Risk Management
Vignesh Sivadass
Lecture1F2.pptxMANG 6143 Project Risk Management Mario Brito
Some introductory comments
this book and the role of Chapman and Ward
What do you want to take away from this course?
The four part structure for this course.
Some background to the book Enlightened Planning (Chapman, 2019). Why you need to read (2011).
Other reading, and how to address it.
The role of the Transcon and Samdo case studies.
Some key assessment issues.
Questions and other issues?
Our agenda for part one – setting the scene
An unrestrictive view of some basic definitions and concepts.
A broad view of projects.
Project lifecycle frameworks – a foundation framework.
The seven Ws as a second key framework.
Goals-plans relationships as a third key framework.
The estimation-efficiency spectrum.
Process frameworks – the fourth framework which completes the four Fs (four foundation frameworks) – in generic, specific and universal forms.
The ‘universal process (UP)’ concept which underlies all the ‘process’ concepts employed by the ‘enlightened planning (EP)’ approach, and the associated ‘systematic simplicity’ concept.
An overview critique of common practice.
An unrestrictive overview of three basic definitions
Uncertainty – lack of certainty.
Risk – possible unfavourable outcomes or any of their possible sources.
Opportunity – possible favourable outcomes or any of their possible sources.
See Enlightened Planning (Chapman, 2019) chapter 1 for elaboration and seven more basic definitions.
Basic definitions of terms as foundation concepts, the need for generality, and the particular need to avoid some key common practice definitions.
An unrestrictive view of three basic concepts
Risk efficiency – a minimum level of risk for any given level of expected outcome in terms of any relevant attribute of ‘reward’ (like profit, cost, or the number of people whose potential deaths are avoided as a result of a course of action).
Clarity efficiency – a maximum level of clarity (insight which can be communicated) for any given level of cost/effort expended to acquire clarity.
Opportunity efficiency – risk efficiency plus clarity efficiency in terms of all relevant attributes plus appropriate trade-offs between risk and reward for all relevant attributes plus appropriate trade-offs between all relevant attributes.
Opportunity efficiency is what ‘best practice’ ought to be.
The overall goal of this course is clarifying and helping you and the organisations of interest to you achieve ‘best practice’ in this sense.
Projects
Turner (1992) provides a useful basic mainstream definition of a project:
an endeavour in which human, material and financial resources
are organised in a novel way, to undertake a unique scope of work
of given specification, within constraints of cost and time, so as to
achieve unitary, beneficial change, through the delivery of quantified
and qualitative objectives.
We need to generalise (make less restrictive) this kind of mainstream
project concept to address ‘the management of change’.
We also need to include all ‘programme’ and ‘portfolio of projects
or programmes’ perspectives in our ‘project’ concept.
Project system examples
(a) Chain configuration: stages in a
primary project may be managed
as a chain of component projects.
(b) Parallel configuration: aspects of a
primary project may be managed
as a set of parallel component
projects.
(c) Project hierarchy: the primary
project as a three-level hierarchy
of component projects.
component
component
component
primary project
Time
component project
component project
component project
primary project
Time
Time
tertiary project
tertiary project
secondary project
tertiary project
secondary project
primary project
component
component
component
Three Interdependent Aspects of Management
Corporate management, operations management and project management should involve three interlocking perspectives, because all three require coordinated approaches in compatible frameworks. The full set of key parties directly involved in project lifecycle frameworks should understand the implications of all three perspectives, and this issue needs explicit attention.
These three perspectives can be associated with three interdependent aspects of management which need coordinated treatment in terms of formal planning processes and associated frameworks.
