bsbpmg407a apply risk management techniques apply risk management techniques project risk processes...

BSBPMG407A Apply Risk Management Techniques

Apply RiskManagement Techniques

Project Risk Processes Part 2

Certificate IV in Project Management 17871Qualification Code BSB41507

Unit Code BSBPMG407A


Project Risk Management Processes

PMBOK Project Risk Management Processes -

11.1 Plan Risk Management

11.2 Identify Risks

11.3 Perform Qualitative Risk Analysis

11.4 Perform Quantitative Risk Analysis

11.5 Plan Risk Responses

11.6 Monitor and Control Risks

Related processes from Project Integration Management –

4.1 Develop Project Charter

4.2 Develop Project Management Plan

4.6 Close ProjectPMBOK 4th Edition


Learning Objectives – Part 2

1. Understand qualitative and quantitative risk analysis

2. Describe standard tools that can be used for risk analysis

3. Understand the use of the Risk Register and how to manage and control high priority risks

4. Understand risk management processes and how to develop risk management strategies

5. Understand how to report on risk during a project

6. Understand how to assess risk management outcomes at the end of a project


Reading – Risk Processes Part 1

Please take some time to review –

• PMBOK Chapters 11.3, 11.4, 11.5, 11.6

• Risk Management Standard – AS/NZS 31000:2009

• Risk Management Companion- HB 327:2010

This could take 60 to 90 minutes



Adapted from PMBOK 4th Edition

Initiation Planning Execution Close

Monitor

Control

• The process of prioritising risks by assessing and combining their probability of occurrence and the consequences of their impacts

• Project performance can be improved by focussing limited resources on the high priority risks

• Qualitative risk analysis is the most common, fastest and most cost effective means of establishing risk priorities and planning risk responses

• It is critical to establish definitions of the levels of probability and impact so as to reduce the influence of bias

• Occurs during Planning



• Inputs to Qualitative Risk AnalysisDraft Risk Register

Risk Management Plan

Project Scope Statement

Organisational Process Assets -– Risk management standards

– Risk management policies and procedures

– Risk categories and definitions

– Standard templates

– Lessons learned from previous projects

– Risk databases and checklists

Adapted from PMBOK 4th EditionAdapted from PMBOK 4th Edition


Monitor

Control



• Tools and techniques for qualitative risk analysis

include -

RiskCategorisation

Risk Data QualityAssessment

Risk Probability &Impact Assessment Probability &

Impact Matrix

ExpertJudgement

Risk UrgencyAssessment


Probability and Impact Assessment

Likelihood = Probability

Consequences = Impact

• Qualitative Risk Analysis involves the estimation of the likelihood and consequences of each risk

• Quantitative Risk Analysis involves estimating the measurable impact on project objectives, specifically – Cost, Time, Scope and Quality


Basic Risk Analysis Matrix

• Determines - How risks are treatedHow closely they are

monitoredHow quickly they must be

resolved if they occur

• For example

Risk Management Guidelines – Companion to AS 4360:2004

MediumRisk

HighRisk

MediumRisk

LowRisk

ConsequenceLi

kelih

ood

Pro

bab

leIm

pro

ba

ble

Minor Major

Low Risk

Green Business as Usual

Acceptance

Medium Risk

Amber Heightened Action

Monitor Closely

High Risk

Red Immediate Action

Mitigate or Avoid


Likelihood and Consequences

Simple Likelihood Scale

Simple Consequences Scale

Rating Definition Scale

Almost Certain Will definitely occur or will occur on an annual cycle 5

Likely Similar events have been experience several times in the past 20 years 4

Possible Will occur once every 20 years 3

Unlikely Occurs from time to time 2

Rare Occurrence is possible but highly unlikely 1

Adapted from Risk Management Guidelines – Companion to AS 4360:2004

Rating Definition Scale

Severe Most objectives cannot be met 5

Major Some important objectives cannot be met 4

Moderate Some objectives impacted but may still be met

3

Minor Minor effects that can be remedied 2

Negligible Almost no impact on objectives 1


Risk Rating Matrix and Risk Urgency

Rating Severe Major Moderate Minor Negligible

Almost Certain

Red

25

Red

20

Red

15

Amber

10

Green

5

Likely Red

20

Red

16

Amber

12

Amber

8

Green

4

Possible Red

15

Amber

12

Amber

9

Green

6

Green

3

Unlikely Amber

10

Amber

8

Green

6

Green

4

Green

2

Rare Green

5

Green

4

Green

3

Green

2

Green

1

• Put your likelihood and consequence ratings together and what do you get?

