2. Dynamics of Project Risk Management Lec-1 Overview of Project Risk Management Dynamics of Project Risk Management Lec-01 Overview of Project Risk Management By: Engr.Dr.Attaullah Shah PhD ( Civil) Engg, Mphil (Eco),MSc Engg ( Strs), BSc Engg ( Gold Medalist), MBA, MA ( Eco), MSc Envir Design, PGD Computer Sc. Tel: 051-9250100 E-mail: pdaiou@yahoo.com.

3. Bio details of the Instructor Engr. Dr. Attaullah Shah – Director ( Planning and Projects AIOU) » pdaiou@yahoo.com. pd@aiou.edu.pk, www.drshahpak.weebly.com pdaiou@yahoo.compd@aiou.edu.pkwww.drshahpak.weebly.com » +92-333-5729809, +92-51-9057212 Qualification PhD Civil Engineering,M.Phil Eco,MSc Structure Engg MBA, MA Eco, MSc Envir Design,BSc Civil Engg (Gold Medal), Post Grad Dip Comp (Gold Medal) Professional and Field experience: – 25 Years Research Publications in refereed journals and conferences: – 25 Journals publications+ 35 Conference publications Areas of interests » Project Management » Sustainable built Environment » Structural Engineering

4. Some quotes about risk management The only virtue of being an aging risk manager is that you have a large collection of your own mistakes that you know not to repeat Donald Van Deventer Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted. Albert Einstein Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so. Douglas Adams “A good rule of thumb is to assume that “everything matters.” Richard Thaler “The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.” Charles Tremper Risk varies inversely with knowledge The risk to be perceived defines the duty to be obeyed-Benjamin Crudozo

5. Risks- Everywhere

6. Decision Environments Certainty: One and Distinct outcome.  Risk Where there are more than one outcomes. The probability of the outcomes can be anticipated On cloudy day, we prefer to take umbrella. Why? "A discrete occurrence that may affect the project for good or bad." NOTE: Do not forget that there can be good risks, sometimes called opportunities!  Uncertainty Where there are more than one outcomes. The probability of the happening can not be anticipated War, Strikes, riots, disasters etc.

7. DEFINITIONS RISK FACTORS: When looking at risk, one should determine: – The probability that it will occur (what) – The range of possible outcomes (impact or amount at stake) – Expected timing (when) in the project life cycle – Anticipated frequency of risk events from that source (how often) Risk management refers to the culture, processes and structures that are directed – towards the effective management of potential opportunities and adverse effects. The risk management process involves the systematic application of management – policies, processes and procedures to the tasks of establishing the context, identifying, analyzing, assessing, treating, monitoring and communicating risk.

8. Some Risks in large construction projects Weather changes Different productivity (Sub)contractors are – Unreliable – Lack capacity to do work – Lack availability to do work – Unscrupulous – Financially unstable Late materials delivery Lawsuits Labor difficulties Unexpected manufacturing costs Failure to find sufficient tenants Community opposition Infighting & acrimonious relationships Unrealistically low bid Late-stage design changes Unexpected subsurface conditions – Soil type – Groundwater – Unexpected Obstacles Settlement of adjacent structures High lifecycle costs Permitting problems You can name more…….

9. Facts about project risks Every project, regardless of scope or complexity, is going to have some inherent risks The type, number and severity of the risks will vary depending on a variety of factors, such as the project’s overall size, its related constituent pieces, the number of individuals on the project, and so forth. Any sort of risk assessment, regardless of the situation, is always a combination of both art and science, coupled with the individual’s own personal experience and knowledge. Risk management facilitates better business and project outcomes Risk management provides a structured way of assessing and dealing with future uncertainty.

