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Project Risk Management
A Tool to Deliver Projects On Time and Within Budget
NK ShrivastavaPMP, PMI-RMP
Consultant/CEO - RefineMVP – PMI South Missouri Chapter
[email protected] http://www.linkedin.com/in/nkshrivastava @justrightpm
January 16, 2012
PMI KC Chapter Meeting Jan 2012
Project Risk Management
Learning's
1. Develop better understanding of Project Risk Management What is a risk? The difference between risks & issues? The positive and negative risk concepts
2. Identify, analyze and prioritize risks and develop risk responses for their projects, programs and portfolios
3. Develop a graph/chart-based communication strategy to clearly and quickly communicate the project status at various points in time to stakeholders
Project Risk Management
Agenda
• What is a Risk? Understanding Risk
• Why Manage Project Risks?
• PMI’s Practice Standard for Risk Management
• Risk Management Process
• Communicating Risks
• Q & A
Project Risk Management
What picture comes to your mind when you hear the word “Risk”?
Project Risk Management
What is a Risk?
Project Risk Management
What is a Risk?
Project risk is an uncertain event or condition that, if it occurs, has a positive or a negative effect on a project's objectives.
- From PMI's Practice Standard for Project Risk Management - Chapter2 , Page 9
More on Risks
Risk Synonyms Risk Antonyms
accident, contingency, danger, exposedness, exposure, flyer, fortuity, fortune, gamble, hazard, header, jeopardy, liability, liableness, luck, openness, opportunity, peril, plunge, possibility, prospect, shot in the dark, speculation, stab*, uncertainty, venture, wager
certainty, safety, sureness, surety
Source : http://thesaurus.com/browse/risk
Project Risk Management
Is it necessary to manage project risks?
Yes, Absolutely
Why?
To increase predictability
To improve probability of success
(SPI ~1, CPI ~1)
PMI’s Practice Standard For Project Risk Management
Practice Standard
A guide to the Project Management Body of
Knowledge
Handbooks Textbooks Courses
Principles of Specialization
Processes
Theory Tools/ Techniques
Adapted from PMI’s Practice Standard for Project Risk Management
Project Risk Management
Risk Management Process
Risk Management Process
Plan Risk Management
Identify Risks
Perform Qualitative Risk Analysis
Perform Quantitative Risk Analysis
Monitor and Control Risks
Plan Risk Responses
Adapted from PMI’s Practice Standard for Project Risk Management
Plan Risk Management
Plan Risk Management
Identify Risks
Perform Qualitative Risk Analysis
Perform Quantitative Risk Analysis
Monitor and Control Risks
Plan Risk Responses
• Risk Mgmt Plan • Tailored Process• Risk Thresholds•
Roles/Responsibilities• Risk Register
Template
• Risk Mgmt Plan • Tailored Process• Risk Thresholds•
Roles/Responsibilities• Risk Register
Template
Adapted from PMI’s Practice Standard for Project Risk Management
Risk Identification
Plan Risk Management
Identify Risks
Perform Qualitative Risk Analysis
Perform Quantitative Risk Analysis
Monitor and Control Risks
Plan Risk Responses
• Risk Register• List of risks• Risk Owners
• Risk Register• List of risks• Risk Owners
Adapted from PMI’s Practice Standard for Project Risk Management
Risk Qualitative Analysis
Plan Risk Management
Identify Risks
Perform Qualitative Risk Analysis
Perform Quantitative Risk Analysis
Monitor and Control Risks
Plan Risk Responses
• Updated Risk Register• Probability & Impact• Root Causes• Prioritized List of Risks• Watch List
• Updated Risk Register• Probability & Impact• Root Causes• Prioritized List of Risks• Watch List
Adapted from PMI’s Practice Standard for Project Risk Management
Risk Quantitative Analysis
Plan Risk Management
Identify Risks
Perform Qualitative Risk Analysis
Perform Quantitative Risk Analysis
Monitor and Control Risks
Plan Risk Responses
• Updated Risk Register• Numerical models• Sensitivity analysis (Monte Carlo Simulation)• Re-prioritized list
• Updated Risk Register• Numerical models• Sensitivity analysis (Monte Carlo Simulation)• Re-prioritized list
Adapted from PMI’s Practice Standard for Project Risk Management
Plan Risk Responses
Plan Risk Management
Identify Risks
Perform Qualitative Risk Analysis
Perform Quantitative Risk Analysis
Monitor and Control Risks
Plan Risk Responses• Updated Risk Register • Strategies/Responses• Actions/Action
Owners• Contingency Reserves
• Updated Risk Register • Strategies/Responses• Actions/Action
Owners• Contingency Reserves
Adapted from PMI’s Practice Standard for Project Risk Management
Monitor & Control Risks
Plan Risk Management
Identify Risks
Perform Qualitative Risk Analysis
Perform Quantitative Risk Analysis
Monitor & Control Risks
Plan Risk Responses
• Updated Risk Register• Variance Analysis• Risk Audit• Trends in risk exposure
• Updated Risk Register• Variance Analysis• Risk Audit• Trends in risk exposure
Adapted from PMI’s Practice Standard for Project Risk Management
Project Risk ManagementSo what is it?
