improving your risk identification and management approach
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Facilitating your process journey …
Improving your Risk Identification and Management Approach
by
Henry Schneider
Process and Product Quality Consulting, LLC
June 25, 2008
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Why Should I Care About Risks?
What is a Risk?
Risk Management Principles
Risk Identification and Management Techniques
Summary
Agenda
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Facilitating your process journey …
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What coulda/shoulda happened?
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When Risk Are Not Managed Well
It is easy to ignore risks when they are not being tracked
Risks that are known to project staff are often not known or a surprise to management
Every time a new problem manifests, a new management technique is tried
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Why Should I Care?
The project may dodge some of the “bullets,” but not all of them
No lessons learned captured for future projects means making the same mistakes again and again
Insanity - doing the same thing over and over again and expecting different results
Repeated project failures due to unforeseen (but predictable) risks costs you business, if not the whole company
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Risk and Organization Culture
Innovative cultures assume that the potential value of innovation carries some level of risk
“Fail forward” attitude
acknowledge and learn from failures
risks are investment in success
Non-innovative cultures don’t acknowledge failure as an acceptable outcome
“Don’t bring me problems, bring me solutions.”
acknowledging risks is admitting the possibility of failure
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Risk Defined
Dictionary definitions of risk hazard, danger, or peril
exposure to loss, injury, or destruction
General definition A risk is a problem waiting to happen
A risk is an event that could threaten the successful completion of the project
Risk management is the process of identifying the risks and handling those which are most threatening to the project, so that they don’t become problems
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Risk Management Principles - 1
Risks must be assessed continuously and used for decision-making in all phases of the project
Effective risk management considers all areas of the project: personnel, process, business, technology, etc.
Risks need to be clearly communicated by all team members
The environment must allow people to identify risks without negative consequences to them
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Risk Management Principles - 2
Risks must be clearly stated before they can be managed
A project should not be judged solely on the number or nature of risks uncovered
Deal with important risks first
Action items to address risks need to be integrated into the overall project plan or action item list
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Risk Source Categories
•Mission and goals
•Decision drivers
•Organization management
•Customer / end user
•Budget / cost
•Schedule
•Project characteristics
•Development process
•Development environment
•Personnel and relationships
•Operational environment
•New technology
Consequences
•Cost overruns
•Schedule slips
•Inadequate functionality
•Canceled projects
•Sudden personnel changes
•Customer dissatisfaction
•Loss of company image
•Demoralized staff
•Poor product performance
•Legal proceedings
Risk Source Categories and Consequences
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Start by Reviewing Project Parameters
Project vision
• Are objectives clear and understood?
• Are customer and provider objectives known?
Project scope,
milestones, and
deliverables
• Are features agreed to?
• Are commitments agreed to and documented?
Roles and responsibili-
ties
• Are roles and responsibilities clear to all involved?
• Are all roles staffed?
• Is sponsorship and accountability clear?
