management plan should cover: a description of each risk an assessment of the likelihood of it occurrence and its impact a grading of each risk the person(s) responsible for managing the risk an outline of the proposed countermeasures the estimated cost for each countermeasure and the collective costs full details of assumptions and limitations Dr. Jana Jagodick Polytechnic of Namibia, 2012

When things go wrong….. What to do when things go wrong…….i.e. when a project is out of control and failing over budget out of scope AND YOU HAVEN’T PUT TOGETHER A CONTIGENCY PLAN...... How do you achieve the project objectives in the least amount of time without incurring huge cost? Dr. Jana Jagodick Polytechnic of Namibia, 2012

Project recovery Take a structured review of the project in its present state Look at the deliverables and milestones with an eye towards getting the project back on track Assess risk, crash the schedule or develop deliverables simultaneously Project Recovery is determining where to target resources to get the project back on plan as quickly as possible and at least cost! Dr. Jana Jagodick Polytechnic of Namibia, 2012

Deliverables for Project Recovery Project recovery plan Recovered project Trained project team members and project sponsors/customers and stakeholders Tools and techniques for future projects Dr. Jana Jagodick Polytechnic of Namibia, 2012