project risk finance and monitering

MBA643

Project Risk, Finance

and Monitoring

Workshop 1

An Introduction to Project Finance

and the Nature of Project Risk

COMMONWEALTH OF AUSTRALIA

Copyright Regulations 1969

WARNING

This material has been reproduced and communicated to you by or on behalf of

Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (the Act).

The material in this communication may be subject to copyright under the Act. Any

further reproduction or communication of this material by you may be the subject of

copyright protection under the Act.

Do not remove this notice.

2

Welcome to MBA643

Learning objectives

• Compare and contrast definitions of risk,

opportunity, and uncertainty in business

• Examine several case studies to discuss the

nature of risk in project management

• Introduce project finance as a form of risk

management

• Set out expectations for the subject and

guidelines for selecting the case studies for

assessment

5

Project management statistics

• PMI Pulse report found in 2017 that organisations

are wasting an average of $97 million for every $1

billion invested, due to poor project performance;

that’s a 20 percent decline from one year ago.

• PMI found for the first time since 2011, an upward

trend: More projects are meeting original goals

and business intent and being completed within

budget

Project Management Institute, 2017, ‘Pulse of the profession’ viewed 9 Februaury 2018 <https://www.pmi.org/-

/media/pmi/documents/public/pdf/learning/thought-leadership/pulse/pulse-of-the-profession-2015.pdf>

Workshop activity

• In pairs, introduce yourself to someone you do

not know. Tell your partner a little about your

background and why you are studying this

course.

• With your partner, discuss what you know in

relation to project management and what you

understand about “risk”.

• Come together as a group and offer your

suggestions to the whole group.

Defining ‘project’

• PMBOK definition: a temporary endeavour

undertaken to create a unique product, service

or result

• Projects require:

• an organised set of work efforts

• progressively elaborated detail

• a defined beginning and ending

• a unique combination of stakeholders

Project as ‘change inducing’

A project is:

“an endeavour in which human, material and financial

resources are organized 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.”

Turner (1992), cited in Chapman & Ward (2011)

A ‘well-managed’ project

• Project scope – a well defined project charter

• Do not force a methodology such as Agile,

Scrum or Waterfall – there is so much choice

• Appoint a lead to manage the plan and timeline

• Maintain a RAID log – risks, actions, issues,

decisions

• Understand & manage conflict

Risk considerations

Success and failure in projects

WHY DO PROJECTS

SUCCEED?

Project success can be

determined by:

• Meeting agreed goals

• Meeting customer services or

products

• Meeting customer requirements

WHY DO PROJECTS FAIL?

• Not enough resources

• Not enough time to complete

the project

• Project outcomes or objectives

are not clear or identified

• Changes to project scope are

ambiguous or not agreed

• Various stakeholders have

different expectations

• Insufficient project

management or planning

Workshop activity

• Panama Canal – Read pages 1-4 for more detail

http://www.failureproofprojects.com/Panama2006.pdf

What

went

wrong?

Panama Canal 2:

what went right

• The second Panama Canal applied more

rigorous planning practices

• This project set clearer objectives,

involved evaluation, planning, resourcing,

and risk management: continual

adjustments and revisions to the plan in

response to conditions and progress

Defining ‘risk’

Why practice risk management?

• Risks issues

• Risk has the potential negative consequences for:

– project performance

– the ability of the PM to meet project objectives

– cost, scope, time

• Risk management is one of the key knowledge

areas in the Project Management Body of

Knowledge (PMBOK) - ‘best’ practice

Stages of risk management

Identification Identify all internal and external sources of risk

having the potential to impact the project

Assessment Determine both the probability and impact

arising from the risk source to calculate the

priority

Analysis Work through all tasks to clearly determine

how each risk will impact the project’s success

Management Plan the appropriate response strategies to

accept, reject and or manage the risk

Evaluation Review the risk process and the adequacy of

the nominated strategies post project

Source: PMBOK 4th English edition

PMBOK Project Management Body of Knowledge

Risk impacts in PM

Source: PMBOK 4th English edition

Workshop activity - identify

https://www.youtube.com/watch?v=MTdFkPTTnsA

The nature of risk

Chapman & Ward (2011):

• Uncertainty:

– Risk implies unfavourable outcomes

– Opportunity implies favourable outcomes.

• Williams (2017) - basic types of ‘uncertainty’:

– Reducible/epistemic

– Irreducible/aleatoric

– Combination of the above

Workshop activity

• Print out and Read through

the white paper, ‘Types of

Risk’, and discuss the four

broad categories of risk with

your group.

• Prepare a short presentation

on the following, explaining

the following terms in your

own terms. You may conduct

further research, and must

provide your own examples.

– Aleatoric incidents

– Epistemic incidents

– Aleatoric variables

– Epistemic variables

Common response to risk

• Accept the risk

• Mitigate the risk – specific action to reduce

the probability or impact

• Avoid the risk

• Diversification - share the risk through third

party relationships

• Transfer the risk – outsource to a third party

Workshop activity

Your industrial supplies

business is placing a bid to

win a lucrative short-term

contract to supply

‘flammable materials’ to a

client. You only have one

warehouse.

Discuss the opportunity, risk

and the following risk

management techniques.

