Risk management and Cybersecurity
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T12-PROJECTRISKMANAGEMENT.pdf
Topic #12
Risk Management in a Project
Reference: Chapter 11, Information Technology Project Management
• Understand risk and the importance of good project risk management
• Discuss the elements of planning risk management and the contents of a risk management plan
• List common sources of risks on informa8on technology (IT) projects
• Describe the process of iden8fying risks and create a risk register
• Discuss qualita8ve risk analysis and explain how to calculate risk factors, create probability/impact matrixes, and apply the Top Ten Risk Item Tracking technique to rank risks
Learning Objec8ves
2
• Explain quan8ta8ve risk analysis and how to apply decision trees, simula8on, and sensi8vity analysis to quan8fy risks
• Provide examples of using different risk response planning strategies to address both nega8ve and posi8ve risks
• Discuss how to control risks • Describe how soJware can assist in project risk management
Learning Objec8ves (cont’d)
3
• Project risk management is the art and science of iden8fying, analyzing, and responding to risk throughout the life of a project and in the best interests of mee8ng project objec8ves
• Risk management is oJen overlooked in projects, but it can help improve project success by helping select good projects, determining project scope, and developing realis8c es8mates
The Importance of Project Risk Management
4
Benefits from SoJware Risk Management Prac8ces*
5 *Source: Kulik and Weber, KLCI Research Group
• Many people around the world suffered from financial losses as various financial markets dropped in the fall of 2008, even aJer the $700 billion bailout bill was passed by the U.S. Congress
• According to a global survey of 316 financial services execu8ves, over 70 percent of respondents believed that the losses stemming from the credit crisis were largely due to failures to address risk management issues
• They iden8fied several challenges in implemen8ng risk management, including data and company culture issues
Global Issues
6
• A dic8onary defini8on of risk is “the possibility of loss or injury”
• Nega8ve risk involves understanding poten8al problems that might occur in the project and how they might impede project success
• Nega8ve risk management is like a form of insurance; it is an investment
Nega8ve Risk
7
• Posi8ve risks are risks that result in good things happening; some8mes called opportuni8es
• A general defini8on of project risk is an uncertainty that can have a nega8ve or posi8ve effect on mee8ng project objec8ves
• The goal of project risk management is to minimize poten8al nega8ve risks while maximizing poten8al posi8ve risks
Risk Can Be Posi8ve
8
• Risk u'lity or risk tolerance is the amount of sa8sfac8on or pleasure received from a poten8al payoff – U8lity rises at a decreasing rate for people who are risk-averse
– Those who are risk-seeking have a higher tolerance for risk and their sa8sfac8on increases when more payoff is at stake
– The risk-neutral approach achieves a balance between risk and payoff
Risk U8lity
9
Risk U8lity Func8on and Risk Preference
10
• Planning risk management : Deciding how to approach and plan the risk management ac8vi8es for the project
• Iden'fying risks: Determining which risks are likely to affect a project and documen8ng the characteris8cs of each
• Performing qualita've risk analysis: Priori8zing risks based on their probability and impact of occurrence
Project Risk Management Processes
11
• Performing quan'ta've risk analysis: Numerically es8ma8ng the effects of risks on project objec8ves
• Planning risk responses: Taking steps to enhance opportuni8es and reduce threats to mee8ng project objec8ves
• Controlling risk: Monitoring iden8fied and residual risks, iden8fying new risks, carrying out risk response plans, and evalua8ng the effec8veness of risk strategies throughout the life of the project
Project Risk Management Processes (cont’d)
12
Project Risk Management Summary
13
• The main output of this process is a risk management plan—a plan that documents the procedures for managing risk throughout a project
• The project team should review project documents and understand the organiza8on’s and the sponsor’s approaches to risk
• The level of detail will vary with the needs of the project
Planning Risk Management
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• Methodology • Roles and responsibili8es • Budget and schedule • Risk categories • Risk probability and impact • Revised stakeholders’ tolerances • Tracking • Risk documenta8on
Topics Addressed in a Risk Management Plan
15
• Con'ngency plans are predefined ac8ons that the project team will take if an iden8fied risk event occurs
