Project Management IV1021Fö5Project Management IV1021Fö5Risk Management Risk Management

AgendaAgenda

Project RiskProject Risk Management The Risk Management Process

Goal: get an understanding of basic project risk management

Project RiskProject Risk Management The Risk Management Process

Goal: get an understanding of basic project risk management

Project Project

A project is a temporary organisation, separate from, but strongly dependent of the organisation, (the ordinary organisation). A project has a fixed, well defined and controllable objective. A project has its own resources (time, money, personal etc).

All projects have three interrelated objectives: to 1 meet the budget, 2 finish on time, 3 meet specifications that satisfy the client.

A project is a temporary organisation, separate from, but strongly dependent of the organisation, (the ordinary organisation). A project has a fixed, well defined and controllable objective. A project has its own resources (time, money, personal etc).

All projects have three interrelated objectives: to 1 meet the budget, 2 finish on time, 3 meet specifications that satisfy the client.

Project Project

A PROJECT is an organisational formwith a defined objectivelimited in resources and time.

Objectives

TimeResources

Uncertainty Uncertainty

”It must be expected that something unexpected will happen”

Arisotle (384-322 BC)

”It must be expected that something unexpected will happen”

Arisotle (384-322 BC)

Risk Risk

The chance that something happens that will have an impact on objectives. It is measured in consequence and likelihood. The consequences may be positive or negative

There is no human activity which does not have risks.

The chance that something happens that will have an impact on objectives. It is measured in consequence and likelihood. The consequences may be positive or negative

There is no human activity which does not have risks.

Types of risks Types of risks

Dynamic risks: positive or negative outcome. Example marketing.

Static risks: negative outcome. Example fire, flood, computer virus.

Dynamic risks: positive or negative outcome. Example marketing.

Static risks: negative outcome. Example fire, flood, computer virus.

Risk Management Risk Management

Risk Management: refers to the way in which risks faced by the business are dealt with. Risks may arise from the nature of the business operations and/or the way in which the business is financed.

The purpose of (Project) Risk Management is to minimize the risk of not achieving the objectives of the project.

Risk Management: refers to the way in which risks faced by the business are dealt with. Risks may arise from the nature of the business operations and/or the way in which the business is financed.

The purpose of (Project) Risk Management is to minimize the risk of not achieving the objectives of the project.

After 9/11After 9/11

Increased focus on Risk Management and Security Management.

Enterprise Risk Management (ERM) is a system of managing risk across an entire company. It should be an integral part of the governance and management of the business.

Increased focus on Risk Management and Security Management.

Enterprise Risk Management (ERM) is a system of managing risk across an entire company. It should be an integral part of the governance and management of the business.

Project Risk Management Project Risk Management

Risk Management assists project managers in setting priorities, allocating resources and implementing actions and processes that reduce the risk of the project not achieving its objectives.

Risk Management facilitates better decision making and better project outcomes.

Risk Management assists project managers in setting priorities, allocating resources and implementing actions and processes that reduce the risk of the project not achieving its objectives.

Risk Management facilitates better decision making and better project outcomes.

Project Risk ManagementProject Risk Management

The Project Manager must ensure that: All significant risks are identified Identified risks are understood (likelihood

and consequences)Assessment is undertaken of individual

risks relative to other risksStrategies for treating risks are

established The process itself and the risk treatment

strategies are implemented cost-effectively

The Project Manager must ensure that: All significant risks are identified Identified risks are understood (likelihood

and consequences)Assessment is undertaken of individual

risks relative to other risksStrategies for treating risks are

established The process itself and the risk treatment

strategies are implemented cost-effectively

The Risk Management Process

The Risk Management Process

AS/NZS 4360

Establish the contextEstablish the context

The context is a framework in which all activities of a project takes place. Strategic Context

Relationship between the organisation(s) and their environment.

Organisational Context What is the organisation all about?

Risk Management Context This level focus on the project which the Risk

Management Process is being applied. Do we understand the project (goals, time frame etc.)?

Summary: Do we clearly understand what should be the role of risk management in the project?

The context is a framework in which all activities of a project takes place. Strategic Context

Relationship between the organisation(s) and their environment.

Organisational Context What is the organisation all about?

Risk Management Context This level focus on the project which the Risk

Management Process is being applied. Do we understand the project (goals, time frame etc.)?

Summary: Do we clearly understand what should be the role of risk management in the project?

Risk Identification Risk Identification

The process of determining: What could happen?How could it happen?Why can it happen?

A risk which is not identified can not be treated

The process of determining: What could happen?How could it happen?Why can it happen?