Risk management

responses

• Acceptance

• Mitigation/Reduction

– Separation

– Duplication

• Avoidance

• Diversification

• Transfer

Different views on risk The risk The ‘negative’ view The ‘positive’ view

...of rushing the

project

approval

process

 A poor fit with the project parent

organisation

 The need to hire expert resources to

perform the tasks

 Another project that should have been

‘killed off’

 Projects given the ‘green’ light without due

process, discussion and buy-in from the

necessary stakeholders

 Improved criteria to assess the viability

of projects

 Opportunities to involve all required

stakeholders in the decision

 Developing a detailed process to evaluate

potential projects

 The elimination of mistakes made from

wasting time, money and resources on

non-viable projects

...of not gaining

key

stakeholder

buy-in and

commitment

 Too time consuming

 ‘...they won’t help anyway when it hits the

fan’

 ‘...it’s easier if we managed it all ourselves’

 ‘...the fewer people involved the better’

 Projects often experience trouble (or worse

still, haemorrhage) due to the lack of

stakeholder involvement early in the

project’s development. What then happens

is that the issues they are qualified in and

experienced in answering and resolving are

not uncovered until later in the project—

often when the solutions require significant

changes in the scope.

 Why not involve these people throughout the

total process—from start to finish to

demonstrate ‘inclusion’ and to prevent the

negative impacts of project management by

‘exclusion’

24

Deliberate ignorance?

Kutsch & Hall (2010) unpack scenarios in which “ignorance” is sometimes deliberate, often “driven by social factors and/or conditioning”.

Are these risks relevant?

Case study: NBN • http://paulwallbank.com/2014/02/20/y

ou-cant-get-there-from-here/

• http://www.theaustralian.com.au/natio

nal-affairs/cable-fail-as-rollout-of-nbn-

put-on-ice/news-

story/d7891112342e9f646bc54fcaddf

d1f61

• http://www.abc.net.au/news/2017-08-

23/nbn-how-we-fix-the-failing-

broadband-network/8831758

• https://theconversation.com/the-nbn-

how-a-national-infrastructure-dream-

fell-short-77780

• https://www.cio.com.au/article/62913

4/nbn-just-another-government-

project-failure/

1. Students split into groups and each

group is allocated one article. Read

and discuss the article in your

groups.

2. Which types of risk do you think the

NBN project faced?

3. How could the risk management

processes have been better

executed?

From little things…

“In projects, bad things tend

to happen in groups, not

individually… Events that

affect projects in major ways

…tend to go together. Even

when one of those things

occurs individually, it tends

to trigger a cascade of

problematic effects.” (Merrow, 2011, p. 327)

“Undesirable events

(contingencies) are often

caused by a multitude of

problems …these problems

often cascade, compound,

and become intricately

linked …clearly even small

and anticipated

contingencies …can lead to

issues with other groups,

confusion, organizational

conflict, sinking team spirit,

and fading commitment.” (Thamhain, 2013, p. 29)

Complexity

• Conventional views of project 

constituent parts:

– Scope

– Time

– Cost

– Risks

• Complex world  complex projects 

complex risk

‘Wicked’ risk

• Horst Rittel  problems  “tame” or “wicked”

• Tame problems  solved using linear methods

• Wicked problems cannot be solved this way. They are

highly resistant to resolution:

– difficult to define

– complex interdependencies and causes, unique to the local

setting

– instable: incomplete, contradictory, and changing requirements

– socially complex: stakeholders with radically different

perspectives

– solutions that have consequences or lead to additional problems

• Hancock (2010)  risks also “tame”, “messy” or “wicked”

‘Wicked risk’ leadership

• Recognising the complexity of risk, and the

relationships in underlying causes

• Understanding risk as ‘without borders’

• Re-assessing traditional ways of problem-

solving

• Broader, more innovative approaches – even re-

considering traditional ways of working

• No quick fixes – long-term quality improvement

Maturity models

Appetite, tolerance & threshold

• Risk appetite: the degree of uncertainty an

entity is willing to take on in anticipation of a

rewards

• Risk tolerance: the degree, amount, or

volume of risk that an organisation or

individual will withstand

• Risk threshold: a measurement of risk a

organisation will accept

Expectations for this subject

• 3 hour workshops / 14 hours private study

• Readings set each week

• Selection of case studies – approval by

lecturer by Week 3

• Housekeeping

• Questions?

Assessment tasks

Assessment Weighting

Learning

outcome

Mode of

Submission

Submission due

and Details

1 Risk

analysis and

mitigation

project

30% LO 1, 2 via Turnitin Week 6 - Monday at

11.55pm

2 Case study

analysis

30% LO 1, 2, 3 via Turnitin Week 9 - Monday at

11.55pm

3 Presentation

of project plan

40% LO 2, 3, 4 In class

Week 12 - In class

Selecting a case study

• Some guidelines before you begin:

– Research widely.

– The case study you ultimately select will need

to demonstrate your achievement of the

learning outcomes for this subject.

– Select a case study where information is

readily available and accessible.

– Be strategic in the way in which you locate

and manage resources.

Selecting a case study

• Where to look:

– Use a range of sources: media & journal

articles, books, websites, annual reports,

parliamentary records, government data.

– Browse existing case studies through the

academic databases, including those

available through Open Athens.

– Government projects

– Commercial projects

Next week

– Project life cycle and stages in the

project life cycle

– Time dedicated for consultation with

lecturer on case study selection