• Fallback plans are developed for risks that have a high impact on mee8ng project objec8ves, and are put into effect if afempts to reduce the risk are not effec8ve
• Con'ngency reserves or allowances are provisions held by the project sponsor or organiza8on to reduce the risk of cost or schedule overruns to an acceptable level; management reserves are funds held for unknown risks
Con8ngency and Fallback Plans, Con8ngency Reserves
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• Several studies show that IT projects share some common sources of risk
• The Standish Group developed an IT success poten8al scoring sheet based on poten8al risks
• Other broad categories of risk help iden8fy poten8al risks
Common Sources of Risk in Informa8on Technology Projects
17
IT Success Poten8al Scoring Sheet
18
Success Criterion Relative Importance
User Involvement 19
Executive Management support 16
Clear Statement of Requirements 15
Proper Planning 11
Realistic Expectations 10
Smaller Project Milestones 9
Competent Staff 8
Ownership 6
Clear Visions and Objectives 3
Hard-Working, Focused Staff 3
Total 100
• Market risk
• Financial risk
• Technology risk
• People risk
• Structure/process risk
Broad Categories of Risk
19
• A risk breakdown structure is a hierarchy of poten8al risk categories for a project
• Similar to a work breakdown structure but used to iden8fy and categorize risks
Risk Breakdown Structure
20
Sample Risk Breakdown Structure
21
Poten8al Nega8ve Risk Condi8ons Associated With Each Knowledge Area
22
• Iden8fying risks is the process of understanding what poten8al events might hurt or enhance a par8cular project
• Another considera8on is the likelihood of advanced discovery
• Risk iden8fica8on tools and techniques include: – Brainstorming – The Delphi Technique – Interviewing – SWOT analysis
Iden8fying Risks
23
• Brainstorming is a technique by which a group afempts to generate ideas or find a solu8on for a specific problem by amassing ideas spontaneously and without judgment
• An experienced facilitator should run the brainstorming session
• Be careful not to overuse or misuse brainstorming. – Psychology literature shows that individuals produce a greater number of ideas working alone than they do through brainstorming in small, face-to-face groups
– Group effects oJen inhibit idea genera8on
Brainstorming
24
• The Delphi Technique is used to derive a consensus among a panel of experts who make predic8ons about future developments
• Provides independent and anonymous input regarding future events
• Uses repeated rounds of ques8oning and wrifen responses and avoids the biasing effects possible in oral methods, such as brainstorming
Delphi Technique
25
• Interviewing is a fact-finding technique for collec8ng informa8on in face-to-face, phone, e-mail, or instant-messaging discussions
• Interviewing people with similar project experience is an important tool for iden8fying poten8al risks
Interviewing
26
• SWOT analysis (strengths, weaknesses, opportuni8es, and threats) can also be used during risk iden8fica8on
• Helps iden8fy the broad nega8ve and posi8ve risks that apply to a project
SWOT Analysis
27
• The main output of the risk iden8fica8on process is a list of iden8fied risks and other informa8on needed to begin crea8ng a risk register
• A risk register is: – A document that contains the results of various risk management processes and that is oJen displayed in a table or spreadsheet format
– A tool for documen8ng poten8al risk events and related informa8on
• Risk events refer to specific, uncertain events that may occur to the detriment or enhancement of the project
Risk Register
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• An iden8fica8on number for each risk event • A rank for each risk event • The name of each risk event • A descrip8on of each risk event • The category under which each risk event falls • The root cause of each risk
Risk Register Contents
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• Triggers for each risk; triggers are indicators or symptoms of actual risk events
• Poten8al responses to each risk • The risk owner or person who will own or take responsibility for each risk
• The probability and impact of each risk occurring.
• The status of each risk
Risk Register Contents (cont’d)
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Sample Risk Register
31
• No.: R44 • Rank: 1 • Risk: New customer • Description: We have never done a project for this organization before and don’t know too much about them. One of our company’s strengths is building good customer relationships, which often leads to further projects with that customer. We might have trouble working with this customer because they are new to us. • Category: People risk • Etc.