Risk Rating = Likelihood x Consequences

Risk Urgency = RED, GREEN, AMBER


Risk Categorisation – Breakdown StructureProject Risk

Breakdown Structure

Project Management External Technical Organisational

Estimating

Planning

Controlling

Communication

Subcontractors &Suppliers

Regulatory

Market/Economy

External Customer

Environment

Requirements& Scope

Quality

Performance& Reliability

Complexity

Technology

Dependencies

PM Environment

Prioritisation

Funding

Human Resources

Methodology &Materials

Adaptations and additions to the example in the PMBOK

Adapted from PMBoK Guide – Fourth Edition



• Outputs of this process include –

Risk Register Updates– Likelihood and Impacts

Prioritised List of Project Risks

– Risks requiring response in near term

– Risks requiring additional analysis and response planning

Risks grouped by categories

Root cause analysis

Watch lists of low priority risks

Trend analysis



Monitor

Control


Risk ID

Risk Category

Risk Description Risk Owner

Likelihood Impact Risk Rating

Management /Mitigation Strategies

Residual Likelihood

Residual Impact

Residual Rating

Status Priority

Impact• Consequences of the risk occurring• Impacts on or more project objectives• Includes scope, time, cost & quality• Has both a number scale and definition• Requires judgement and prediction• More accurate if can leverage lesson learnt

Inclusions in Risk Register During Analysis


Management/Mitigation Strategies• Avoid – remove entirely• Mitigate – reduce likelihood or impact• Accept – normally for LOW risks• Transfer – to another party, eg contract or outsource

Likelihood• Probability of the risk occurring• Typically defined in a risk rating matrix• Has both a number scale and definition• Requires judgement and prediction• More accurate if can leverage lessons learnt

Risk Rating• Combines Likelihood and Impact• Normally multiplied together• Enables overall prioritisation of risks


Risk ID

Risk Category

Risk Description Risk Owner

Likelihood Impact Risk Rating

Management /Mitigation Strategies

Residual Likelihood

Residual Impact

Residual Rating

Status Priority

Residual Rating• Revised risk rating• Most important for risk monitoring

Inclusions in Risk Register During Analysis


Residual Likelihood• Probability of risk occurring after management or mitigation actions

Residual Impact• Impact of risk occurring after management or mitigation actions

Status• Typically RED, GREEN, AMBER

Priority• Typically HIGH. MEDIUM. LOW





Monitor

Control

• The process of numerically analysing the effect of identified risks on overall project objectives

• Typically only applied to risks with high priority due to potential to substantially impact the project’s objectives

• Enables a more rigorous approach to risk decision making in the presence of uncertainly

• Often omitted depending on the organisation’s risk appetite and maturity of the project and risk management processes




• Inputs to Perform Quantitative Risk Analysis -Draft Risk Register


Cost Management Plan

Schedule Management Plan

Organisational Process Assets -– Risk management standards

– Risk management policies and procedures

– Risk categories and definitions

– Standard templates

– Lessons learned from previous projects

– Risk databases and checklists



Monitor

Control



• Tools and techniques for Quantitative Risk Analysis include -

Interviews

SensitivityAnalysis

ProbabilityDistributions

Modelling &SimulationExpert

Judgement

Expected MonetaryValue Analysis

Decision TreeDiagrams



Interviews• Draw on experience of experts and historical data to quantify the probability

and impacts of risks on project objectives. Often Three-point data is gathered on pessimistic, likely and optimistic outcomes.

Probability Distributions – Advanced technique

• Discrete distributions represent uncertain events such as risks. Requires high degree of statistical skill and statistical software.

Sensitivity Analysis – Advanced technique

• Helps to determine which risks have the most potential impact on project objectives. Prioritisation undertaken in Qualitative Analysis is often sufficient.



Modelling and Simulation – Advanced techniques

• Uses a model to simulate the outcomes of the project, including the impact of uncertain events such as risks. Requires extensive data on past and similar projects, a high degree of statistical expertise and statistical software.

Expected Monetary Value Analysis – Advanced technique

• Extremely advanced technique. Rarely used except for Defence and Scientific projects such as space exploration. Specifically examines the impacts on cost of uncertain events.

Decision Tree Diagrams• Can be use in conjunction with Modelling and Simulation and Expected

Monetary Value Analysis, or can be prepared in a more informal manner. Enables analysis of different choices and paths.



