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Managing Risk

Project Management in the Information Age MASY1-GC 1250

Session 6

V21.6

Project Risk Management

Project Risk Management

• Project risk is an uncertain factor or event that can have a negative or positive effect on meeting project objectives

• Project risk management planning includes developing o A Risk Management Plan o A Risk Register o A Likelihood / Impact Matrix o Risk-related agreements and response plans

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Negative Risk Events (Threats)

• Uncertain factors events that may occur to the detriment of the project o Performance failure of a product/service o Delays in completing work on schedule o Increases in estimated costs o Supply shortages o Litigation o Labor actions and strikes

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Positive Risk Events (Opportunities)

• Uncertain factors or events that may enhance project success o Completing work sooner than planned o Unexpectedly reduced cost o Collaborating with suppliers to produce better

products o Good publicity from the project

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Risk Terminology

• Risk Events o Discrete, specific occurrence that affect a decision, a

plan, or the organization

• Risk Ranking o The ordinal or cardinal rank prioritization of the

risks in various alternatives, projects, or units

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More Risk Terminology

• Risk Appetite o The greatest acceptable degree of uncertainty one

is willing to accept in anticipation of a reward

• Risk Threshold o The level of risk above which risks must be actively

managed

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The Problem of Bias

• Human bias affects o Risk identification o Risk analysis

• Behavioral economics o The planning fallacy

• Get management support for risk management! o “Tone at the top”

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Common Attitudes About Risk Management

• The “head in the sand” mentality o “If I don’t see it, it can’t happen.” o “I don’t want to hear about any threats.”

• The hero mentality o “Whatever happens, we’ll figure it out.”

Both are harmful!

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The Goal of Project Risk Management

• Answer these questions regarding the project: o What can happen? o How can it happen? o What is the potential harm or benefit? o What, if anything, can be done about it?

Remember: • Project management IS risk management • Project managers ARE risk managers

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Risk Management Processes

• Plan Risk Management • Identify Risks • Perform Qualitative Risk Analysis • Perform Quantitative Risk Analysis • Plan Risk Responses • Implement Risk Responses • Monitor Risks

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The Risk Management Plan

• A risk management plan documents the procedures for managing risks throughout the life of a project o Roles and responsibilities o Budget and schedule estimates o Timing for risk-related activities o Risk categories o Probability and impact matrices o Risk documentation and communications

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Inputs

• Scope • Resource management plan • Schedule • Budget • Organizational assets • Enterprise environmental factors

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Outputs

• Risk management plan • Risk Breakdown Structure (RBS) • Risk register • Schedule activities • Budget • Probability and impact matrix • Risk response plans

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Risk Identification Techniques

• Brainstorming • Interviewing • Delphi technique • Root cause analysis • SWOT analysis • Three-point estimation

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Risk Breakdown Structure

• Possible categories: o External, unpredictable o External, predictable o Internal, non-technical o Internal, technical

• Other RBS “taxonomies” o Deliverables o Functional areas o Project phases

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Risk Ownership

Assign individual owners to identified risks for: • Ongoing monitoring • Risk response planning and execution

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Qualitative Risk Analysis

• Description • Comparison • Contrasts • Prioritization • Classification of likelihood and impact:

o High? o Medium? o Low? Determine categories for each!

A starting point for quantitative analysis

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Qualitative Risk Analysis

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Likelihood

Impact

Low Medium High

High

Medium

Low

Quantitative Risk Analysis

• The “gold standard” • Usually measured in money • Also based on likelihood and impact • Estimation issues • Some techniques:

o Three-point estimation o Expected monetary value o Monte Carlo analysis

• Remember, models have limits!!!

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Risk Strategies

Threats • Escalate • Avoid • Transfer • Mitigate • Accept

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Opportunities • Escalate • Exploit • Share • Enhance • Accept

Complexities of Risk Response Planning

• Combination strategies • Risk dependencies • Residual risks • Secondary risks

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Risk Plans

• Contingency Plans o Predefined actions that the project team will take if an

identified risk event occurs

• Fallback Plans o For risks that have a high impact on meeting project

objectives

o Put into effect if attempts to reduce the risk are not effective

o Contingency plans of last resort

• Contingency / Management Reserves o Funds held by the project sponsor that can be used to

mitigate cost or schedule overruns if unknown risks occur

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Agile Risk Management

• Scope uncertainty accepted • Schedule and budget fixed • Adaptive

Techniques: • Prioritization • Incremental delivery • Daily standups • Concurrent testing • Business integration

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