Wiki Project Risk Management

Information Technology Project Management, Fourth Edition

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Purpose of Presentation

To provide an Overview of the Risk Management Process

To describe Specific Risks Identification and Risk Response Planning.

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What Is A Risk?

A Risk is a Potential Event with Negative Consequences that Has Not Happened Yet.

However a Risk could also be defined as the event with unforeseen positive consequences.

A Possibility of Loss — Not the Loss Itself! A source of problem during a project

Avoid labeling the cost of a risk as a risk (e.g. schedule slippage). Find the sources!

Strike at the root of the problem, not the leaves! Something that Makes the Project Special

In the widest sense everything is a risk There are better ways of handling recurrent problems

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Project Management Maturity by Industry Group and Knowledge

Area*KEY: 1 = LOWEST MATURITY RATING 5 = HIGHEST MATURITY RATING

Knowledge AreaEngineering/ Construction

Telecommunications Information Systems

Hi-Tech Manufacturing

Scope 3.52 3.45 3.25 3.37

Time 3.55 3.41 3.03 3.50

Cost 3.74 3.22 3.20 3.97

Quality 2.91 3.22 2.88 3.26

Human Resources 3.18 3.20 2.93 3.18

Communications 3.53 3.53 3.21 3.48

Risk 2.93 2.87 2.75 2.76

Procurement 3.33 3.01 2.91 3.33 

*Ibbs, C. William and Young Hoon Kwak. “Assessing Project Management Maturity,” Project Management Journal (March 2000).

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Benefits of Risk Management Practices*

80%

60%47% 47% 43%

35%

6%

0%

20%

40%

60%

80%

100%

*Kulik, Peter and Catherine Weber, “Software Risk Management Practices – 2001,” KLCI Research Group (August 2001).

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Risk Management Is Integral To Project Management.

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Risk Can Be Positive Positive 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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Broad Categories of Risk

Market risk

Financial risk

Technology risk

People risk

Structure/process risk

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Project Risk Management Processes

1. Risk management planning: Deciding how to approach and plan the risk management activities for the project.

2. Risk identification: Determining which risks are likely to affect a project and documenting the characteristics of each.

3. Qualitative risk analysis: Prioritizing risks based on their probability and impact of occurrence.

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Probability Risk Rating Matrix

Project manager

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Project Risk Management Processes (cont’d)

4. Quantitative risk analysis: Numerically estimating the effects of risks on project objectives.

5. Risk response planning: Taking steps to enhance opportunities and reduce threats to meeting project objectives.

6. 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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The Risk Management Process

Risk avoidanceand contingency

plans

Risk planning

Prioritised risklist

Risk analysis

List of potentialrisks

Riskidentification

Riskassessment

Riskmonitoring

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Contingency and Fallback Plans, Contingency Reserves Contingency 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.

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Common risk factors Risk factors

Lack of top management commitment to the project Failure to gain user commitment Misunderstanding the requirement Lack of adequate user involvement Failure to manage end user expectation Changing scope and objectives Lack of required knowledge/skill in the project personnel New technology Insufficient / inappropriate staffing

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Risk Breakdown Structure A 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.

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Sample Risk Breakdown Structure

IT Project

Business Technical OrganizationalProject

Management

Competitors

Suppliers

Cash flow

Hardware

Software

Network

Executivesupport

User support

Team support

Estimates

Communication

Resources

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Potential Negative Risk Conditions Associated With Each Knowledge Area

Knowledge Area Risk Conditions

Integration Inadequate planning; poor resource allocation; poor integrationmanagement; lack of post-project review

Scope Poor definition of scope or work packages; incomplete definitionof quality requirements; inadequate scope control

Time Errors in estimating time or resource availability; poor allocationand management of float; early release of competitive products

Cost Estimating errors; inadequate productivity, cost, change, orcontingency control; poor maintenance, security, purchasing, etc.