10. Risk Management in large projects Large potential losses/gains due to large and complex projects Risks in large projects are multiplying due to: – Changing economic conditions locally and globally – Technological advancements – Changing patterns of demand – Growing competition due to globalization – Varying operating requirements – Global compliance of products and services – Social and environmental impacts Private participation in the large public/Govt. projects

11. PMBOK Perspective  1 Plan Risk Management: The process of defining how to conduct risk management activities for a project  2 Identify risks: The process of determining which risks may affect the project and documenting their characteristics.  3 Perform qualitative risk analysis: The process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact.  4 Perform quantitative risk analysis: The process of numerically analyzing the effect of identified risks on overall project objectives.  5 Plan risk responses: The process of developing options and actions to enhance opportunities and to reduce threats to project objectives.  6 Monitor and control risks: The process of implementing risks response plans, tracking identified risks, monitoring residual risks, identifying new risks, and evaluating risk process effectiveness throughout the project.

12. Plan Risk Management Inputs 1.Project scope statement 2.Cost management plan 3.Schedule management plan 4.Communications management plan 6.Enterprise environmental factors 7.Organizational process assets Tools & Techniques 1.Risk management plan Outputs Planning meetings and analysis

13. Identify Risks Inputs 1.Risk management plan 2.Activity costs estimates 3.Activity duration estimates 4.Scope baseline 5.Stakeholder register 6.Cost management plan 7.Schedule management plan 8.Quality management plan 9.Project documents 10.Enterprise environmental factors 11.Organzational process assets Tools & Techniques 1.Risk register Outputs 1. Documentation reviews 2. Information gathering techniques 3. Checklist analysis 4. Assumptions analysis 5. Diagramming techniques 6. SWOT Analysis 7. Expert judgment

14. Perform Qualitative Risk Analysis Tools & Techniques 1.Risk register updates Outputs 1. Risk probability and impact assessment 2. Probability and impact matrix 3. Risk data quality assessment 4. Risk categorization 5. Risk urgency assessment 6. Expert judgment Inputs 1.Risk register 2.Risk management plan 3.Project scope statement 4.Organizational process assets

15. Plan Risk Responses Tools & Techniques 1.Risk register updates 2.Risk related contract decisions 3.Project management plan updates 4.Project document updates Outputs 1. Strategies for negative risks or threats 2. Strategies for positive risks or opportunities 3. Contingent response strategies 4. Expert judgment Inputs 1.Risk register 2.Risk management plan

16. Perform Quantitative Risk Analysis Tools & Techniques 1.Risk register updates Outputs 1. Data gathering and representation techniques 2. Quantitative risk analysis and modeling techniques 3. Expert judgment Inputs 1.Risk register 2.Risk management plan 3.Cost management plan 4.Schedule management plan 5.Organizational process assets

17. Monitor and Control Risks Tools & Techniques 1.Risk register updates 2.Organizational process asset updates 3.Change requests 4.Project management plan updates 5.Project document updates Outputs 1. Risk re assessment 2. Risk audits 3. Variance and trend analysis 4. Technical performance measurement 5. Reserve analysis 6. Status meetings Inputs 1.Risk register 2.Project management plan 3.Work performance information 4.Performance reports

18. Project life cycle characteristics Cost and staffing levels are low at the start, higher toward the end, and drop rapid as the project draws to a conclusion The probability of successfully completing the project is lowest, and hence risk and uncertainty are highest, at the start of the project. The probability of successful completion gets progressively higher as the project continues The ability of stakeholder to influence the final characteristics of the project’s product and the final cost of the project is highest at the start and gets progressively lower as the project continues

19. Cost and staffing level time Initial phase Intermediate phase Final phase Generic Life Cycle

20. Cost of changes time Initial phase Intermediate phase Final phase Generic Life Cycle

21. The project life cycle often consists in four phases: 1.Conceptual development 2.Definition 3.Implementation 4.Closure Main Step of Project Life cycle

22. Representative Project Life Cycles CONSTRUCTION ( MORRIS REPRESENTATION) Percent complete 100 % STAGE I STAGE II STAGE III STAGE IV FEASIBILTY Project formulation Feasibility studies Strategy design and Approval Project “GO” decision PLANNING and DESING Base design Cost and schedule Contract terms and condition Major contracts let CONSTRUCTION manufacturing Delivery Civil Works Installation Testing Installation substantially complete Full operation TURNOVER and STARTUP Final testing Maintenance

