Episode 25 : Project Risk Management
Post on 14-Jan-2017
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
*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.
*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.
*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.
*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.
*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).
*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 ManufacturingScope3.523.453.253.37Time3.553.413.033.50Cost3.7184.108.40.206Quality2.913.222.883.26Human Resources220.127.116.113.18Communications3.533.533.213.48Risk2.932.872.752.76Procurement3.333.012.913.33
*Figure 11-1. Benefits from Software Risk Management Practices**Kulik, Peter and Catherine Weber, Software Risk Management Practices 2001, KLCI Research Group (August 2001).
Improve ability to negotiate47%
Meet customer commitments47%
Reduce schedule slips43%
Reduce cost overruns35%
*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.
*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.
*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.
*Figure 11-2. Risk Utility Function and Risk Preference
*Example of risks for software projects
Experienced staff will leave the project before it is finished.
There will be a change of organisational management with different priorities.
Hardware that is essential for the project will not be delivered on schedule.
Project and product
There will be a larger number of changes to the requirements than anticipated.
Project and product
Specifications of essential interfaces are not available on schedule
Project and product
The size of the system has been underestimated.
CASE tool under-performance
CASE tools which support the project do not perform as anticipated
The underlying technology on which the system is built is superseded by new technology.
A competitive product is marketed before the system is completed.
*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.
*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.
*Project Risk Management Overview
*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
*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
*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
*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
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
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
*Risk Management PlanningThe main output of risk management planning is a risk management plana plan that documents the procedures for managing risk throughout a project.The project team should review project documents and understand the organizations and the sponsors approaches to risk.The level of detail will vary with the needs of the project.
*Table 11-2. Topics Addressed in a Risk Management PlanMethodologyRoles and responsibilitiesBudget and scheduleRisk categoriesRisk probability and impactRisk documentation
*Contingency and Fallback Plans, Contingency ReservesContingency plans are predefined actions that the project team will take if an identified risk event occurs.Fallback plans are developed for risks that have a high impact on meeting project objectives, and are put into effect if attempts to reduce the risk are not effective.Contingency reserves or allowances are provisions held by the project sponsor or organization to reduce the risk of cost or schedule overruns to an acceptable level.
*Broad Categories of RiskMarket riskFinancial riskTechnology riskPeople riskStructure/process risk
*Risk Breakdown StructureA risk breakdown structure is a hierarchy of potential risk categories for a project. Similar to a work breakdown structure but used to identify and categorize risks.
*Table 11-4. Potential Negative Risk Conditions Associated With Each Knowledge Area
Inadequate planning; poor resource allocation; poor integration management; lack of post-project review
Poor definition of scope or work packages; incomplete definition of quality requirements; inadequate scope control
Errors in estimating time or resource availability; poor allocation and management of float; early release of competitive products
Estimating errors; inadequate productivity, cost, change, or contingency control; poor maintenance, security, purchasing, etc.
Poor attitude toward quality; substandard design/materials/workmanship; inadequate quality assurance program
Poor conflict management; poor project organization and definition of responsibilities; absence of leadership
Carelessness in planning or communicating; lack of consultation with key stakeholders
Ignoring risk; unclear assignment of risk; poor insurance management
Unenforceable conditions or contract clauses; adversarial relations
*RISK IDENTIFICATIONInvolves determining which risks might affect the project and documenting their characteristicsParticipants:Project team, risk management team, subject matter experts, customers, end users, other project manager, stakeholders and outside expertsIterative process involving different parties in each iteration cycleSimple and effective risk responses can be developed and implemented as soon as the risk is identified
Risk categories - include the following:Technical, quality or performance risksReliance on unproven or complex technologyUnrealistic performance goalsChanges to the technology used or to industry standards during the projectProject management risksPoor allocation of time and resourcesInadequate quality of the project planPoor use of project management disciplines
Organizational risksCost, time and scope objectives that are internally inconsistentLack of prioritization of projectsInadequacy or interruption of fundingResource conflicts with other projects in the organizationExternal risksShifting legal or regulatory environmentLabor issuesChanging owner prioritiesCountry riskWeatherForce majeure earth quakes, floods, civil unrest (requires disaster recovery)
Risks and risk types- for softwaresCan you relate to chemical engineering projects?
The database used in the system cannot process as many transactions per second as expected.
Software components that should be reused contain defects that limit their functionality.
It is impossible to recruit staff with the skills required.
Key staff are ill and unavailable at critical times.
Required training for staff is not available.
The organisation is restructured so that different management are responsible for the project.
Organisational financial problems force reductions in the project budget.
The code generated by CASE tools is inefficient.
CASE tools cannot be integrated.
Changes to requirements that require major design rework are proposed.
Customers fail to understand the impact of requirements changes.
The time required to develop the software is underestimated.
The rate of defect repair is underestimated.
The size of the software is underestimated.
*QUALITATIVE RISK ANALYSISAssess the likelihood and impact of identified risks to determine their magnitude and priority.Prioritizes risks according to their potential effect on project objectivesRequires that the probability and consequences of the risks be evaluated using established qualitative-analysis method and toolsLead to further analysis in quantitative risk analysis or directly to risk response planning
*Tools and TechniquesRisk quantification tools and techniques include: Probability/impact matrixesThe Top Ten Risk Item TrackingExpert judgment
Risk probability and impactRisk probability likelihood that a risk will occurRisk consequence (impact) effect on project objectives if the risk event occursApplied to specific risk eventsHelps to identify those risks that should be managed aggressively
Probability/impact risk rating matrixRisk rating very low, low, moderate, high and very high based on combining probability and impact scalesProbability scale 0.0 (no probability) and 1.0 (certainty)Impact scale severity of its effect on the project objectiveOrdinal scales rank-ordered values (very low, low, moderate, high and very high )Cardinal scales assign values to these impacts