Quality Poor attitude toward quality; substandarddesign/materials/workmanship; inadequate quality assuranceprogram

Human Resources Poor conflict management; poor project organization anddefinition of responsibilities; absence of leadership

Communications Carelessness in planning or communicating; lack of consultationwith key stakeholders

Risk Ignoring risk; unclear assignment of risk; poor insurancemanagement

Procurement Unenforceable conditions or contract clauses; adversarial relations

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Risk Identification Risk identification is the process of understanding

what potential events might hurt or enhance a particular project.

Risk identification tools and techniques include:

Brainstorming

The Delphi Technique

Interviewing

SWOT analysis

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Two sources of risk inidentification

PeoplePaper

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Brainstorming Brainstorming is a technique by which a group

attempts to generate ideas or find a solution for a specific problem by amassing ideas spontaneously and without judgment.

An experienced facilitator should run the brainstorming session.

Be careful not to overuse or misuse brainstorming. Psychology literature shows that individuals produce a

greater number of ideas working alone than they do through brainstorming in small, face-to-face groups.

Group effects often inhibit idea generation.

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Brainstorming

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Delphi Technique The Delphi Technique is used to derive a consensus

among a panel of experts who make predictions about future developments.

Provides independent and anonymous input regarding future events.

Uses repeated rounds of questioning and written responses and avoids the biasing effects possible in oral methods, such as brainstorming.

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Delphi Technique

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Interviewing Interviewing is a fact-finding technique for collecting

information in face-to-face, phone, e-mail, or instant-messaging discussions.

Interviewing people with similar project experience is an important tool for identifying potential risks.

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SWOT Analysis SWOT analysis (strengths, weaknesses, opportunities,

and threats) can also be used during risk identification.

Helps identify the broad negative and positive risks that apply to a project.

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Risk Register The main output of the risk identification process is a list of

identified risks and other information needed to begin creating a risk register.

A risk register is: A document that contains the results of various risk management

processes and that is often displayed in a table or spreadsheet format.

A tool for documenting potential risk events and related information.

Risk events refer to specific, uncertain events that may occur to the detriment or enhancement of the project.

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Risk Register Contents An identification number for each risk event. A rank for each risk event. The name of each risk event. A description of each risk event. The category under which each risk event falls. The root cause of each risk.

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Risk Register Contents (cont’d)

Triggers for each risk; triggers are indicators or symptoms of actual risk events.

Potential responses to each risk. The risk owner or person who will own or take

responsibility for each risk. The probability and impact of each risk occurring. The status of each risk.

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Sample Risk RegisterNo. Rank Risk Description Category Root

CauseTriggers Potential

ResponsesRiskOwner

Probability Impact Severity Status

R44 1

R21 2

R7 3

Project severity = expectation (1-10) * impact (1-10) When should risk analysis be formed? Is not a time activity Periodic update and reviewed

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Calculating severity

Problem Expectation Impact Severity

Staff 6 5 30

Late delivery of hardware 5 8 40

Communication and Networks problem

5 5 25

Project severity = expectation (1-10) * impact (1-10)

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Control It

Share orTransfer It

Diversify orAvoid It

RiskManagement

ProcessLevel

ActivityLevel

Entity Level

RiskMonitoring

Identification

Measurement

Prioritization

RiskAssessment

Risk Analysis

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Risk analysis Assess probability and seriousness of each risk. Probability may be very low, low, moderate, high or

very high. Risk effects might be catastrophic, serious, tolerable or

insignificant.

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Risk analysis (i)

Risk Probability Effects

Organisational financial problems force reductions inthe project budget.

Low Catastrophic

It is impossible to recruit staff with the skills requiredfor the project.

High Catastrophic

Key staff are ill at critical times in the project. Moderate Serious

Software components that should be reused containdefects which limit their functionality.

Moderate Serious

Changes to requirements that require major designrework are proposed.