• Assess the likelihood and impact of iden8fied risks to determine their magnitude and priority
• Risk quan8fica8on tools and techniques include: – Probability/impact matrixes – The Top Ten Risk Item Tracking – Expert judgment
Performing Qualita8ve Risk Analysis
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• A probability/impact matrix or chart lists the rela8ve probability of a risk occurring on one side of a matrix or axis on a chart and the rela8ve impact of the risk occurring on the other
• List the risks and then label each one as high, medium, or low in terms of its probability of occurrence and its impact if it did occur
• Can also calculate risk factors: – Numbers that represent the overall risk of specific events based on their probability of occurring and the consequences to the project if they do occur
Probability/Impact Matrix
33
Sample Probability/Impact Matrix
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Chart Showing High-, Medium-, and Low-Risk Technologies
35
• Top Ten Risk Item Tracking is a qualita8ve risk analysis tool that helps to iden8fy risks and maintain an awareness of risks throughout the life of a project
• Establish a periodic review of the top ten project risk items
• List the current ranking, previous ranking, number of 8mes the risk appears on the list over a period of 8me, and a summary of progress made in resolving the risk item
Top Ten Risk Item Tracking
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Example of Top Ten Risk Item Tracking
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• A watch list is a list of risks that are low priority, but are s8ll iden8fied as poten8al risks
• Qualita8ve analysis can also iden8fy risks that should be evaluated on a quan8ta8ve basis
Watch List
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• OJen follows qualita8ve risk analysis, but both can be done together
• Large, complex projects involving leading edge technologies oJen require extensive quan8ta8ve risk analysis
• Main techniques include: – Decision tree analysis – Simula8on – Sensi8vity analysis
Performing Quan8ta8ve Risk Analysis
39
• A decision tree is a diagramming analysis technique used to help select the best course of ac8on in situa8ons in which future outcomes are uncertain
• Es'mated monetary value (EMV) is the product of a risk event probability and the risk event’s monetary value
• You can draw a decision tree to help find the EMV
Decision Trees and Expected Monetary Value (EMV)
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Expected Monetary Value (EMV) Example
41
• Simula8on uses a representa8on or model of a system to analyze the expected behavior or performance of the system
• Monte Carlo analysis simulates a model’s outcome many 8mes to provide a sta8s8cal distribu8on of the calculated results
• To use a Monte Carlo simula8on, you must have three es8mates (most likely, pessimis8c, and op8mis8c) plus an es8mate of the likelihood of the es8mate being between the most likely and op8mis8c values
Simula8on
42
1. Assess the range for the variables being considered
2. Determine the probability distribu8on of each variable
3. For each variable, select a random value based on the probability distribu8on
4. Run a determinis8c analysis or one pass through the model
5. Repeat steps 3 and 4 many 8mes to obtain the probability distribu8on of the model’s results
Steps of a Monte Carlo Analysis
43
Sample Monte Carlo Simula8on Results for Project Schedule
44
• Sensi'vity analysis is a technique used to show the effects of changing one or more variables on an outcome
• For example, many people use it to determine what the monthly payments for a loan will be given different interest rates or periods of the loan, or for determining break-even points based on different assump8ons
• Spreadsheet soJware, such as Excel, is a common tool for performing sensi8vity analysis
Sensi8vity Analysis
45
Sample Sensi8vity Analysis for Determining Break-Even Point
46
• AJer iden8fying and quan8fying risks, you must decide how to respond to them
• Four main response strategies for nega8ve risks: – Risk avoidance – Risk acceptance – Risk transference – Risk mi8ga8on
Planning Risk Responses
47
General Risk Mi8ga8on Strategies for Technical, Cost, and Schedule Risks
48
• Risk exploita8on • Risk sharing • Risk enhancement • Risk acceptance
Response Strategies for Posi8ve Risks
49
• It’s also important to iden8fy residual and secondary risks
• Residual risks are risks that remain aJer all of the response strategies have been implemented
• Secondary risks are a direct result of implemen8ng a risk response
Residual and Secondary Risks
50
• Involves execu8ng the risk management process to respond to risk events and ensuring that risk awareness is an ongoing ac8vity performed by the en8re project team throughout the en8re project
• Workarounds are unplanned responses to risk events that must be done when there are no con8ngency plans
• Main outputs of risk control are: – Work performance informa8on – change requests – updates to the project management plan, other project documents, and organiza8onal process assets
Controlling Risks
51
• Risk registers can be created in a simple Word or Excel file or as part of a database
• More sophis8cated risk management soJware, such as Monte Carlo simula8on tools, help in analyzing project risks
• You can purchase add-ons for Excel and Project 2010 to perform simula8ons
Using SoJware to Assist in Project Risk Management
52
• Unlike crisis management, good project risk management oJen goes unno8ced
• Well-run projects appear to be almost effortless, but a lot of work goes into running a project well
• Project managers should strive to make their jobs look easy to reflect the results of well-run projects
Results of Good Project Risk Management
53
• Project risk management is the art and science of iden8fying, analyzing, and responding to risk throughout the life of a project and in the best interests of mee8ng project objec8ves
• Main processes include: – Plan risk management – Iden8fy risks – Perform qualita8ve risk analysis – Perform quan8ta8ve risk analysis – Plan risk responses – Control risks
Summary
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Reference Details
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