lecture 12- risk management
DESCRIPTION
Lecture 12- Risk ManagementTRANSCRIPT
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Appendix
Managing Risk
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Introduction
Risk management: The act or pratice of dealing with risk
Risk management focuses on:
Known unknowns
Proactive management
The alternative to proactive management is reactive management, also called crisis management. This requires significantly more resources and takes longer for problems to surface.
Risk management focuses on the future
Risk and information are inversely related
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Introduction
Historically, we focused our attentions on schedule and cost risk management.
Today, our primary emphasis is on technological risk management:
Can we design it and build it?
What is the risk of obsolescence?
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Definition Of Risk
Risk = f(Likelihood, Impact)
Likelihood is the probability of occurrence
Impact is the amount at stake
event
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Tolerance For Risk
Risk avoider
Risk neutral
Risk lover
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Decision-Making Categories
Complete uncertainty
Relative uncertainty (partial information)
Complete certainty
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Maximin ApproachMaximax ApproachMinimax regret ApproachInsufficient Reason Approach
Developing and Using Payoff Tables
Establishing the procedure to follow
Construct thePayoff table
Decision-makingunder certainty
Decision-making under completeuncertainty
Decision-makingunder risk
Expected Monetary Value (EMV) ApproachExpected Opportunity Loss (EOL) ApproachExpected Value of Perfect Information (EVPI) Approach
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Five steps to develop payoff table
1. List all the alternatives.
2. List the future consequences of each alternative.
3. Identify the payoffs associated with each combination.
4. Assess the degree of certainty that these combinations will materialize
5. Decide on a decision criterion.
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Risk Management Process
Risk planning
Risk assessment
Risk identification
Risk analysis/quantification
Risk handling
Risk monitoring
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Risk Planning
Risk planning: Process of developing and documenting interactive strategy and methods for identifying risk issues, developiing risk handling plan and monitoring how riskd have changed
Is a program of action:
Develop and document an organized, comprehensive and ininteractive risk management strategy
Determine the methods to be used to execute the risk management strategy
Plan for adequate resources
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Risk Assessment
Risk assessment: Process of identifying and anlyzing program areas and critical process risks to increase the likelihood of meeting cost, performance and schedule objectives.
Risk assessment components Risk identification: Process of Identifying all
potential risks: cost, funding, schedule, contract relationships, technical and political risks
Risk anlysis: Process of examine each identified risk issue to estimate the likelihood and predict the impact on the project (Cost-Schedule-Technical Evaluation)
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Risk Handling
Risk handling: includes specific methods and techniques to deal with known risks, identifies who is responsible for the risk issues, and provides an estimate of the cost and schedule with reducing the risk
Options for handling risk: Risk assumption/retention
Risk avoidance Mitigating
Risk control/prevention
Risk transfer
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Pro
ject
Pro
ced
ura
lD
ocu
men
tati
on
Pro
ject
Pro
ced
ura
lD
ocu
men
tati
on
GuidelinesGuidelinesHighHigh LowLow
Tolerance for RiskTolerance for Risk
RigidPolicies/
RigidPolicies/
ProceduresProcedures
AssumptionAssumption
ReductionReduction
TransferTransfer
AvoidanceAvoidance
Which Method to Use?
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Risk Monitoring
Risk monitoring: process of systematically tracking and evaluating the performance of risk handling actions and providing inputs to updating risk handling strategies
Some techniques suitable for risk monitoring:
Earned Value (EV)
Program metrics
Schedule performance monitoring
Technical performance measurement (TPM)
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Prioritization of Risks
ScheduleSchedule CostCostTechnical
Performanceor Quality
TechnicalPerformance
or Quality
First (Highest)Priority
First (Highest)Priority
Second PrioritySecond Priority
ThirdPriorityThirdPriority
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Classroom Activity 12a
Evaluate your organisations ability to manage risk.
What can you do to improve the way you manage the risk of projects.
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Questions?