A traditional four stage project lifecycle for ‘clients’ with the dominant management aspects identified
| The four lifecycle stages | The dominant management aspect in these four stages |
| Conceptualisation | Operations or corporate management initially, then corporate management |
| Planning | Corporate management initially, then project management |
| Execution and delivery | Project management |
| Utilisation | Operations management |
Decomposing the front-end of the conceptualisation stage plus the planning stage as advocated in Enlightened Planning (Chapman, 2019) , with detail taken from Chapman and Ward (2011)
| Stage purposes | Stage steps | Stage labels |
| Capturing the project’s concept, objectives and business case development in overall corporate strategy terms | Trigger event Concept capture Clarification of project purpose Concept elaboration Business case development Concept, objectives and business case evaluation in overall corporate strategy terms | Concept strategy progress stage |
| Governance | Consolidate plans and confirm deliverables | Concept strategy gateway stage |
Further decomposition of strategic planning
| Design, operations and termination (DOT) strategy development from a design and operations management perspective. | Design and operations strategy development, building on corporate concept strategy capture. Development of lifecycle performance criteria. Integrated development of design, operations and termination strategy. | DOT strategy progress stage | |
| Governance | Consolidate plans and confirm deliverables. | DOT strategy gateway stage | |
| Execution and delivery (E&D) strategy development from a project management perspective. | Activity and related resource use development, building on corporate concept strategy plus DOT strategy capture. Development of timing targets and milestones. Strategic plan development for execution and delivery including contracting. | E&D strategy progress stage | |
| Governance | Consolidate plans and confirm deliverables. | E&D strategy gateway stage | |
| Devils and angels (D&A) strategy development using selective detailed design and planning for execution, delivery, operation and termination purposes. | Shifting the perspective to implementation on a selective basis to eliminate devils in the detail (a form of risk) and find angels in the detail (a form of opportunities) using a focus on detailed planning which is limited to the strategic implications of these concerns. | D&A strategy progress stage | |
| Governance | Consolidate plans and confirm deliverables. | D&A strategy gateway stage |
11
The importance of getting strategy clarified in ‘fit for purpose’ terms using a clarity efficient set of interdependent processes before worrying about most of the tactical planning. Using the D&A strategy gateway stage as an overall ‘watershed’ strategy gateway stage after four strategy progress stages plus three earlier gateway stages.
Strategy/tactics boundary concerns
Implementation tactics planning stages
| Detailed design and planning for implementation purposes in all of the stages to follow. | Shifting the perspective to implementation planning. Development of detailed design and activity planning criteria for implementation purposes. Development of contracting plan details. Development of detailed designs and activity plans. Development of detailed resource allocation. | Tactics progress stages |
| Governance | Consolidate plans and confirm deliverables | Tactics gateway stages |
Execution and delivery stage decomposition
| Execution | Implementation of actions plans. Coordinate, control and monitor progress. Modification of all targets, commitments and resource allocations as needed. Ongoing execution evaluation. | Execution progress stage |
| Delivery | Undertake delivery. Deliverable modification. Manage stakeholder expectations about delivery and operational performance. Delivery evaluation. | Delivery progress stage |
Utilisation stage decomposition
| Operation | Operational utilisation of asset. Ongoing development of operations & support criteria. Ongoing development of operations & support. Ongoing operations & support evaluation. | Operation |
| Termination | Development of detailed plans for transfer of ownership or replacement or decommissioning. Termination execution. Termination evaluation. | Termination |
Key portrayals of uncertainty
Event uncertainty
Inherent variability uncertainty
Systemic uncertainty
Ambiguity uncertainty
Capability-culture uncertainty
Event uncertainty on its own is a seriously inadequate portrayal of all relevant uncertainty, and being comfortable using all five portrayals as appropriate is a crucial and central issue.
Most of what this course usually refers to as ‘sources of uncertainty’, to distinguish them from what are commonly referred to as ‘risks’, are composites of two or more lower level components of uncertainty. Sometimes different ‘sources of uncertainty’ are usefully seen using different portrayals of uncertainty. Decomposition of uncertainty raises key questions about what structure and portrayals are best suited to the task in that particular context. ‘Events’ or ‘conditions’ is never the exclusive or universal answer to the question of portrayals – ‘sources of uncertainty’ are sometimes best viewed using one of the other four possible portrayals. ‘Keep it simple systematically’ is the central mantra for all issues of this kind, avoiding a common bias towards simplicity which is simplistic. That is, keep it simple in the ‘right way’, avoiding the ‘wrong way’.