23. Representative Project Life Cycles PHARMACEUTICAL ( MURPHY REPRESENTATION) Drug sourcing Screening Lead Identified Preclinical IND Workup File IND File NDA Post registration Activity Formulation stability Process Development Metabolism Toxicology Patent process DiscoveryScreening Preclinical development Ten plus years Registration Workup Postsubmission Activity IND = Investigation New Drug Application NDA= New Drug Application PH IPH IIPH III APPROVAL

24. Representative Project Life Cycles SOFTWARE ( MUENCH REPRESENTATION) evaluateidentify designconstruct test evaluation risk analysis Deploy Unit requirements Subsystem requirements system requirements business requirements Conceptual design logical design physical design final design Proof of concept first build second build Final build

25. PLANT PROJECT Strategic Plan Needs Identification FeasibilityInvestment Return End of Investment Basic DsignAcquisitionProductionEnd of Production Conceptual Design PlanningExecutingDelivery Project Plant Life Cycle Plant Life Cycle Investment Life Cycle Representative Project Life Cycles

26. Risk management in project life cycle Risk and the associated cost to address the risk, varies over the project life cycle – For initial phase there is high chance of risk events, but low cost impact – For final phase there is low chance of risk events, but cost impact is high Risk management can be applied usefully at all stages of a project or procurement Identifying and managing risks greatly affect project success

27. Need for Risk management in project phases Economic viability assessment-Feasibility studies Corporate governance and accountability Contractual purposes, to assess alternative contractual and legal frameworks for the project Tendering, when deciding whether or not to bid, or accept a bid Regulatory purposes, for legislative, judicial or licensing agencies Communication purposes, to provide information for owners, sponsors, users, contractors, joint venture partners

28. Examples Project phases and Risk management application

30. Risks in Public sector (Govt.) projects New project delivery methods adopted: BOOT ( Build Own Operate and Transfer) BOT ( Build Operate and Transfer) PPP ( Public Private partnership) BLT ( Build Lease and Transfer) PFI ( Private Financing Initiatives) Risk management is an important part of the drive to improve the overall quality and standard of government procurement activities. In the government procurement arena, risk management is important in that it supports: – Consistent and justifiable public decision-making, generating an audit trail of the available – information and a documented method that demonstrates how this information was used to form effective decisions.

31. Risk Management Approaches Project Management Institute (PMI), USA (2003), Project Management Body of Knowledge, Chapter 11 on risk management; Association for Project Management, UK (1997), PRAM Guide; AS/NZS 4360 (2004), Risk Management, Standards Association of Australia; IEC 62198 (2001), Project Risk Management—Application Guidelines; Office of Government Commerce (OGC), UK (2002), Management of Risk; and Treasury Board of Canada (2001), Integrated Risk Management Framework.

32. A Practical Case Study Of Risk Management for Strategic Partnership in Local Council

33. The Partnership The Vision – To improve significantly the quality of life for the people by working together Responsible to Public Service Board – Chaired by DG Management group have executive responsibilities 4 Main Areas of Service – Children and Young People – Safer and Stronger Communities – Healthier Communities and Older People – Sustainable Communities –

34. Case Study – County Council Local Strategic Partnership Situation The Local Govt desire to achieve their objectives and goals through Local strategic partnership The Local Strategic Partnership has developed its’ Local Area Agreement and prior to implementation wished to use risk management as the common thread for all Partner organisations to:- – Have a consistent definition of, a shared appetite for and a consistent process of identifying / managing risk – To create a single risk register of the Partnership’s significant risks, prioritised for risk improvement planning and a platform for future monitoring of such risks / action plans

35. Case Study : Local Strategic Partnership Project Methodology The project activity was subdivided into a number of key stages as follows:

36. Timescales of the project – Proposal drafted 15 th May 2011 – Risk Workshop Briefing Note and Questionnaire issued 26 th May 2011. – Workshops on 12 th July 2011. – Report and Recommendations issued 24 th August 2011 after consultation and agreement with the Client. – Presentation to Local Council Board on 4 th September 2011 Case Study : Local Strategic Partnership

