Download - Qualitative & Quantitative Analysis
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Determine the project overall risk ranking
Document non critical risks
Determine which risk to further analyze or go directly to risk response planning
Determine the probability and impact
Determine which risk events warrant a response
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
The process of prioritizing risks for further analysis or action by assessing and combining their probability of occurence and impact
Assign Probability • High,
Medium, Low
Assign Impact • High,
Medium, Low
Calculate the Severity • Probability x
Impact
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
• Describe in qualitative terms: – High, moderate, low
• Risk probability is the likelihood that a risk will occur
• Risk consequence is the effect on project objectives if the risk event occurs
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
1. Estimate Probability • 10% through
90%
2. Estimate Impact • High=3 • Medium=2 • Low=1
3. Calculate the Severity • Probability x
Impact = Severity
4. Use Severity to identify • the risks worth
planning
Risk Description Probability (0.1 – 0.9)
Impact (1 – 3)
Severity (P * I))
Resources may be constrained due to team members working on multiple projects with conflicting priorities
70% 2 1.4
Significant schedule delays may occur because the team is unfamiliar with the new application
80% 3 2.4
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
• A condition based on the combined probability and impact scales
• Risk probability scale: – General scale : 0.0 (no probability) up to 1.0 (certainly) – Ordinal scale : very unlikely to almost certain
• Risk impact scale: – Ordinal scale : very low, low, moderate, high, very high – Cardinal : linear or non linear
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Medium High High
Medium Medium High
Low Medium Medium
High
High
Medium
Medium
Low
Low
Prob
abilit
y
Impact
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Probabil ity-Impact (P-I) matrix: the multiplication of t h e s c a l e v a l u e o f probability and impact (P x I). The result is classified into high risk, moderate risk, or low risk
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
… or numeric:
Risk Score = P x I
Very Low 0.1 1
Low 0.3 2 Moderate 0.5 3 High 0.7 4 Very High 0.9 5
Negligible 0.1 1 Low 0.3 2
Moderate 0.5 3 Severe 0.7 4 Catastrophic 0.9 5
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Code Risk Probabi l i ty Effects
R1 Organisational financial problems force reductions in the project budget.
Low Catastrophic
R2 Difficulties to recruit staff with the skills required for the project.
High Catastrophic
R3 Key staff are ill at critical times in the project.
Moderate Severe
R4 Software components that should be reused contain defects which limit their functionality.
High Severe
R5 Changes to requirements that require major design rework are proposed.
Moderate Severe
R6 The organisation is restructured so that different management are responsible for the project.
High Severe
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Code Risk Probabi l i ty Effects
R7 The database used in the system cannot process as many transactions per second as expected.
Moderate Severe
R8 The time required to develop the software is underestimated.
High Severe
R9 CASE tools cannot be integrated. High Low
R10 Customers fail to understand the impact of requirements changes.
Moderate Low
R11 Required training for staff is not available. Moderate Low
R12 The rate of defect repair is underestimated. Moderate Moderate
R13 The size of the software is underestimated. High Moderate
R14 The code generated by CASE tools is inefficient. Moderate Negligible
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Negligible Low Moderate Severe Catastrophic
Very High
High R9 R13 R4, R6, R8 R2
Moderate R14 R10, R11 R12 R3, R5, R7
Low R1
Very Low
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Negligible Low Moderate Severe Catastrophic
Very High
High R9 R13 R4, R6, R8 R2
Moderate R14 R10, R11 R12 R3, R5, R7
Low R1
Very Low
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Negligible Low Moderate Severe Catastrophic
Very High
High R9 R13 R4, R6, R8 R2
Moderate R14 R10, R11 R12 R3, R5, R7
Low R1
Very Low
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
• Approach: Expected monetary value analysis. It computes the expected monetary outcome (according to different statistical criteria) of a decision/risk – Technique: Decision tree analysis. Technique that helps
solving the EMV analysis.
• Approach: Modeling. Provide a model of the project. – Technique: Sensitivity analysis. Helps determining which
risks have the most impact by examining one variable at a time. (Tornado diagrams)
– Technique: simulation, Monte Carlo technique.
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Example 1: • You are organizing the international conference.
There is 20% probability that paper prices will increase by 15%, thus costing you IDR 2 million in funding. What is the expected monetary value of the cost increase?
• EMV = 0.2 * 2,000,000 = 400,000 rupiahs.
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Risk Probability Maximum $ Impact of Risk
Contingency $ required
A 40% (30,000) (12,000
B 35% 20,000 7,000
C 50% 40,000 20,000
D 20% 70,000 14,000
Total Add $29,000 to your budget for contingency reserve needs 29,000
You are a project manager of construction project. You identify that there are four risks affect your project.
