05 Project Planning - Risk Management

Principles of Project Management
Presented By:
Hisham Rafik, MBA, PMP
Course Outline
1. 2. 3. 4. 5. 6. Project Management Framework Project Initiation Project Planning - Scope Definition Project Planning - Schedule Development Project Planning - Risk Management Project Planning - Budgeting
Knowledge 2008
Section 5
Managing Risk in projects
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Project Planning Process

Scope Definition Schedule Development Risk Management Plan Budgeting Plan Compilation and Approvals
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Risk defined
Risk = An uncertain event or condition that, if it occurs, has a Positive or Negative effect on a project objective The severity of any risk can be defined in terms of two parameters: Likelihood (Probability): The extent to which the risk effects are likely to occur. Impact (Consequence): The effect that a risk will have on the project if it occurs.
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Project risk management

Is the systematic process of Identifying, Analyzing, and Responding to project risks
Maximizing the probability and consequences of positive events (Opportunities) to Project Objectives AND Minimizing the probability and consequences of adverse events (Threats) to Project Objectives
Project Risk Management Processes

Planning
11.1 Risk Management Planning
Controlling
11.3 Qualitative Risk Analysis
11.2 Risk Identification
11.5 Risk Response Planning
11.6 Risk Monitoring & Control
11.4 Quantitative Risk Analysis
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11.1. Risk Management Planning

The process of deciding how to approach and conduct the risk management activities for a project Should be completed early during project planning
Risk Management Planning

Inputs
1. Enterprise environmental factors 2. Organizations process assets 3. Project scope statement 4. Project management plan
Tools & Techniques

1. Planned meetings & analysis
Outputs
1. Risk Management Plan
Risk Management Planning

Describes how risk identification, qualitative and quantitative analysis, response planning, monitoring, and control will be structured and performed during the project life cycle
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Risk Management Plan

Methodology
Approaches, tools, and data sources that might be used to perform risk management
Roles & Responsibilities

Lead and support roles for each type of action in the plan
Budgeting:
Established budget for Risk Management
Timing
When and how often risk management process will be performed
Definitions of risk probability & impact Reporting Formats

Describes contents and format of Risk Response Plan
Tracking
Describes how risk activities will be recorded for current project and lessons learned
11.2. Risk Identification

Involves determining which risk events might affect the project and documenting their characteristics.
Everyone should be involved in risk identification
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Risk Identification
Inputs
Enterprise environmental factors Organizations process assets Project scope statement Risk Management Plan Project management plan
Tools & Techniques

1. Documentation reviews 2. Information-gathering techniques 3. Checklists analysis 4. Assumptions analysis 5. Diagramming technique
Outputs
1. Risks register
Risk Identification Tools & Techniques: Information-Gathering Techniques

The Company Experience
Lessons Learned
Personal experience
PM and project team
Interviews with:
Project managers in and out of the organization Experts: Technological, regional
Delphi technique
Collect and manipulate inputs from experts located in different places
Risk Identification Tools & Techniques: Information-Gathering Techniques

Brain Storming sessions
PM, team and stakeholders The most frequently used
SWOT Analysis
Internal Factors
External factors Opportunities (O) Threats (T)
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Strengths (S) (SO) Growth (ST) stability

Weaknesses (W) (WO) Cooperate (WT) Mitigation

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Risk Identification More Tools & Techniques

Checklists analysis Sample of high level risks (or risk areas) based on historical information and knowledge that has been accumulated from previous similar projects. Actual risks should be more specific and clear Assumptions analysis Based on a set of Hypotheses, Scenarios and Assumptions. What assumptions have been made and if they are valid Diagramming technique Cause and effect diagram System or process flow charts. Influences diagram
Risk Sources
Schedule Tasks on the critical/near-critical path Optimistically estimated tasks Tasks reliant on external dependencies Resources Tasks with one individual working alone or many people Tasks using scarce resources or Under-skilled people Illness and turnover Budget Uncertainty of funds Shifts in budget priorities Uncertain resource costs Scope Uncertainty of new product development Dynamics of customer requirements
Risk Sources (another view)

INTERNAL Financial Research and Development Production Human Resources Administrative Strategic Preference EXTERNAL Economical Competition Social/Cultural Regulatory Political
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Project Risk Management Risk Identification, Outputs

Risk register
List of identified risk List of potential responses Root causes of risk Updated risk categories (for use of future projects)
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11.3/4. Qualitative and Quantitative Risk Analysis

Method for prioritizing the identified risks for further actions. The process of assessing the impact and likelihood of identified risks. Should be revised during the project life cycle.
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Qualitative Risk Analysis

Inputs
1. 2. 3. 4. Organizations process assets Project scope statement Risk Management Plan Risk register
Tools & Techniques

1. Risk probability & impact assessment 2. Probability & impact matrix 3. Risk data quality assessment 4. Risk categorization 5. Risk urgency assessment
Outputs
1. Risk register (updated)
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Qualitative Risk Analysis - Example

Risk Event Vendor Ships early Vendor order is incomplete or misses critical parts Vendors ships more than ordered Vendor does not ship order
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Probability M H
Impact L H
L L
L H
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Plotting Risk Events on the Risk Event Matrix

Risk Impact
M L L
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Risk Probability
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Qualitative Risk Analysis, Outputs

Risk register (updates)
Relative ranking or priority list of project risks. Risks grouped by categories. List of risks requiring response in the near-term. List of risks for additional analysis and response. Watch lists of low priority risks (residual risks). Trends in qualitative risk analysis results.
Quantifying project risk

Risk event Prob. % Impact value $$ Risk value $$
Total risk value
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11.5. Risk Response Planning

The process of developing options and determining actions to enhance opportunities and reduce threats to the projects objectives. Risk response planning must be: Appropriate to the severity of the risk Cost effective in meeting the challenge Timely to be successful Realistic within the project context Agreed upon by all parties involved Owned by a responsive person
Risk Response Planning

Inputs
1. Risk management plan 2. Risk register
Tools & Techniques

1. Strategies for negative risk or threats 2. Strategies for positive risk or opportunities 3. Strategies for both threats and opportunities 4. Contingent response strategy
Outputs
1. 2. 3. Risk management plan Risk register Risk-related Contractual agreements
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Risk Response Planning Tools & Tech.