Key aspects of uncertainty as seen by this course
Using a performance lens plus a knowledge lens
uncertainty
‘the project’
uncertainty
about the
achievement
of objectives
do we want
to continue
to develop
this project?
opportunity
and
risk
all other
views of
uncertainty
what else do we
need to know
to get to the
next stage?
how should we
shape our plans
to get to the
next stage?
what do we
need to do
to get to the
next stage?
performance
lens
knowledge
lens
how does this
project fit our
overall strategy
and operations
plans?
Our estimation-efficiency spectrum exploration agenda
The minimum clarity to maximum clarity spectrum concept.
The clarity efficiency concept.
The risk efficiency concept.
The opportunity efficiency concept.
‘Best practice’ in these terms.
Clarifying degrees of ‘bad practice’ and ‘common practice’.
Using an initial focus on a ‘primary attribute’.
Multiple attribute trade-offs as integrated concerns.
The need for a process to achieve ‘best practice’.
Minimum clarity estimation: a simple MoD example
0
probability
(density)
0 2 10 18 20
outcome value in weeks
probability
density
format
0 2 10 18 20
outcome value in weeks
0
1.0
cumulative
probability
0.5
the median (P50)
is equal to the
expected value
and both are
10 weeks
cumulative
probability
format
0.05
0.9
0.1
The approximation involved: a density portrayal
Interval estimates and the ABCs of targets
Using a P10 estimate as a default aspirational target, and alternatives.
Using a P90 estimate as a default commitment target, and alternatives.
Expected values as balanced targets, and alternatives.
Provisions defined by balanced targets less aspirational targets.
Contingencies defined by commitment targets less balanced targets.
Range estimates as the default choice, and point estimate alternatives.
Expected values as an opportunity/risk datum, and alternatives.
Clarifying relationships between opportunity, risk and uncertainty.
Clarifying relationships between plans and outcomes.
A basic probability-impact grid (PIG)
Probability
high
low
low medium high
medium
Impact
p1
p2
p0 = 0
p3 = 1
i0 = 0 i1 i2 i3
r2 r3 r4
r1 r2 r3
r3 r4 r5
Sensitivity diagrams: a high clarity BP example
Sensitivity diagrams: Highways Agency example
Clarity efficiency: ‘efficient frontier’ portrayal
Risk efficient options: ‘efficient frontier’ portrayal
Decision diagrams: one risk efficient choice example
Decision diagrams: two risk efficient choices example
Simple decision diagrams: three options example
An extract from Sally’s BCS cost estimate and contract
| Item description | Target minimum | Target maximum | Target mid-point |
| Remove old floor covering and prepare the floor surface Lay new flooring Provision for clean-up and other time | 4 8 2 | 12 12 6 | 8 10 4 |
| Total hours Total cost | 14 £ 420 | 30 £ 900 | 22 £ 660 |
| Estimated value contract option basis is £ 660 + 10% = £ 726 |
This is a Chapman and Ward (2011) example used to illustrate very simple modest clarity approaches.