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
• If Risk C occurs, how much is left in contingency reserves? – Contingency Reserves : $ 29,000 – Total required for Risk C : $ 40,000 (negative risk) – Remaining amount : $ -11,000
• If Risk A occurs, how much is left in contingency reserves? – Contingency Reserves : $ 29,000 – Total required for Risk A : $ 30,000 (positive risk) – Remaining amount : $ 59,000
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
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2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Choose the Vendor
Vendor A will cost $70,000?
Vendor B will cost $63,000
Delay will cost you $17,000
No Delay – No Cost
Delay will cost you $17,000
CNo Delay – No Cost
10%
Initial Cost Risk Cost Probability Total
Vendor A $70,000 $17,000,000 10% $71,700
Vendor B $63,000 $17,000,000 15% $65,550
90%
15%
85%
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
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• Sensitivity analysis is a technique used to show the effects of changing one or more variables on an outcome.
• For example, many people use it to determine what the monthly payments for a loan will be given different interest rates or periods of the loan, or for determining break-even points based on different assumptions.
• Spreadsheet software, such as Excel, is a common tool for performing sensitivity analysis.
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
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2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Negative impact Positive impact • To r n a d o D i a g r a m s i s general ly the result of Sensitivity Analysis – A diagram to analyze project
sensitivity to cost or other factors
– Ranks the bars from greatest to least on the project
Analysis to define the risk that has the most potential impact on the project
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
• Introduce Monte Carlo Analysis as a tool for managing uncertainty
• Demonstrate how it can be used in the policy setting
• Discuss its uses and shortcomings, and how they are relevant to policy making processes
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Copyright © 2004 David M. Hassenzahl
q It is a tool for combining distributions, and thereby propagating more than just summary statistics
q It uses random number generation, rather than analytic calculations
q It is increasingly popular due to high speed personal computers
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
q “Monte Carlo” from the gambling town of the same name (no surprise)
q First applied in 1947 to model diffusion of neutrons through fissile materials
q Limited use because time consuming q Much more common since late 80’s q Too easy now?
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
• Takes an equation – example: Risk = probability × consequence
• Instead of simple numbers, draws randomly from defined distributions
• Multiplies the two, stores the answer • Repeats this over and over and over… • Then the set of results is displayed as a new,
combined distribution
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
• A model to translate the uncertainties into potential impact to project objective. Performed using Monte Carlo techniques
• Monte Carlo Simulation can be used to determine how much the project or how long it will take
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
• Could write this program using a random number generator
• But, several software packages out there. • Using Crystal Ball or @Risk
– user friendly – customizable – r.n.g. good up to about 10,000 iterations
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
OPPORTUNITIES • EXPLOIT • SHARE • ENHANCE • ACCEPTANCE
THREATS • AVOID • TRANSFER • MITIGATE • ACCEPTANCE
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Avoi
danc
e Is a very appropriate tool for working with undesirable risk in many circumstances Changing the project plan to eliminate the risk or condition or to protect the project deliverables from its impact
Tran
sfer
Transferring the risk impact to a third party together with the ownership of responses Contractual agreements and insurance are common ways to transfer risks
Mitig
atio
n Means to make it less e.g. using proven technology to lessen the probability that the product does not work), reducing the risk event value (e.g. buying insurance, use of fixed contract), or both
Acce
ptan
ce
Accepting the consequences Acceptance can be active (e.g.by developing a contingency plan to execute if the risk event occurs) or passive (e.g.by accepting a lower profit if some activities overrun) May be the best strategy if the cost or impact of the other strategies is too great
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Enha
nce Sh
are
Acce
pt
Expl
oit Trying to remove
any uncertainty Examples of directly exploiting responses include assigning the organization’s most talented resources to the project to reduce the time to completion, or to provide better quality than originally planned
In order to share a positive risk, the project seeks to improve their chances of the risk occurring by working with another party Examples of sharing actions include forming risk-sharing partnership, teams, special purpose companies, or joint ventures
This strategy is used to increase the probability and/or the positive impact of an opportunity Examples of enhancing opportunities include adding more resources to an activity to finish early
Accepting an opportunity is willing to take advantage of it if the opportunity comes along, but not actively pursuing it
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Negative Risk Response Strategies Positive Risk Response Strategies
AVOID (Eliminate the Cause)
TRANSFER (Find 3rd party to be
accountable or do work)
MITIGATE (Reduce probability and/or
impact)
EXPLOIT (Enable the Cause) CAUSE
OUTSOURCE
PROBABILITY & IMPACT
Negative or Positive Risk Response Strategies
ACCEPT (No actionable response)
Remove ac?vi?es or people
Ex: Insurance Fixed Price Contract
Ex: Training Prototype
Add ac?vi?es or people
Investors Partnering
Ex: Incen?ves
SHARE (Find 3rd party to support and
share in gain)
ENHANCE (Increase probability and/or
impact)
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Transfer/Share
Avoid/Exploit
Accept Mitigate/Enhance
High Probability
Low Probability
Low Impact High Impact
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
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Technical Risks Cost Risks Schedule Risks Emphasize team support and avoid stand-alone project structure
Increase the frequency of project monitoring
Increase the frequency of project monitoring
Increase project manager authority
Use WBS and CPM Use WBS and CPM
Improve problem handling and communication
Improve communication, project goals understanding, and team support
Select the most experienced project manager
Increase the frequency of project monitoring
Increase project manager authority
Use WBS and CPM
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Cont
ingen
cy P
lans A plan that you
implement if a risk occurs during project execution.