Strategies for Negative risks (Threats)
Avoidance Mitigation Transfer Acceptance (valid for threats and opportunities)
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Response Strategies for Threats

Avoidance:
Risk prevention Changing the plan to eliminate a risk by avoiding the cause/source of risk Protect project from impact of risk Examples: Change the implementation strategy Do it ourselves (do not subcontract) Reduce scope to avoid high risk deliverables Adopt a familiar technology or product

Mitigation
Seeks to reduce the impact or probability of the risk event to an acceptable threshold Be proactive: Take early actions to reduce impact/probability and dont wait until the risk hits your project Examples: Staging - More testing - Prototype Redundancy planning Use more qualified resources

Transfer
Shift responsibility of risk consequence to another party Does NOT eliminate risk Most effective in dealing with financial exposure Examples: Buy/subcontract: move liabilities Selecting type of Procurement contracts: Fixed Price Insurance: liabilities + bonds + Warranties
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Acceptance
Used when it is not possible to change project plan or unable to use other risk response strategy (i.e. when it is not possible to avoid/mitigate/transfer a risk) Active Acceptance Develop a contingency plan to execute if the risk occur Contingency plan = be ready with Plan B Passive Acceptance Deal with the risks as they occur = No Plan B prepared
Contingency allowance/ reserve

Established amount of reserve (e.g.: time and/or money) to account for the identified known risks that couldn't be avoided, mitigated or transferred Amount is decided based on probability and impact
Response Strategies for Opportunities

Exploit
Opposite of Avoidance
Enhance
Opposite of Mitigation
Share
Opposite of Transfer
Acceptance
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Outputs of Risk Management

1. Risk response plan List of critical risks and the plan towards them Budget required to mitigate/transfer/avoid Contingency plans and the needed contingency reserve List of residual risks Those neglected risks will be reviewed throughout the project execution (in case impact/probability increases) Secondary risks Those new risks that arise from implementing a risk response. They should be revisited and re-incorporated in the risk response plan
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2.
3.
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Risk Response Plan (process output)

Risk event
Impact
Prob.
Risk value
Risk Response
Risk response cost
Early Warning Signs
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Risk reserves
Contingency Reserve
Known unknowns expectable risks Accounts for: Amounts dedicated for contingency plans identified in the risk management process Residual risks that we decided to put aside when developing the risk management plan
Management Reserve
Unknown Unknowns un-expectable risks Accounts for items that we did not or could not identify in the risk management process
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Risk Response Planning, Outputs

Risk register (updates)
Identified Risk Risk owner Results from qualitative and quantitative risk analysis processes Agreed response Specific action to implement the chosen response strategy Residual and secondary risk Budget and time of responses Contingency plan and triggers
Risk Management: Summary

Process: Identification, Assessment, Response Development and Control Risk Sources: Internal and external Risk Event Plotting; Risk Matrix Threat Responses: Avoid, Mitigate, Transfer and Accept Contingency Planning Risk planning Outputs Risk Response Plan + list of residual risks + secondary risks
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Principles of Project Management

Hisham Rafik, MBA, PMP

Principles of Project Management

Principles of Project Management

Project Planning Process

Principles of Project Management

Project risk management

Project Risk Management Processes

11.3 Qualitative Risk Analysis

11.2 Risk Identification

11.5 Risk Response Planning

11.6 Risk Monitoring & Control

11.4 Quantitative Risk Analysis

Principles of Project Management

11.1. Risk Management Planning

Risk Management Planning

Tools & Techniques

Risk Management Planning

Principles of Project Management

Risk Management Plan

Roles & Responsibilities

Definitions of risk probability & impact Reporting Formats

11.2. Risk Identification

Everyone should be involved in risk identification

Principles of Project Management

Tools & Techniques

Risk Identification Tools & Techniques: Information-Gathering Techniques

Risk Identification Tools & Techniques: Information-Gathering Techniques

Strengths (S) (SO) Growth (ST) stability

Weaknesses (W) (WO) Cooperate (WT) Mitigation

Risk Identification More Tools & Techniques

Risk Sources (another view)

Principles of Project Management

Project Risk Management Risk Identification, Outputs

Principles of Project Management

11.3/4. Qualitative and Quantitative Risk Analysis

Principles of Project Management

Qualitative Risk Analysis

Tools & Techniques

Principles of Project Management

Qualitative Risk Analysis - Example

Principles of Project Management

Plotting Risk Events on the Risk Event Matrix

Principles of Project Management

Qualitative Risk Analysis, Outputs

Quantifying project risk

Total risk value

Principles of Project Management

11.5. Risk Response Planning

Risk Response Planning

Tools & Techniques

Principles of Project Management

Risk Response Planning Tools & Tech.

Principles of Project Management

Response Strategies for Threats

Response Strategies for Threats

Response Strategies for Threats

Principles of Project Management

Response Strategies for Threats

Contingency allowance/ reserve

Response Strategies for Opportunities

Principles of Project Management

Outputs of Risk Management

Risk Response Plan (process output)