Executing The Project

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Chapter7.RiskManagement.pptx

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Project Management: Achieving Competitive Advantage

Fifth Edition

Chapter 7

Risk management

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Learning Objectives

7.1 Define project risk.

7.2 Recognize four key stages in project risk management and the steps necessary to manage risk.

7.3 Explain the Project Risk Analysis and Management (P R A M) process.

P M B o K Core Concepts

Project Management Body of Knowledge (P M B o K) covered in this chapter includes:

Plan Risk Management (P M B o K 11.1)

Identify Risks (P M B o K 11.2)

Perform Qualitative Risk Analysis (P M B o K 11.3)

Perform Quantitative Risk Analysis (P M B o K 11.4)

Plan Risk Responses (P M B o K 11.5)

Control Risks (P M B o K 11.6)

Questions to Consider in Risk Management

What is likely to happen (the probability and impact)?

What can be done to minimize the probability or impact of these events?

What cues will signal the need for such action (i.e., what clues should I actively look for)?

What are the likely outcomes of these problems and my anticipated reaction?

Risk Management

Risk management—the art and science of identifying, analyzing, and responding to risk factors throughout the life of a project and in the best interest of its objectives.

Project risk—an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost, or quality.

Figure 7.2 Risk Versus Amount at Stake: The Challenge in Risk Management

Four Stages of Risk Management

Risk identification

Analysis of probability and consequences

Risk mitigation strategies

Control and documentation

Risk Clusters

Financial

Technical

Commercial

Execution

Contractual or legal risk

Common Types of Risks

Absenteeism

Resignation

Staff pulled away

Time overruns

Skills unavailable

Ineffective training

Specs incomplete

Change orders

Risk Factor Identification

Brainstorming meetings

Expert opinion

Past history

Multiple (or team-based) assessments

Figure 7.4 Risk Breakdown Structure (R B S)

Figure 7.5 Risk Impact Matrix

Project Risk Scoring (1 of 2)

Use project team’s consensus to determine the score for each Probability of Failure category: Maturity (Pm), Complexity (Pc), and Dependency (Pd).

Calculate overall probability.

Use project team’s consensus to determine the score for each Consequence of Failure category: Cost (Cc), Schedule (Cs), Reliability (Cr), and Performance (Cp).

Project Risk Scoring (2 of 2)

Calculate Cf by adding the four categories and dividing by 4:

Calculate Overall Risk Factor for the project by using the formula:

Rule of Thumb:

Low Risk R F < 0.30

Medium Risk R F = 0.30 to 0.70

High Risk R F > 0.70

Risk Mitigation Strategies

Minimize

Transfer

Contingency Reserves

Task contingency

Managerial contingency

Insurance

Workaround

Other Mitigation Strategies

Mentoring

Cross training

Control and Documentation

Change management

Control and Documentation

Helps managers classify and codify risks, responses, and outcomes

Change management report system answers:

What?

Who?

When?

Why?

How?

Project Risk Analysis and Management (P R A M)

P R A M presents a generic methodology that can be applied to multiple project environments, and encompasses the key components of project risk management.

Key Features of P R A M

Risk management follows a life cycle.

Risk management strategy changes over the project life cycle.

Synthesized, coherent approach.

Nine Phases of Risk Assessment

Define

Focus

Identify

Structure

Clarify ownership of risks

Estimate

Evaluate

Plan

Manage

Summary

Define project risk.

Recognize the four key stages in project risk management and the steps necessary to manage risk.

Explain the Project Risk Analysis and Management (P R A M) process.

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