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Page 1Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 1
Project risk management:Best practice &
future developments
Presented byDr David Hillson FAPM FIRM PMP
Director Risk Doctor & Partnersdavid@risk-doctor.com www.risk-doctor.com
© 2004-8 David Hillson/Risk Doctor Limited, Slide 2
What is “ best practice ”?
� “ Routine activities that lead to excellence ”
� Not “ what everyone does ”…… but “ what everyone should do ”
� Accepted by leading professionals
� Implemented by leading practitioners
� Widely accessible
� Scaleable, easily tailored or modified
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Page 2Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 3
Uncertainty is everywhere …
… but
© 2004-8 David Hillson/Risk Doctor Limited, Slide 4
�Risk = Uncertainty
True or False ?
Risk = Uncertainty that matters(i.e. can affect objectives )
Risk and uncertainty
≠
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Page 3Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 5
Two dimensions of risk
Risk has two dimensions :1. uncertainty2. effect on objectives
“impact”
“probability”
Risk connects uncertainty with objectives
© 2004-8 David Hillson/Risk Doctor Limited, Slide 6
Traps and cheese
� What kind of impact “ matters ”?
� Could be either positive or negative
� Uncertainty that helps as well as uncertainty that harms
� Both need managing proactively
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Page 4Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 7
“An uncertain event or condition that, if it occurs, has a e ffect on
a project objective ”(PMI® PMBoK Ch 11)
Risk includes both opportunities & threats
positive or negative
What is a risk?
Risk connects uncertainty with objectives
© 2004-8 David Hillson/Risk Doctor Limited, Slide 8
Best-practice concepts
1. Risk is “ uncertainty that matters ”
2. Risk is defined against objectives
3. Risk includes both opportunity & threat
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Page 5Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 9
Implementation & review
Initiation/Establish context
Riskidentification
Qualitative riskassessment
Quantitative riskanalysis
Risk response development
Generic risk management process
© 2004-8 David Hillson/Risk Doctor Limited, Slide 10
Risk process initiation
“ Set the scope, objectives and context for the risk management process ” (PRAM Guide)
“ The process of deciding how to approach & plan risk management activities for a project ” (PMBoK)
�Ensure level, type & visibility of process match:� riskiness of project� importance of project to organisation
�Output : Risk Management Plan
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Page 6Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 11
Risk process initiation best practice
1. Essential to define scope & objectives first
2. Risk process is scaleable
© 2004-8 David Hillson/Risk Doctor Limited, Slide 12
�
?____
?____
?____
TRIALS & ACCEPTANCE
SUBCONTRACT SOFTWARE
DEVELOPMENT
IN HOUSE SOFTWARE
DEVELOPMENT
PREPARE DETAILED
DESIGN SPECIFICATION
Risk identification
� Aim to expose “all” knowable risks
� Common risk id techniques :� brainstorming/workshops
� prompt lists/check lists
� assumptions analysis
� interviews/questionnaires
� other techniques� document review
� Delphi groups
� diagramming techniques
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Page 7Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 13
Separate risks from non-risks
� A risk is not an issue� Risk = uncertain future event that matters� Issue = certain present event that matters
� A risk is not a cause or an effect� Cause = current fact or condition,
may give rise to risk� Effect = dependent result of a risk
if it happens
CAUSE
EFFECT
RISK
Need clear unambiguous risk descriptions
© 2004-8 David Hillson/Risk Doctor Limited, Slide 14
Risk metalanguage
� A structured description of a risk which separates cause , risk and effect
“As a result of <1. existing condition >,<2. uncertain event > may occur,which would lead to <3. effect on objectives >”
� Key words :1. is, do, has, has not … [present condition]2. may, might, possibly … [uncertain future]3. would, could … [conditional future]
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Page 8Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 15
Risk identification best practice
1. Use multiple identification techniques
2. Separate risks from non-risks
3. Use risk metalanguage for clear descriptions
© 2004-8 David Hillson/Risk Doctor Limited, Slide 16
Risk assessment/analysis
� Qualitative assessment
� What is the risk?
� Why might it occur?
� How likely is it? ( Probability )
� How bad/good might it be? ( Impacts )
� Does it matter?
� What can we do?
� When should we act?
� Who is responsible?
� Record/analyse in Risk Register
� Quantitative analysis
� modelling uncertainty
� simulate combined effect of risks
� predicting outcomes
� range, min/max, expected
� testing scenarios
� setting confidence limits
� identifying criticalities
� determining options
� Model in software
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Page 9Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 17
Qualitative techniques
2. Risk categorisation (RBS)� common sources� “hot-spots” of exposure
IMPACT
VHI
HI
MED
LO
VLO
VLO LO MED HI VHI
PR
OB
AB
ILIT
Y
ReliabilitySafetyPerformance
TechnicalRisk
ProjectRisk
ManagementRisk
CommercialRisk
Contractual OrganisationalResources Information Communication
1. Probability/Impact Matrix� define terms HI/MED/LO� prioritise risks R/Y/G
© 2004-8 David Hillson/Risk Doctor Limited, Slide 18
VHI
HI
MED
LO
VLO
POSITIVE IMPACT(Opportunities)
VHI HI MED LO VLO
PR
OB
AB
ILITY
NEGATIVE IMPACT(Threats)
VHI
HI
MED
LO
VLO
VLO LO MED HI VHI
PR
OB
AB
ILIT
Y
The “mirror” double P-I Matrix
THEATTENTION
ARROW
Use two matrixes : rotate opportunity half
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Page 10Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 19
Qualitative risk assessmentbest practice
1. Define terms for probability & impacts
2. Use double P-I Matrix for threats and opportunities
3. Group risks using RBS
© 2004-8 David Hillson/Risk Doctor Limited, Slide 20
Quantitative techniques
� Sensitivity analysis
� Decision trees
�Statistical simulation (Monte Carlo)
DECISION: Accept 6month Purchase Agreement?