Moderate Serious

The organisation is restructured so that differentmanagement are responsible for the project.

High Serious

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Risk analysis (ii)

Risk Probability Effects

The database used in the system cannot process asmany transactions per second as expected.

Moderate Serious

The time required to develop the software isunderestimated.

High Serious

CASE tools cannot be integrated. High Tolerable

Customers fail to understand the impact ofrequirements changes.

Moderate Tolerable

Required training for staff is not available. Moderate Tolerable

The rate of defect repair is underestimated. Moderate Tolerable

The size of the software is underestimated. High Tolerable

The code generated by CASE tools is inefficient. Moderate Insignificant

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Risk management strategies (i)

Risk Strategy

Organisationalfinancial problems

Prepare a briefing document for senior managementshowing how the project is making a very importantcontribution to the goals of the business.

Recruitmentproblems

Alert customer of potential difficulties and thepossibility of delays, investigate buying-incomponents.

Staff illness Reorganise team so that there is more overlap of workand people therefore understand each other’s jobs.

Defectivecomponents

Replace potentially defective components with bought-in components of known reliability.

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Risk planning Consider each risk and develop a strategy to manage

that risk. Avoidance strategies

The probability that the risk will arise is reduced; Minimisation strategies

The impact of the risk on the project or product will be reduced;

Contingency plans If the risk arises, contingency plans are plans to deal

with that risk;

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Risk management strategies (ii)

Risk Strategy

Requirementschanges

Derive traceability information to assess requirementschange impact, maximise information hiding in thedesign.

Organisationalrestructuring

Prepare a briefing document for senior managementshowing how the project is making a very importantcontribution to the goals of the business.

Databaseperformance

Investigate the possibility of buying a higher-performance database.

Underestimateddevelopment time

Investigate buying in components, investigate use of aprogram generator

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Risk monitoring Assess each identified risks regularly to decide whether

or not it is becoming less or more probable. Also assess whether the effects of the risk have

changed. Each key risk should be discussed at management

progress meetings.

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Risk indicators

Risk type Potential indicators

Technology Late delivery of hardware or support software, many reportedtechnology problems

People Poor staff morale, poor relationships amongst team member,job availability

Organisational Organisational gossip, lack of action by senior management

Tools Reluctance by team members to use tools, complaints aboutCASE tools, demands for higher-powered workstations

Requirements Many requirements change requests, customer complaints

Estimation Failure to meet agreed schedule, failure to clear reporteddefects

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10 golden rules of project management

by Bart jutte (projectsmart.co.uk)1. Make Risk Management Part of Your Project

2. Identify Risks Early in Your Project

3. Communicate About Risks

4. Consider Both Threats and Opportunities

5. Clarify Ownership Issues

6. Priorities Risks

7. Analyze Risks

8. Plan and Implement Risk Responses

9. Register Project Risks

10. Track Risks and Associated Tasks

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Who does the Risk Who does the Risk Assessment?Assessment?

Responsibilities must be allocated:Responsibilities must be allocated: Appoint a Risk Management champion with Appoint a Risk Management champion with

appropriate qualifications, including experience and appropriate qualifications, including experience and analytical skills.analytical skills.

Form a Risk Management Committee, representative of Form a Risk Management Committee, representative of operational areas.operational areas.

Conduct Risk Management Workshops.Conduct Risk Management Workshops. Determine operating procedures.Determine operating procedures.

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Evaluate the risks

After identifying and analysing After identifying and analysing the risks, you can evaluate.the risks, you can evaluate.

What is the likelihood of the risk event What is the likelihood of the risk event occurring?occurring?

•Almost Almost certaincertain

•LikelyLikely•ModerateModerate•UnlikelyUnlikely•Rare?Rare?

•Almost Almost certaincertain

•LikelyLikely•ModerateModerate•UnlikelyUnlikely•Rare?Rare?