A risk which is not identified can not be treated

Risk Identification Risk Identification

Make a list of all potential risks and classify, for example:

Financial: inflation, currency deflation Legal: contracts (SLA), liability claims Technical: computer virus, hacking, loss

of data Personnel: accident, death, illness,

resignation Organisational: theft, property, ignorance Political: taxes, war, legislation, terrorism Natural: earth quaque, flood, storm

Make a list of all potential risks and classify, for example:

Financial: inflation, currency deflation Legal: contracts (SLA), liability claims Technical: computer virus, hacking, loss

of data Personnel: accident, death, illness,

resignation Organisational: theft, property, ignorance Political: taxes, war, legislation, terrorism Natural: earth quaque, flood, storm

Risk IdentificationRisk Identification

Methods: Brainstorming Examination of previous similar projects Standard Questioners and Surveys

(sources: insurance companies) Scenario analysis Checklists Interviews and focus group discussions Personal inspections Work Breakdown Structure analysis

Methods: Brainstorming Examination of previous similar projects Standard Questioners and Surveys

(sources: insurance companies) Scenario analysis Checklists Interviews and focus group discussions Personal inspections Work Breakdown Structure analysis

Risk Assessment Risk Assessment

Risk assessment is the overall process of risk analysis and risk evaluation. Its purpose is to develop agreed priorities from identified risks.

Risk assessment is the overall process of risk analysis and risk evaluation. Its purpose is to develop agreed priorities from identified risks.

Risk Analysis Risk Analysis

The systematic use of available information to determine how often specific events may occur and the magnitude of their likely consequences.

Determine likelihood and consequence Two types of methods:

Qualitative: expresses in word form or in descriptive scales the likelihood and consequences of an event

Quantitative: using numerical values to determine likelihood and consequences

The systematic use of available information to determine how often specific events may occur and the magnitude of their likely consequences.

Determine likelihood and consequence Two types of methods:

Qualitative: expresses in word form or in descriptive scales the likelihood and consequences of an event

Quantitative: using numerical values to determine likelihood and consequences

Risk AnalysisRisk Analysis

Likelihood How likely is the loss to occur? Rare Remote Likely Certain

What is the probability of this loss? .0 .1 .8 1.0

Likelihood How likely is the loss to occur? Rare Remote Likely Certain

What is the probability of this loss? .0 .1 .8 1.0

Risk AnalysisRisk Analysis

Consequence: the outcome of an event or situation expressed quantitatively or qualitatively, being a loss, injury, disadvantage or a gain. If the loss occurred, how would it affect the

project?Financially?Operationally?The ability of the project to meet its

objectives?

Insignificant Minor Moderate Major Catastrophic

Consequence: the outcome of an event or situation expressed quantitatively or qualitatively, being a loss, injury, disadvantage or a gain. If the loss occurred, how would it affect the

project?Financially?Operationally?The ability of the project to meet its

objectives?

Insignificant Minor Moderate Major Catastrophic

Risk EvaluationRisk Evaluation

Likelihood

Consequence

High

Low

Low High

Medium risk High risk

Low risk Medium risk

Risk EvaluationRisk Evaluation

Consequence

Likelihood

Insignificant Minor Moderate Major CarastrophicCertain Medium Medium High High KillerLikely Low Medium Medium High HighRemote Low Medium Medium Medium HighUnlikely Low Low Medium Medium HighRare Low Low Low Medium Medium

Risk Treatment Risk Treatment

Identify the options for reducing the likelihood or consequence for each risk

Determine potential benefits and costs of the options

Select the best options for the project Develop and implement a detailed Risk

Treatment Plan Make appropriate provisions in project

budgets

Identify the options for reducing the likelihood or consequence for each risk

Determine potential benefits and costs of the options

Select the best options for the project Develop and implement a detailed Risk

Treatment Plan Make appropriate provisions in project

budgets

Risk Treatment Risk Treatment

Risk avoidance Possible?

Loss control options Reduce likelihood Reduce the expected consequence Transfer the risk to another entity

Contractual Insurance Joint ventures

Risk avoidance Possible?

Loss control options Reduce likelihood Reduce the expected consequence Transfer the risk to another entity

Contractual Insurance Joint ventures

Monitoring and reviewMonitoring and review

Continuous monitoring and review of risks ensures new risks are detected and managed, and that treatment plans are implemented and progressed effectively.

Method Implement a review process as part of the

regular management meeting cycle. Undertake major reviews at significant

project phases and milestones.

Continuous monitoring and review of risks ensures new risks are detected and managed, and that treatment plans are implemented and progressed effectively.

Method Implement a review process as part of the

regular management meeting cycle. Undertake major reviews at significant

project phases and milestones.

Communication and reporting

Communication and reporting

Senior managers need to understand the risks they face, and risk reports provide a complement to other project reports in developing this understanding.

MethodSubmit reports on a regular basis or as

required, as part of standard project reporting.

Senior managers need to understand the risks they face, and risk reports provide a complement to other project reports in developing this understanding.

MethodSubmit reports on a regular basis or as

required, as part of standard project reporting.

Summary Summary

How do we define a project? What is a risk?How can we analyse risks?How can we treat risks? Questions?

How do we define a project? What is a risk?How can we analyse risks?How can we treat risks? Questions?