EXPECTED COST (M£): 11.256
EVENT: Price increase £1050/tonProbability: 0.500Cost (M£): 12.600EXPECTED COST (M£): 12.600
EVENT: No change in priceProbability: 0.250Cost (M£): 12.000
EXPECTED COST (M£): 12.000
EVENT: Price falls to £850/tonProbability: 0.250Cost (M£): 10.200EXPECTED COST (M£): 10.200
ALTERNATIVE : Accept £938/tonCost (M£): 11.256EXPECTED COST (M£): 11.256
ALTERNATIVE : Decline the offerCost (M£): 0EXPECTED COST (M£): 11.850
0
10
20
30
40
50
60
0
10
20
30
40
50
60
70
80
90
100
Cum
ulat
ive
prob
abili
ty c
urve
(%
)
Ear
ly F
inis
h F
requ
ency
his
togr
am
Based on 1000 trialsMean = 29 JuneStandard deviation = 25 daysEach bar represents 3 days
6 Sept26 July14 June3 May
An Oil Field DevelopmentEarly Finish Histogram for Activity G44 (1st Oil)
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Page 11Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 21
Quantitative risk analysisbest practice
1. Only use when appropriate (large, complex or important projects)
2. Use with care (GIGO)
© 2004-8 David Hillson/Risk Doctor Limited, Slide 22
Risk response development
� Using risk information to make decisions
� Based on :� type & nature of risk� manageability� impact severity� resource availability� cost-effectiveness
� Identify :� best owner for response� appropriate response� effective management action
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Page 12Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 23
Avoid
Reduce
Transfer
Accept
THREAT GENERIC STRATEGY OPPORTUNITYELIMINATE UNCERTAINTY
CHANGE SIZE
INVOLVE OTHERS
TAKE THE RISK
Exploit
Enhance
Share
Accept
Strategy before Tactics ���� Focus
Risk response strategies
© 2004-8 David Hillson/Risk Doctor Limited, Slide 24
Response developmentbest practice
1. Adopt strategic approach to create focus
2. Give equal attention to both opportunities and threats
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Page 13Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 25
Implementation & Review
� Many risk processes have nothing between Response Development and Review
� Where do we implement agreed actions?� Pass into routine project activity� Monitored via regular project process
Danger point !!!
© 2004-8 David Hillson/Risk Doctor Limited, Slide 26
Implementation & Review
� Turn responses into actions
� Ensure ownership� Risk Owner & Action Owners
� Take proactive action
� Evaluate resulting position� Risk reviews
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Page 14Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 27
Implementation & Reviewbest practice
1. Do it ! (remember the frogs)
2. Check for change3. Do it again
© 2004-8 David Hillson/Risk Doctor Limited, Slide 28
Best practice summary
� What everyone should do, not what everyone does!
� Where are you?
� Where do you want to be? IT WAS AT THAT MOMENT THAT
LENNY KNEW HE WAS DIFFERENTFROM THE OTHER LEMMINGS
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Page 15Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 29
The way ahead?
© 2004-8 David Hillson/Risk Doctor Limited, Slide 30
Vision for the future
� Risk management is not static
� still developing and moving forward
� Three areas for development
� integration
� increased depth & breadth
� behavioural aspects
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Page 16Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 31
Integration
� Integral to management of projects� culture� process� tools
� Integral to corporate culture� Enterprise risk management
� across the business, top to bottom
� Total Risk Management (TRM) :� a way of thinking� attitudes lead to actions
© 2004-8 David Hillson/Risk Doctor Limited, Slide 32
Increased depth & breadth
� Depth of risk analysis� better tools & techniques
� user-friendly� functionality� integration
� use of AI, IKBS, expert systems� knowledge management� learning from experience
� draw on other disciplines� value management� system dynamics� safety and hazard analysis� scenario planning
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Page 17Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 33
Increased depth & breadth
� Breadth of application� not just threats to project time & cost
� risk as opportunity� other objectives : performance, quality …� soft objectives : environment, HF, reputation …
� programme/portfolio risk assessment� inter-project issues
� business risk assessment� business drivers, investment appraisal� corporate governance, holistic risk
© 2004-8 David Hillson/Risk Doctor Limited, Slide 34
Behavioural aspects
� Risk is not managed by robots� Human psychology is major influence� Risk attitudes affect risk process
� Awareness ���� understanding ���� change
� Aim for “risk maturity”� Appropriate choice of attitude & approach to
meet specific needs of situation
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Page 18Copyright © 2004-8 David Hillson/Risk Doctor Limited
© 2004-8 David Hillson/Risk Doctor Limited, Slide 35
Where are we going?
� Project risk management has a future� not just a passing fad
� Develop or die� pioneers or settlers
� Do it - because it works!
j d i !!j d i !!j d i !!j d i !!
© 2004-8 David Hillson/Risk Doctor Limited, Slide 36
More information from David Hillson
david@risk-doctor.com www.risk-doctor.com
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