Approximate ‘macro-phase’ alignments for three processes
| Association for Project Management (APM): Project Risk Analysis and Management (PRAM) Guide (APM, 2004) | Institution of Civil Engineers (ICE) and the Institute and Faculty of Actuaries (IFoA): Risk Analysis and Management for Projects (RAMP) (ICE and IFoA, 2005) | Project Management Institute (PMI): A Guide to the Project Management Body of Knowledge (PMI, 2009) |
| Initiate: define the project Initiate: focus the risk management process | Organise and define RAMP through the investment lifecycle Plan and initiate risk review | Plan risk management |
| Identify | Identify risks | Identify risks |
| Assess: structure ownership estimate evaluate | Evaluate risks | Perform qualitative risk analysis Perform quantitative risk analysis |
| Plan risk event responses Plan project risk responses | Respond to risks Assess residual risks Plan responses to residual risks | Plan risk responses |
| Implement responses | Communicate strategy and plans Implement strategy and plans Control risks | Monitor and control risks |
Flowchart for the basic SPP
identify all relevant sources,
responses & conditions
structure
all uncertainty
clarify
ownership
quantify
some uncertainty
evaluate
all the relevant implications
to the
appropriate
gateway
stage
capability-culture
assets
capability-culture
liabilities
create & enhance plans
for all relevant concerns
from
project
initiation or a
gateway
stage
select & focus the process
for appropriate clarity
capture the context
with appropriate clarity
shape base plans using
models of some key issues
A bar chart for the first pass of the SPP
ownership
quantify
evaluate
intense effort
on-going effort
no effort or intermittent effort
key:
structure
phase
create & enhance
select & focus
start of the
process
end of the first
complete cycle
capture
identify
shape base plans
Flowchart for the universal process (UP) which underlies the basic SPP
select & focus the process
for appropriate clarity
create & enhance the plans
for all relevant concerns
shape the plans
using models of key issues
test the plans
to ensure robustness
interpret the plans
to exploit creativity
implement the plans
as and when appropriate
a trigger
in some
other
process
return
to an
appropriate
process
capability-culture
assets
capability-culture
liabilities
capture the context
with appropriate clarity
A brief overview of the development of this process, elaborated in Enlightened Planning (Chapman, 2019) chapter 2.
Ten key shortcomings of many common practice project risk management processes are provided now to indicate where this course is going, using two lists of five. You should understand the nature all ten of these concerns, and how to resolve them, by the conclusion of the course, but explanations will have to emerge as the course proceeds.
The first five
| A capture phase equivalent which is clarity inefficient, with common omissions like the lack of a clear basis for a shared understanding of all relevant objectives, measurable or not, with an orderly process in place for considering all relevant trade-offs between objectives in opportunity efficiency terms. A select & focus phase equivalent which is not used as a flexible basis for selecting and adjusting the process to the context of each project and modifying the process as the lifecycle progresses from concept strategy to project termination. A select & focus phase equivalent which is unclear about the motives for the process in relation to the various interested parties, or the links between motives for the analysis of uncertainty, opportunity and risk and the models selected. Silo separation of the phase equivalents to the create & enhance plans plus the shape base plans phases, with results like early plans which are far too detailed in terms of activities but lacking clarity about uncertainty, including the relevance of all seven Ws, the way uncertainty will reduce as the project lifecycle progresses, and the way the business financial cash flow models used are driven by all other plans. An identify phase equivalent which is limited to event based uncertainty, which cannot cope effectively with composite uncertainties, and which fails to structure sources of uncertainty and associated risk and responses usefully, often generating excessively long and detailed ‘risk registers’ that address minor issues in excessive detail but are completely blind to sources of uncertainty which really matter. |
The second five
| Absence of a structure phase equivalent, with little evidence of robustness testing or effective structuring decisions, including the lack of a significant search for common or general responses and a failure to identify significant linkages and interdependences between important sources of uncertainty. Lack of an explicit ownership phase equivalent, with resulting inadequate attention to the implications of contractual arrangements for motivating parties to manage uncertainty, including inappropriate use of simplistic contracts. A quantify phase equivalent which is costly but not cost effective, ineffectively linked to earlier qualitative analysis, resulting in biased estimates that are usually highly conditional on scope assumptions and other assumptions which are lost sight of or never identified. An evaluate phase equivalent which combines different sources of uncertainty without capturing crucial interdependencies, which does not provide the insight to clarify how revisiting earlier analysis can clarify uncertainty and help to develop effective responses which will facilitating achieving risk efficiency and opportunity efficiency, or demonstrate the robustness of key choices when necessary. Absence of an effective iterative process structure which embeds the features of all nine SPP phases and a failure to distinguish planned iterations which involve limited costs, successive applications of an iterative process as a project lifecycle progresses, and unplanned iterations to deal with surprises which are costly. |