Use know-ledge of specific
project roles to identify
risks
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Brainstorming Review possible sources of risk and brainstorm specific risks
they could create for your project
Review potential adverse outcomes for your project and brainstorm how they might arise
Risk Identification Technique
Sources
Outcomes
Risks
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Risk Factor Table - Example
Risk Factor Low Risk Cue Medium Risk Cue High Risk Cue
Project fit Directly supports customer’s missions and goals
Indirectly impacts one or more goals
Does not support or relate to customer’s mission or goals
Customer perception Customer expects team to provide this product
Team is working on project that is not expected by customer
Project is a mismatch with prior products of this team
Work flow Little or not change to work flow
Will change some aspect or have small affect on work flow
Significantly changes work flow or method of organization
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Reviewing Factors
Select appropriate table of factors
Examine each risk factor and rate its relevance
• High - potentially high threat risk
• Medium - may suggest a risk
• Low - no apparent risk
• N/A - factor is not applicable
• NI - needs more information
• TBD - needs to have project proceed further; revisit later
Use high rated factors to develop
specific risk statements for the
project
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Risk Factors Help You Focus
Risks to be managed –ten or so
Risks rated High –dozens
Risks indicated by factor tables - hundreds
All risks - thousands
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Risk Probability
Probability is the likelihood that the risk will actually occur as a problem if we take no action
Usually expressed as a percentage:
• greater than zero or less than 100%
• use increments no smaller than 5%
Example:
• something slightly more likely than not - risk probability = 60%
• something likely to happen 3/4 of the time - risk probability = 75%
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Establishing Measures of Loss
Level of loss (scale of 1 to 10) Rate damage to project objectives
High values indicate serious loss to the project
Example: Risk loss = 4 if project is considerably late, but has all functionality
Impact of monetary loss useful, if possible Long-term costs in operations and support
Long-term loss of market share or opportunity
Short-term cost in additional work
Example: Risk loss = $120,000 to add person-year of work
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Risk Exposure
• Risk probability
• Risk impact (loss)Components
• Risk exposure = risk probability x risk impactRisk exposure is the
total threat of the risk
• Risk exposure = 75% x 4 = 3.0
• Risk exposure = 60% x $120,000 = $72,000Example:
Focus on reducing risk exposure
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Ranking Risks
Rank the risks at a given
point in time
Rank in order of risk exposure (most to least
dangerous)
Look for breaks in values in the
list
Focus on actions for those at the top of the list
Review the list regularly
with the team
Add items as needed
Adjust exposure as appropriate
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Risk Mitigation Strategies
•Apply money or effort for controllable risks
•Use work-arounds for uncontrollable risksRisk reduction
• Insure the loss
• Involve a third party
•Tie a bonus to completion of the project
• Involve domain specialists
Risk transfer
•Some risks cannot be removed completely
•Balance cost of handling against exposure
Invest no more than needed
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Risk Contingency Plans
Devise contingency plans for
• high exposure risks, in case the mitigation strategy fails
• any risk for which there is no possible mitigation action
Specify risk measures and trigger values
• measures of time, resources to handle risk
• measures of risk impact
• trigger values that tell it is time to use contingency approach
Agree with customer and management at project start how contingency plans will be funded and handled
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Contingency Triggers
For risks leading to schedule slips
• Latest date to allow you to use alternative platforms
• Latest date to select another vendor
For risks requiring additional effort or
time
• Latest date to locate the resources
• Greatest amount of penalty or fine to incur
Limit for extra cost to the customer
Limit for learning time
Example Contingency Triggers
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Mitigation and Contingency - Example
• If key subject matter experts are not available by the first of June, we will be unable to deliver the project per the plan.
Risk Statement
• Cross train project staff with key subject matter experts, so work can proceed and decisions made if key experts are unavailable.
Risk Mitigation
• If by the first of April it is known that key experts will not be available, assign team members to learn the needed subject matter so the project can move forward without involving key experts.
Contingency Plan
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Communication is Essential!
Communicate risk information to all affected
parties
Encourage free flow of information about risk
• Place risk chart in a common location
• Use email or other team collaboration method (e.g. Wiki page) to identify new risks, change status, and indicate completion
• Encourage raising of new risks in weekly status reports, during inspections or reviews, and at major milestone reviews
Update Top Risks with team regularly
Review status of risks at key milestones
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What Would Be the Preferable Outcome?
What was delivered because risks weren’t managed
What could have been delivered if risks had been managed
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Repeated project failures due to unforeseen (but predictable) risks can cost you business
Risk management is the process of identifying the risks and handling those which are most threatening to the project, so that they don’t become problems
Risks can be easily managed using techniques such as: brainstorming risk factors risk exposure ranking mitigation communication
Summary
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Questions
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Consulting
• CMMI
• Software Engineering
• Systems Engineering
• Process Improvement
Appraising
• SCAMPI A, B, C
• Gap Analysis
Training
• CMMI/Process Improvement
• Action Planning Workshops
• Measurement and Analysis
• Process Area Specific Training
PPQC Services
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Address: Henry Schneider
President/Senior Principal Consultant
Process and Product Quality Consulting, LLC
2111 Heather Green
Houston, TX USA 77062
Phone: 281-218-6682
E-mail: henry@ppqc.net
Web Site: www.ppqc.net
Contact Information
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