episode 25 : project risk management

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  • SAJJAD KHUDHUR ABBASChemical Engineering , Al-Muthanna University, IraqOil & Gas Safety and Health Professional OSHACADEMYTrainer of Trainers (TOT) - Canadian Center of Human Development Episode 25 : Project Risk Management

  • *Project Risk Management

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  • *Learning ObjectivesUnderstand what risk is and the importance of good project risk management.Discuss the elements involved in risk management planning and the contents of a risk management plan.List common sources of risks in engineering and information technology projects.Describe the risk identification process, tools, and techniques to help identify project risks, and the main output of risk identification, a risk register.

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  • *Learning ObjectivesDiscuss the qualitative risk analysis process and explain how to calculate risk factors, create probability/impact matrixes, apply the Top Ten Risk Item Tracking technique, and use expert judgment to rank risksExplain the quantitative risk analysis process and how to apply decision trees, simulation, and sensitivity analysis to quantify risks.Provide examples of using different risk response planning strategies to address both negative and positive risks.Discuss what is involved in risk monitoring and control.Describe how software can assist in project risk management.

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  • *IntroductionRisk management is concerned with identifying risks and drawing up plans to minimise their effect on a project.A risk is a probability that some adverse circumstance will occur Project risks affect schedule or resources;Product risks affect the quality or performance of the product being developed;Business risks affect the organisation developing or procuring the product.

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  • *The ImportanceProject risk management is the art and science of identifying, analyzing, and responding to risk throughout the life of a project and in the best interests of meeting project objectives.Risk management is often overlooked in projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates.

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  • *Research Shows Need to Improve Project Risk ManagementStudy by Ibbs and Kwak shows risk has the lowest maturity rating of all knowledge areas.KLCI study shows the benefits of following good software risk management practices.KPMG study found that 55 percent of runaway projectsprojects that have significant cost or schedule overrunsdid no risk management at all.*

    *Cole, Andy, Runaway ProjectsCause and Effects, Software World, Vol. 26, no. 3, pp. 35 (1995).

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  • *Table 11-1. Project Management Maturity by Industry Group and Knowledge Area*KEY: 1 = LOWEST MATURITY RATING 5 = HIGHEST MATURITY RATING*Ibbs, C. William and Young Hoon Kwak. Assessing Project Management Maturity, Project Management Journal (March 2000).

    Knowledge AreaEngineering/ ConstructionTelecommunications Information SystemsHi-Tech ManufacturingScope3.523.453.253.37Time3.553.413.033.50Cost3.743.223.203.97Quality2.913.222.883.26Human Resources3.183.202.933.18Communications3.533.533.213.48Risk2.932.872.752.76Procurement3.333.012.913.33

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  • *Figure 11-1. Benefits from Software Risk Management Practices**Kulik, Peter and Catherine Weber, Software Risk Management Practices 2001, KLCI Research Group (August 2001).

    Chart2

    0.8

    0.6

    0.47

    0.47

    0.43

    0.35

    0.06

    Sheet1

    Anticipate/avoid problems80%

    Prevent surprises60%

    Improve ability to negotiate47%

    Meet customer commitments47%

    Reduce schedule slips43%

    Reduce cost overruns35%

    None6%

    Sheet1

    Sheet2

    Sheet3

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  • *Negative RiskA dictionary definition of risk is the possibility of loss or injury.Negative risk involves understanding potential problems that might occur in the project and how they might impede project success.Negative risk management is like a form of insurance; it is an investment.

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  • *Risk Can Be PositivePositive risks are risks that result in good things happening; sometimes called opportunities.A general definition of project risk is an uncertainty that can have a negative or positive effect on meeting project objectives.The goal of project risk management is to minimize potential negative risks while maximizing potential positive risks.

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  • *Risk UtilityRisk utility or risk tolerance is the amount of satisfaction or pleasure received from a potential payoff.Utility rises at a decreasing rate for people who are risk-averse.Those who are risk-seeking have a higher tolerance for risk and their satisfaction increases when more payoff is at stake.The risk-neutral approach achieves a balance between risk and payoff.

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  • *Figure 11-2. Risk Utility Function and Risk Preference

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  • *Example of risks for software projects

    Risk

    Affects

    Description

    Staff turnover

    Project

    Experienced staff will leave the project before it is finished.

    Management change

    Project

    There will be a change of organisational management with different priorities.

    Hardware unavailability

    Project

    Hardware that is essential for the project will not be delivered on schedule.

    Requirements change

    Project and product

    There will be a larger number of changes to the requirements than anticipated.

    Specification delays

    Project and product

    Specifications of essential interfaces are not available on schedule

    Size underestimate

    Project and product

    The size of the system has been underestimated.

    CASE tool under-performance

    Product

    CASE tools which support the project do not perform as anticipated

    Technology change

    Business

    The underlying technology on which the system is built is superseded by new technology.

    Product competition

    Business

    A competitive product is marketed before the system is completed.

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  • *Project Risk Management ProcessesConsists of the following processes:Risk management planning: Deciding how to approach and plan the risk management activities for the project.Risk identification: Determining which risks are likely to affect a project and documenting the characteristics of each.Qualitative risk analysis: Prioritizing risks based on their probability and impact of occurrence.

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  • *Project Risk Management Processes (contd)Quantitative risk analysis: Numerically estimating the effects of risks on project objectives.Risk response planning: Taking steps to enhance opportunities and reduce threats to meeting project objectives.Risk monitoring and control: Monitoring identified and residual risks, identifying new risks, carrying out risk response plans, and evaluating the effectiveness of risk strategies throughout the life of the project.

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  • *Project Risk Management Overview

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  • *Figure 2.3: Procedure for Carrying Out Risk Assessment *From:Guidelines on Risk and Hazard Assessment, Jabatan Alam Sekitar MalaysiaDifferent type of risk for hazardous material

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  • *RISK MANAGEMENT PLANNINGIs the process of deciding how to approach and plan the risk management activities for a projectImportant to plan for the risk management processes that follow to ensure that the level, type, and visibility of risk management are commensurate with both the risk and importance of the project to the organization

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  • *Tools and TechniquesPlanning meetingsPlanning meetings to develop risk management plan.Attendees : project manager, project team leaders, anyone in the organization with responsibility to manage the risk planning and execution activities, key stakeholders, othersUse templates or other inputs as appropriate

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  • *OutputsRisk management planDescribes how risk identification, qualitative and quantitative analysis, response planning, monitoring and control will be structured and performed during the project life cycleInclude the following:MethodologyDefine the approaches, tools and data sources that may be used to perform risk management Different type of assessments depending upon the project stage, amount of information available and flexibility remaining in risk management

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    Include the following:Roles and responsibilitiesDefines the lead, support and risk management team membership for each type of action in the planTeams organized outside of the project office may be more independent and unbiased towards the project Budgeting budget for risk managementTimingDefines how often the risk management process will be performed throughout the project life cycleScoring and interpretationMethods appropriate for the type and timing of the qualitative and quantitative risk analysis being performedMethods and scoring must be determined in advance to ensure consistency

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    Include the following:ThresholdsThreshold criteria for risks that will be acted upon, by whom and in what mannerDifferent threshold for project owner, customer or sponsorAcceptable threshold forms the target against which to measure effectiveness of the risk response plan executionReporting formatsContent and format of the risk response planDefines how the results of the risk management processes will be documented, analyzed and communicated to the project teams, internal and external stakeholders, sponsors etcTrackingDocuments how all facets of risk activities will be recorded for the benefit of the current project, future needs and lessons learned

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  • *Risk Management PlanningThe main output of risk management planning is a risk management plana plan that documents th

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