What is the What is the consequenconsequen

ce if the ce if the risk event risk event occurs?occurs?

What is the What is the consequenconsequen

ce if the ce if the risk event risk event occurs?occurs?

•ExtremeExtreme•Very Very highhigh

•ModeratModeratee

•LowLow•NegligiblNegligible?e?

•ExtremeExtreme•Very Very highhigh

•ModeratModeratee

•LowLow•NegligiblNegligible?e?

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Evaluate the risks You need to describe or to quantify exactly You need to describe or to quantify exactly

what the ‘Likelihood’ and ‘Consequence’ what the ‘Likelihood’ and ‘Consequence’ terms means to you.terms means to you.

This helps in ensuring a consistent This helps in ensuring a consistent approach in future risk assessment and approach in future risk assessment and review and monitoring.review and monitoring.

It promotes a common understanding It promotes a common understanding within the Administration.within the Administration.

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Evaluate the risksEvaluate the risks After establishing ‘After establishing ‘LikelihoodLikelihood’ and ‘’ and ‘ConsequenceConsequence’ you ’ you

can use a table like this to set a level of risk.can use a table like this to set a level of risk.

You must define what these risk levels mean You must define what these risk levels mean to you.to you.

You must define what these risk levels mean You must define what these risk levels mean to you.to you.

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Treating the risksLow and very low level risks can normally be accepted, Low and very low level risks can normally be accepted, subject to on-going monitoring. subject to on-going monitoring. All other risks are included in the management plan.All other risks are included in the management plan.The plan catalogues the risks, the level of risk, and The plan catalogues the risks, the level of risk, and describes a treatment. describes a treatment. The treatment is the action proposed, (and perhaps the The treatment is the action proposed, (and perhaps the resources allocated). resources allocated).

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NextNextNextNext

Treating the risksTreating the risksTreating the risksTreating the risks

TargetedselectionsTargetedselections

Development ofDevelopment of Risk Profiles

Development ofDevelopment of Risk Profiles

PhysicalPhysicalexaminationexamination

PhysicalPhysicalexaminationexaminationIndustry auditsIndustry audits

RandomRandomexaminationsexaminations

RandomRandomexaminationsexaminations

ComplianceimprovementCompliance

improvement

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Treating the risksTreating the risks

A common method of treating risks is to develop risk profiling and targeting systems.

This means – in the case of goods – selecting transactions for specific checks, according to trader, agent, origin of goods, commodity code, duty rate, routing, value, etc.

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Treating the risks

Risk Profiles are developed as a means of putting risk management into practice at the Operational level.

A Risk Profile is normally specific to a Customs office. It describes:

• The risk areas• Assessment of the level of risk• The countermeasures adopted• Activation date and review dates• Means of measuring effectiveness.

A Risk Profile is normally specific to a Customs office. It describes:

• The risk areas• Assessment of the level of risk• The countermeasures adopted• Activation date and review dates• Means of measuring effectiveness.

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Treating the risksTreating the risks

Selection Criteria

Selection Criteria Documents

and DataDocumentsand Data

Selected movements

Selected movements

Selections are made by manual checks of documents, or by using automated systems.

Selected transactions or movements are subject to the actions detailed in the profile or plan, e.g., physical examination, audit, etc.

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Monitor & ReviewMonitor & Review

The initial assessment made of the existence and level of risks must be evaluated on a regular basis.

You need to measure the effectiveness of risk profiles and update as necessary.

• Reliable reporting of examination Reliable reporting of examination resultsresults

• Reliable reporting of examination Reliable reporting of examination resultsresults

• Compliance measurement Compliance measurement activitiesactivities

• Compliance measurement Compliance measurement activitiesactivities• Feedback from the business Feedback from the business communitycommunity

• Feedback from the business Feedback from the business communitycommunity• Results analysis and data Results analysis and data comparisonscomparisons

• Results analysis and data Results analysis and data comparisonscomparisons

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