37. Phase 1. Pre-workshop Study Risk Questionnaire These established an up-to-date ‘snapshot’ of the material risk exposures, and led to the production of a risk “long-list” that formed the basis of the risk assessment workshops. The main objectives of the Questionnaire were: - 1.To capture respondents’ perceptions of the particular risks to the delivery of proposed partnership,expected outcomes; and 2.To begin to capture details regarding any controls or counter-measures currently in place to manage such risks. Case Study : Local Strategic Partnership

38. Phase 1. Pre-workshop Study (contd.) – all participants, representatives of the 4 key Service Groups within the Strategic Partnership were issued with a briefing document to set the risk context for the ensuing workshops The objectives of these workshops were to: 1.To introduce a common and consistent approach to risk management for all delivery groups; 2.In the context of the objectives of the partnership vision and aims, to identify potential risks to the achievement of relevant expected outcomes for respective delivery groups 3.To assess and prioritize risks in terms of potential impact and likelihood; 4.To identify and prioritize key risks; and 5.Begin to develop action-plans to address the risks identified

39. Phase 2. Service Group workshops Our consultants facilitated a series of four risk identification and assessment workshops, one for each of the following Service Groups (Blocks):- Healthier Communities and Older People Partnership (7 delegates) Safer and Stronger Communities (6 delegates) Children and Young People (14 delegates) Sustainable Communities (20 delegates)

40. Phase 2 (contd.) Workshop Agenda Introduction and Explanation of Objectives. A risk management training/refresher session: on key risk management theory and the methodology being used in the workshops. Risk Identification and assessment of the impact and likelihood. Risk prioritisation. Summing up and the next steps.

41. Case Study – County Council Local Strategic Partnership Number of Risks per Service In total 136 Risks were identified

42. Top 5 Risks – Mainstream budget reductions in NHS and National Treatment Budgets. – That District Councils fail to develop planning policies which adequately support the requirements of the LAA – Expected uplift funding not provided by the Department of Health/Home Office to support the delivery of the National Drug Strategy – Restructuring – Police, Probation, Local Government or review of Crime and Disorder Act – individually. – Withdrawal of local bus services by commercial operators.

43. Phase 3 – Analysis & Reporting The potential impact and likelihood of these risks were assessed against meaningful definitions / criteria and captured in a risk register in order to prioritize the outputs for risk improvement planning. Risk improvement planning measures were then applied to the 32 risks deemed to be critical, according to their combined impact and likelihood score. Block leads, in conjunction with target lead officers, were subsequently asked, through the appropriate partnerships, to review the critical risks and amend the delivery plans for these targets detailing how the risks are to be managed / addressed. amend the relevant delivery plans where appropriate. In doing this, priority was given to the targets on the list.

44. Case Study – County Council Local Strategic Partnership Recommendations – Fill in the Gaps – Identify the Strategic Risks – Prioritise – Actions – The Risk Register – Risk Management Schedule

45. Outcome (I) 47 delegates bought-in to the risks to the partnership through active participation in the workshops, All 12 different organizations within the Strategic Partnership were represented, and were able to overcome individual cultural differences in approach to risk tolerance / assessment They jointly identified some 136 risks to the successful implementation of the Local Area Agreement, not risks to themselves nor their own organizations, but to the partnership These findings were then presented to the Public Service Board for sign-off and have been maintained under subsequent review as part of the Strategic Partnerships monitoring and review process

46. Case Study – County Council Local Strategic Partnership Outcome (II) The risk management process has given:- the Management Group a better understanding of the risks to successful implementation, the Public Service Board assurance that risks are being managed and external government stakeholders confidence that modernisation reforms can be made to work effectively across the various stakeholder organisations in the County.

47. Applying Good Practice in Your Organization Class Discussions What partnerships are your organizations involved in? Who is leading them? How are you involved? What are the particular challenges? How does risk management support these partnerships? How can you become involved? What skills / further support would you find helpful?

48. Assignments:1 Please visit research paper titled as Managing risk in software development projects: a case study By Prasanta Kumar Dey, Jason Kinch, Stephen O. Ogunlana at http://www.emeraldinsight.com/journals.htm?articleid=1597801 Download the complete article and explain risk management process in the software development projects.