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344SAMLecture7-RiskandOpportunityManagement.pptx

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344SAM Project Management L7: Risk and Opportunity Management

Lecture Content

By the end of this lecture, students should be able to:

Understand what risk and opportunity management is, and how it contributes to project success

Recognise the key stages and different tools used in conducting risk analysis

Recognise the appropriate response types to risk

Projects and risk

Projects are subject to higher levels of uncertainty for several reasons:

they are unique/one-off

project organisations are often temporary

they are about change

Risk definitions

‘Project risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective.’

(PMI 2004: 373)

‘The potential of an action or event to impact on the achievement of objectives.’

(APM 2013)

Giant popsicle gone wrong!

Assumptions can kill you, or cause serious damage

But change may also be positive…

Change in definitions

The view of risk management changed to incorporate positive and negative outcomes during the period 1997 to 2000

Pre-1997, risk definitions were threat-based

Post- 2000, usage embraces both threat and opportunity

‘There is increasing awareness that risk management can and should be used to minimise the negative effect of downside threat-risks, while also attempting to maximise the positive effect of upside opportunity-risks, in order to optimise achievement of objectives’

(Hillson and Murray-Webster, 2007: 6)

Opportunity

‘A positive risk event that, if it occurs, will have a beneficial effect on achievement of objectives.’ (APM 2016)

‘An opportunity can be defined as an uncertain event or set of conditions that, if it occurs, would benefit the project or business.’

(Hillson, 2003: 18)

Can you think of any examples where you might want to increase the chances of something happening on a project?

Risk management

Risk management is a process that the project team uses to understand and manage risks

Objective is to minimise potential impact of negative risks and optimise potential impact of positive risks

Every project will face potential risks to its objectives

Identification

Assess

Plan Responses

Implement Responses

Initiation

Identifying risks

Sources of risks

Risks related to the project identified through:

knowledge of project

expertise of team and project stakeholders

previous similar projects

Risks residing in the wider external environment

consult widely to gather intelligence

understanding of project relationship to external environment

external knowledge repositories

People can be sources of risks too…

Types of risk analysis

Qualitative

Quantitative

Types of risk analysis - Qualitative

Qualitative risk analysis

describe the characteristics of risk and the potential impact on the project

Tools include:

PESTLE

Risk Breakdown Structure

Ishikawa fishbone diagram

Risk classification matrices

Using a fishbone diagram

Allows you to ‘reverse engineer’ a potential risk

Identifies link between causes and effect

Tracks risk back to set of potential causes

Highlights triggers

Breaks down high level factors into detailed contributing features

Risk classification matrix

LIKELIHOOD OF FAILURE

IMPACT OF FAILURE

Risk classification matrix

Combines the likelihood of risk occurrence with the effect the risk will have on the project objectives

Categorisation of risks in terms of project impact/probability can be put on a descriptive scale

e.g. three stage (low, medium, high) or five stage (insignificant, minor, moderate, major, severe)

Tool for risk prioritisation

Provides stakeholders with overview of risk predisposition

Risk classification matrix

LOW

MEDIUM

HIGH

LOW

MEDIUM

HIGH

Probability

Impact

Types of risk analysis - Quantitative

Quantitative risk analysis

assigns numerical values to risk for probability of risk occurring and potential impact on the project

commonly link risks to time and cost

enables a numerical prioritisation of risks

informs allocation of management attention and budget to managing the risk

ID	Risk	Impact	Probability/Chance	Result
1	Cancellation fee charged by Somerford Hall for low delegate numbers	3	2	6
2	Withdrawal of keynote speaker pre-conference	4	1	4
3	Disruptive weather	2	3	6
4	Over-subscription of delegates	2	4	8
5	Closure of West Coast Mainline/M6	2	1	2
6	Proceedings published	4	3	12
7	Cancellation of event from lack of delegates	5	2	10
8	Power failure during event	3	1	3
9	Marquee not erected on time	4	1	4

Example of a impact/chance key

Impact Days to resolve or deviation in budget

Low 1 < 1 day/<£250

Low/medium 2 1-3 days/£251-1000

Medium 3 4-7 days/£1001-2000

Medium/high 4 8-12 days/£2001-4000

High 5 > 12 days/>£4000

Chance % chance of occurring

Low 1 0-10%

Low/medium 2 11-25%

Medium 3 26-50%

Medium/high 4 51-75%

High 5 76-99%

Planning to manage risks

There are a number of risk response strategies available when planning for potential risks.

These are the main five strategies:

Avoid

Mitigate

Transfer

Exploit

Enhance

Reject

Threats

Opportunities

Risk register
Risk No.	Risk description	Cause of risk	Probability of occurrence	Impact on project	Risk response plan	Risk owner	Date of entry

Example of Risk Register

Impact of risk planning

Risk plans may result in the nature or detail of the project being changed, or alter the probability and impact the risk might have on the project

For example, in order to avoid a potential risk of finding asbestos in an office block re-development, the project may be changed from demolishing and rebuilding a single storey extension to refurbishing the interior of the existing extension only.

The new project will have no problems with asbestos. The budget and timescales will be reduced. However, the project specification has been significantly redefined.

Monitoring and controlling risks

Risks must be managed once the project is underway

Commonly done by use of risk registers

All risks should be transferred to a risk register

The risk register is a live document

Risks and triggers should be monitored

Each risk will have a risk owner, monitor trigger, implement plan (if required) and update team

Communication of risk status is part of risk management

Articles

The following articles look at various facets of risk and opportunity management:

Atkinson, R, Crawford, L and Ward, S (2006) ”Fundamental uncertainties in projects and the scope of project management”, International Journal of Project Management 24 pp687-698

Barber, R (2005) ”Understanding internally generated risks in projects”, International Journal of Project Management 23 pp584-590

Hillson, D (2002) ”Extending the risk process to manage opportunities”, International Journal of Project Management 20 pp235-240

Jaafari, A (2001) ”Management of risks, uncertainties and opportunities on projects: time for a fundamental shift”, International Journal of Project Management 19 pp89-101

Olsson, R (2007) ”In search of opportunity management: Is the risk management process enough?”, International Journal of Project Management 25 pp745-752

Ward, S (1999) ”Requirements for an Effective Project Risk Management Process”, Project Management Journal 30 pp37-43

Ward, S and Chapman, C (2003) ”Transforming project risk management into project uncertainty management”, International Journal of Project Management 21 pp97-105