chapter 7 copyright © 2010 pearson education, inc. publishing as prentice hall 7-1 risk management
TRANSCRIPT
Chapter 7
Copyright © 2010 Pearson Education, Inc. Publishing
as Prentice Hall 7-1
Risk Management
1- Introduction: Risk
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Risk management - the art and science of identifying, analyzing, and responding to risk factors throughout the life of a project and in the best interest of its objectives.
Project risk – any possible event that can negatively affect the viability of a project
Risk Vs Amount at Stake
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Phase 1 Conceive
(C)
Phase 2 Develop
(D)
Phase 3 Execute
(E)
Phase 4 Finish
(F)
Time
$ V
alue
Incr
easi
ng R
isk
Total Project Life Cycle
Amount at stake
Plan Produce
Opportunity and riskPeriod of highest
risk impact
Combined risk impact
Process of Risk Management
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What is likely to happen?
What can be done?
What are the warning signs?
What are the likely outcomes?
Risk is based on a simple equation:
Project Risk = (Probability of Event)(Consequences of Event)
2- Four Stages of Risk Management
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1. Risk identification
2. Analysis of probability and consequences
3. Risk mitigation strategies
4. Control and documentation
Risk Clusters
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Risk fall into one or more classifications:
FinancialTechnical
Common Types•Absenteeism•Resignation•Staff pulled away•Time overruns
• Skills unavailable• Ineffective Training• Specs incomplete• Change orders
CommercialExecutionContractual/
Legal
Risk Factor Identification
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Brainstorming meetings: Brainstorming meetings: Bringing the members of the project team, clients
and top management can generate a good list of potential risk factors.
Expert opinionExpert opinion: The more quantifiable method is referred to Delphi
approach. It collects and consolidates the judgments of isolated anonymous
respondents.
Past history: Past history: Experience can be used not only to identify risk factors but
their leading indicators as well.
Multiple (or team based) assessmentsMultiple (or team based) assessments: A team based approach to risk
factor identification encourages identification of a more comprehensive set of
potential project risks.
Risk Impact Matrix
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ConsequencesLi
kelih
ood
Hig
hLo
w
Low High
Project Risk Scoring
1. Identify factors and assess the probability (Pf ) and consequences (Cf) of failure
2. Calculate overall probability & consequence
3. Calculate overall risk factor
4c s r p
f
C C C CC
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3m c d
f
P P PP
( )( )f f f fRF P C P C
Risk evaluation
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Risk evaluation
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Risk Mitigation Strategies
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Accept Rik: Accept Rik: The decision “ to do nothing” is a reasoned calculation, not the result of inattention or incompetence.
Minimize Risk : Minimize Risk : The risk for Boeing in the event of faulty parts leading to a catastrophic failure are huge.
Share Risk: Share Risk: risk may be allocated proportionally among multiple members of the project.
Transfer risk: Transfer risk: in some circumstances, when it is possible to change the nature of the risk, either through elimination or minimization, it may be possible to shift the risks bound up in a project to another party.
Risk Mitigation Strategies
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Contingency Reserves Contingency Reserves : include managerial or financial methods to mitigate risk.Task contingencyTask contingency: is used to offset budget cutbacks,
schedule overruns, or other unforeseen circumstances occurring to individuals tasks. These budget can be a very valuable form of risk management.
Managerial contingencyManagerial contingency: is budget safety measures that address higher level risks.
Mentoring: Mentoring: junior or inexperienced project personnel are paired with senior managers in order to help them learn best practices.
Cross training: Cross training: it requires that the team members not only learn their own duties but also the roles of others.
Control & Documentation
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Help managers classify and codify risks, responses, and outcomes
Change management report system answers
What? Identify clearly the source of risk.Identify clearly the source of risk.
Who? Assign a project team member direct Assign a project team member direct
responsibility for following the issue and maintaining the responsibility for following the issue and maintaining the
ownership regarding its resolution.ownership regarding its resolution.
When? Establish a clear time frame.Establish a clear time frame.
Why? Pinpoint the most likely reason for the risk.Pinpoint the most likely reason for the risk.
How? Create a detailed plan for how the risk is to be Create a detailed plan for how the risk is to be
abated.abated.
Project Risk Analysis & Management
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Extends risk management over project’s life cycle
Key Features of PRAMRisk management follows a life cycleRisk management strategy changes over
the project life cycleSynthesized, coherent approach
Nine Phases of Risk Assessment
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1.Define2.Focus3. Identify4.Structure5.Clarify ownership of risks6.Estimate7.Evaluate8.Plan9.Manage
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