Fallb
ack
Plan
s Plan B, which is to be implemented if the contingency plan failed. W
orka
roun
ds
Unplanned responses for unplanned risks that occur during project execution. Both risk and responses are not planned.
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Secondary Risks • Risks are generated from implementing the risk response. • Secondary Risk should never have a higher Risk Rating
than the primary risk it is associated with. • For example, a response to use a even organizer to
organize a conference could lead to potential even organizer management risks. Document the event organizer management risks as Secondary Risks.
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Residual Risks • The remaining risk after a Risk Response Plan or Contingency Plan is
implemented. • For example, a response may address 80% of the risk impact, so, the
remaining 20% represents the Residual Risk. • Contingency Plans or Fallback Plans should be in place to respond to
known Residual Risks. • New Residual Risks may be discovered during a Risk Audit, log on
the Risk Register and Perform Qualitative Risk Analysis.
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Cont
ingen
cy R
eser
ves Money or time
assigned to deal with accepted risk, if they occur. Reserves for known unknown risk.
Man
agem
ent R
eser
ves Money or time
assigned to deal with risks that occur during project execution. Reserves for unknown unknown risk. May require a change to the schedule and cost baseline
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Ac?vity Es?mates Work Packages Control
Account Project Es?mate
Con?ngency Reserve Cost Baseline Management
Reserve Cost Budget
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Cost of the activities
Contingency reserves (based on the EMV of the risks cost)
Management reserves.
Project budget
Critical path duration
Contingency reserves
Management reserves.
Project schedule
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Pass
ive A
ccep
tanc
e To accept a risk without a contingency reserve. No action except to document the strategy, leaving the project team to deal with the risks as they occur, and to periodically review the threat to ensure that it does not change significantly
Activ
e Ac
cept
ance
To accept a risk with a contingency reserve, including amounts of time, money, or resources to handle the risks.
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Risk
Rea
sses
smen
t Monitor and control risk often results in identification of new risks and reassessment of risk, and should be scheduled regularly
Risk
Aud
it Risk audit examines and documents the effectiveness of risk responses in dealing with identified risks and their root causes, as well as the effectiveness of the risk management process
Varia
nce
and
Tren
d An
alysis
Variance analysis focuses on the difference between what was planned and what was executed Trend analysis shows how performance is trending
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
49
Monthly Ranking
Risk Item This Month
Last Month
Number of Months
Risk Resolution Progress
Inadequate planning
1 2 4 Working on revising the entire project plan
Poor definition of scope
2 3 3 Holding meetings with project customer and sponsor to clarify scope
Absence of leadership
3 1 2 Just assigned a new project manager to lead the project after old one quit
Poor cost estimates
4 4 3 Revising cost estimates
Poor time estimates
5 5 3 Revising schedule estimates
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
Risk Event Category Effect to
Project Root
Causes Triggers Potential Response Risk Owner Probability Impact Risk
Score Status
Initial Initial Add in this process The Urgent List for high priority risk
Risk that are high priority place on the Urgent List. Responses are developed. Low priority risks are placed on Watch List. Responses are developed if Risk Score increases. The Watch List for low priority risk
2014 © Alin Veronika Qualitative & Quantitative Risk Analysis
• Each Group consists of 4 people • Project Case Study • Report Outline
– Chapter 1: Introduction – Chapter 2: Project Description – Chapter 3: Risk Management Theory – Chapter 4: Data Collection and Data Analysis – Chapter 5: Discussion – Chapter 6: Conclusion
• Task Duration: 2 Weeks