• Outputs of this process include –

Risk Register Updates– Probabilistic analysis of the project

– Probability of achieving cost and time objectives

– Prioritised list of quantified risks

– Trends in risk analysis results



Monitor

Control





Monitor

Control

• The process of developing options and actions to reduce the threat and impacts of risks

• It includes the identification and assignment of one person to be the Risk Owner, as well as the selection of the best management or mitigation actions

• Planned risk responses must be appropriate to the significance of the risk and cost effective

• Can also be applied to the maximisation of the benefits from any identified possible opportunities (less common)




• Inputs to Plan Risk ResponsesRisk Register


• Tools and techniques to Plan Risk Responses include -


1. Avoid

2. Transfer

3. Mitigate

4. Accept

Negative Risks or Threats

1. Exploit

2. Share

3. Enhance

4. Accept

Positive Risks or Opportunities



Avoid• Changing the Project Management Plan to eliminate the risk entirely

Transfer • Shifting some or all of the ownership of a threat to third party and thus also

transferring the negative impact.

Mitigate• Undertaking risk responses that in some way reduce either the likelihood or

impact of the risk.

Accept• Passive acceptance requires no specific risk response action apart from

standard risk monitoring and reporting procedures.



• Outputs of this process include – Risk Register Updates

– Risk Owners Assigned

– Mitigation/Management Strategies defined and documented

– Residual Risk Ratings

Risk Action Plans - for specific high priority risks

Risk Related Contract Decisions Project Management Plan Updates

– Schedule management plan

– Cost management plan

– Quality management plan

– Procurement management plan

– Human resource management plan

– Work Breakdown Structure

– Schedule Baseline

– Cost Baseline

Assumptions Log UpdatesAdapted from PMBOK 4th Edition


Monitor

Control





Monitor

Control

• The process of implementing risk response plans, tracking residual risks, identifying new risks, and evaluating risk management effectiveness

• Risk Action Plans are included in the project lifecycle and managed by this process

• Can include activities such as choosing alternative strategies, executing a contingency or fallback plan, and modifying the project management plan accordingly

• The Risk Owner reports periodically to the Project Manager on the effectiveness of the Risk Action Plans and responses

• Occurs throughout the project



• Inputs to Monitor and Control RiskRisk Register

Risk Action Plans

Project Management Plan

Work Performance Information– Deliverable status

– Schedule progress

– Costs incurred

Performance Reports



Monitor

Control



• Tools and techniques to Monitor and Control Risks include -

Risk Audits

Technical PerformanceMeasurementRisk

Re-assessmentVariance &

Trend Analysis

StatusMeetings

ReserveAnalysis

StatusReports



Risk Re-assessment• Risk monitoring and control activities often result in the identification of new

risks, re-assessment of current risks and the closing of risks that no longer apply. Re-assessment sessions need to be scheduled regularly and risk registers, status reports and risk action plans updated as a result.

Risk Audits • Examine and document the effectiveness of risk responses. Often combined

with Risk Re-assessment activities.

Variance and Trend Analysis• Compares the planned results of risk responses and action plans to the

actual outcomes. Often combined with Risk Re-assessment activities.



Technical Performance Measurement – Advanced technique

• Measures the performance of technical accomplishments or deliverables. Can only be performed if quantifiable measures of technical performance are defined in the Project Management and Risk Management Plans.

Reserve Analysis• Compares the amount of risk reserves or contingency that remain at any

point in time to determine if it is adequate or can be adjusted up or down based on the performance of risk management activities.

Status Meetings • Project Risk Management and a review of the Risk Register should be on

the agenda for all Project Status Meetings.

Status Reports• Risk ratings and trends should be included in Project Status Reports for the

high priority risks.



• Outputs of this process include –Risk Register Updates

– Risk Re-assessments

– Risk Audits

– Risk reviews

– Risk Action Plans

Risk Management Plan Updates– Revised templates– Risk Breakdown Structure– Lessons learned from risk management activities

Change Requests– Corrective and Preventative Actions

Project Management Plan UpdatesProject Document Updates



Monitor

Control


Risk Analysis

Research Practice Comment

1. Consider why Quantitative Risk Analysis is seldom undertaken. Have you ever experienced it’s application on a project?

2. Give an example of a typical project risk that you have encountered including the Likelihood and Impact of the risk. Determine the Risk Rating and then the Residual Risk rating taking into account the risk response actions that you identified.

Then go to the Forum on Risk Analysis and load up your examples. Contribute to the examples provided by other students by identifying additional risk response actions that could be employed.


Next Steps

Please proceed to Tests & Tasks and take

the Project Risk Quiz.

Be sure that you have participated in the Forums.

Best of Luck!

These are all due at the end of Week 10 in the Course Delivery Schedule

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