Identify
What can go wrong? What can go right?
Prioritize
Which ones have the potential of impacting the most?
Do something about itExploit/Avoid or Enhance/Mitigate or Share/Transfer
Or Accept (Passive/Active)
Project Risk Management
Communicating Risks
Risk Behavior Over Time
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10-1 Aug-10-2 Sep-10 Oct-10 Nov-10 Dec-10
79.75
108.95 108.95
80.45
42.9539.25
33.75
27.75
2217.35
8.653.85 3.85
1113 13 12 12 12 12 11 10 10
95 5
Total Risk Magnitude – SBR Project
Risk Magnitude # of Risks
Risk Impact on the Project Jun 2010
Project Risk Management
How does it impact you? If you are the Project Manager…
It makes YOU powerful !
You may know this …
Risk ManagementMakes YOU Powerful
Right Level of Risk Management No Risk Management Covey’s habit #1 – Be Proactive Being Reactive
Project Risk Management What does the research say?
• Research of failed software projects showed that “their problems could have been avoided or strongly reduced if there had been an explicit early concern with identifying and resolving their high-risk elements.
• Effective risk management is the most important management tool a project manager can employ to increase the likelihood of project success.
• Since risk management is not widely used and understood, this could be a significant competitive advantage to those that implement the risk management processes in their projects.
Risk Management makes YOU powerful !
Project Risk Management
Project Risk Management
Summary
• Risk is an uncertain event, that if occurs, may impact project objectives in positive or negative manner.
• It is extremely important to manage project risks – to reduce uncertainty
• PMI’s six step Project Risk Management Process
• How to communicate Risks? – Thru pictures/graphs, on regular basis
Risk Management makes YOU powerful !
Risk Register Template
Id Risk Event P/N Risk
Likely Event Date/
Timeframe
Probability
(H/M/L)
Impact (H/M/L)
Probability %
Impact (Delay/ Days)
EMV (Prob*Impact)
Response
Strategy
Response
Project Risk ManagementStatus Check
Project Risk Management
Supporting Slides
Risk Identification Tool
Cur
rent
A
sses
smen
t
Past Present Future
ProjectHistorical Review Creativity Technique
Adapted from PMI’s Practice Standard for Project Risk Management
Risk Monitoring & Control
Trigger conditions
Major project events
Additional risk
information
Risk Response Monitoring
Status Reviews Audits
Risk Response Control
Invoke contingency
plans
Perform additional risk identification,
analysis & response planning
Integrated Change Control
Project Management
Plan
Risk Registe
r
Stakeholder Communicatio
ns
Lessons Learned
Updates
Adapted from PMI’s Practice Standard for Project Risk Management
Risk Identification Example
1 Performance issues due to redesign of batch (splitting into 4 concurrent jobs) are not handled before the cycle testing begins in September
Sep-10
2 Server performance issues are not handled before the cycle testing begins in September Sep-103 Unanticipated table changes occur after the coding has been completed in August Aug-104 The testing environment chosen could interfere with other high priority projects Sep-105 Priority to implement non-rating mod may go up due to NJ coming up right after IOWA. Aug-106 Impact Analysis brings up something that we are not thinking of now (on both mainframe and PARIS
sides), that may result in pushing the project datesJun-10
7 Coding may take longer than expected Jul-108 Finding too many differences between SBR and Mainframe rating of a policy during Integration
Testing may longer to complete, pushing the dates for cycle testing and the project.Aug-10
9 Daily business functions could be interrupted for Production Problems - taking the resources away from this project Ex: HSM, GA Home/ROP, Claims Splitting, RCT Changes
Anytime
10 Other new product (MA Auto, NJ Auto, Company8, Chrome Expansion) - Taking resources away from this project
Anytime
11 System upgrades (Rating Engine 4.0, end of VB6…) may be pushed on us right in the middle of this project
Jun-10
Id Risk Description Event Date
Generic risks are actually issues, they normally need a different action plan
Qualitative Analysis Example
1 Performance issues due to redesign of batch (splitting into 4 concurrent jobs) are not handled before the cycle testing begins
Sep-10 High Medium
2 Server performance issues are not handled before the cycle testing begins in September
Sep-10 Low Medium
3 Unanticipated table changes occur after the coding has been completed in August
Aug-10 Low Low
4 The testing environment chosen could interfere with other high priority projects
Sep-10 Low Medium
5 Priority to implement non-rating mod may go up due to NJ coming up right after IOWA.
Aug-10 Medium High
6 Impact Analysis brings up something that we are not thinking of now (on both mainframe and PARIS sides), that may push the project dates
Jun-10 Medium Medium
7 Coding may take longer than expected Jul-10 High Medium8 Finding too many differences between SBR and Mainframe rating of a policy
may push the dates for cycle testing and the project.Aug-10 Medium Medium
9 Daily business functions could be interrupted for Production Problems - taking the resources away from this project
Anytime Medium Medium
10 Other new product (MA Auto, NJ Auto, Company8, Chrome Expansion) - Taking resources away from this project
Anytime High High
11 System upgrades (Rating Engine 4.0, end of VB6…) may be pushed on us right in the middle of this project
Jun-10 Low Medium
ImpactId Risk Description Event Date Probability
Quantitative Analysis Example
1 Performance issues due to redesign of batch (splitting into 4 concurrent jobs) are not handled before the cycle testing begins
Sep-10 H 70% M 15 10.5
2 Server performance issues are not handled before the cycle testing begins in September
Sep-10 L 10% M 10 1
3 Unanticipated table changes occur after the coding has been completed in August
Aug-10 L 10% L 5 0.5
4 The testing environment chosen could interfere with other high priority projects
Sep-10 L 10% M 10 1
5 Priority to implement non-rating mod may go up due to NJ coming up right after IOWA.
Aug-10 M 25% H 40 10
6 Impact Analysis brings up something that we are not thinking of now (on both mainframe and PARIS sides), that may push the project dates
Jun-10 M 25% M 15 3.75
7 Coding may take longer than expected Jul-10 H 50% M 20 108 Finding too many differences between SBR and Mainframe
rating of a policy may push the dates for cycle testing and the project.
Aug-10 M 30% M 15 4.5
9 Daily business functions could be interrupted for Production Problems - taking the resources away from this project
Anytime M 30% M 10 3
10 Other new product (MA Auto, NJ Auto, Company8, Chrome Expansion) - Taking resources away from this project
Anytime
H 70% H 45 31.5
11 System upgrades (Rating Engine 4.0, end of VB6…) may be pushed on us right in the middle of this project
Jun-10 L 20% M 20 4
11 79.75
Magnitude
Impact (days)
Total Risk Magnitude for the Project
Id Risk Description Event Date
Probability
Risk Behavior Over Time
Total Risk Manitude - MLDW Project
33.25 34.25
19.25
7.25
22.5
7 85 5 6
Oct-09 Jan-10 Feb-10 Mar-10 Apr-10
Risk Magnitude # of Risks - Staging
Risk Breakdown Structure (RBS)RBS Level 0 RBS Level 1 RBS Level 2
ALL SOURCES OF PROJECT RISK
1. TECHNICAL RISK
1.1 Scope Definition1.2 Requirement Definition1.3 Estimates, Assumptions, and constraints1.4 Technical processes1.5 Technology1.6 Technical InterfacesEtc.
2. MANAGEMENT RISK
2.1 Project Management2.2 Program/Portfolio Management2.3 Operations Management2.4 Organization2.5 Resourcing2.6 CommunicationEtc.
3. COMMERCIAL RISK
3.1 Contractual terms and conditions3.2 Internal Procurement3.3 Suppliers and vendors3.4 Subcontracts3.5 Client/Customer Stability3.6 Partnership and joint venturesEtc.
4. EXTERNAL RISK
4.1 Legislation4.2 Exchange rates4.3 Sites/Facilities4.4 Environmental/weather4.5 Competition4.6 RegulatoryEtc.
Adapted from PMI’s Practice Standard for Project Risk Management
Risk Mitigation Strategies
Negative Risks(Threats)
Positive Risks(Opportunities)
• Avoid• Mitigate• Transfer
• Exploit• Enhance• Share
Accept
Probability/Impact Matrix
Probability
Impact High Medium Low
High H H M
Medium H M L
Low M L L
Quantitative Analysis Techniques
Sensitivity Analysis • Determines which risks have the most potential impact on the project• What-if scenarios• Utilizes the tornado diagram
Expected Monetary Value (EMV) AnalysisEMV=Impact*Probability
• Calculates the average outcome of uncertain scenarios• Positive values = opportunities• Negative values = threats
Modeling and Simulation • Translates uncertainties into potential impact on project outcomes such as schedule • Uncertainties are specified at a detailed level of the project• Typically performed using the Monte Carlo techniques