Assessing Risk Factors
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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Risk Management
Chapter 7
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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Risk
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 – any possible event that can negatively affect the viability of a project
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Why Do Projects Fail?
- Generally, from poor risk management
- Failure to identify risks
- Failure to actively/aggressively plan for, attack and eliminate “project killing” risks
- Risk comes in different shapes and sizes
- Schedule risks (short to long)
- Cost risks (small to large)
- Technology risks (probable to impossible)
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Elements of Risk Management
- Managing risk consists of: identifying, addressing and eliminating risks
- When does this occur?
- (WORST) Crisis management/Fire fighting : addressing risk after they present a big problem
- (BAD) Fix on failure : finding and addressing as the occur.
- (OKAY) Risk Mitigation : plan ahead and allocate resources to address risk that occur, but don’t try to eliminate them before they occur
- (GOOD) Prevention : part of the plan to identify and prevent risks before they become problems
- (BEST) Eliminate Root Causes : part of the plan to identify and eliminate the factors that make specific risks possible
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Elements of Risk Management
- Effective Risk Management is made up of:
- Risk Assessment: identify, analyze, prioritize
- Risk Control: planning, resolution, monitoring
RISK
MANAGEMENT
RISK
CONTROL
RISK
ASSESSMENT
IDENTIFICATION
ANALYSIS
PLANNING
PRIORITIZATION
RESOLUION
MONITORING
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Risk Assessment Tasks
- Identification: produces a list of risks that have potential to disrupt your project’s schedule
- Analysis: assesses the likelihood and impact of each identified risk, and the risk levels of possible alternatives
- Prioritization: prioritizes the list by impact
- serves as the basis for risk control tasks
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Risk Control Tasks
- Planning: produces your plan for dealing with each risk
- Must ensure consistency of the risk management plan with your overall project plan
- Resolution: executing your plan to deal with the risks
- Monitoring: staying on top of your plan and re-evaluate for new risks
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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Risk Vs Amount at Stake
Phase 1 Conceive (C)
Phase 2 Develop (D)
Phase 3 Execute (E)
Phase 4 Finish (F)
Time
$ Value
Increasing Risk
Total Project Life Cycle
Amount at stake
Plan
Produce
Opportunity and risk
Period of highest risk impact
Combined risk impact
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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Process of Risk Management
What is likely to happen?
What can be done?
What are the warning signs?
What are the likely outcomes?
Project Risk = (Probability of Event)(Consequences of Event)
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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Four Stages of Risk Management
Risk identification
Analysis of probability and consequences
Risk mitigation strategies
Control and documentation
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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Risk Clusters
Financial
Technical
Contractual/Legal
Commercial
Execution
Common Types
- Absenteeism
- Resignation
- Staff pulled away
- Time overruns
Skills unavailable
Ineffective Training
Specs incomplete
Change orders
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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Risk Factor Identification
Brainstorming meetings
Expert opinion
Past history
Multiple (or team based) assessments
LSU 10/09/2007
Risk Management
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Assessing the risk impact
- Not all risks need to be subject to monitoring and control
- Use a Scenario Analysis to assess the risk event impact
- Determine all consequences and their severity if the event happens
- Identify when, during the project, will the event likely happen
- Estimate the probability that the risk event will occur
- Determine how difficult it will be to detect the event occurrence
Figure from “Project Management” by Gray and Larson
Risk Management
LSU 10/09/2007
Risk Management
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Ranking the risk importance
Based on figure from “Project Management” by Gray and Larson
- Rank risks from those that can be neglected to those that require elevated vigilance
- A Risk Severity Matrix can be helpful in prioritizing risks
- Plot of event probability versus impact
- Red zone identifies the most important events
- Yellow zone lists risks that are moderately important
- Green zone events probably can be safely ignored
- Note that the zones are not symmetrical across the matrix
- High impact low probability events much more important than likely low impact events
Risk Management
Risk & Opportunity
Assessment Model (ROAM)
Project Opportunity
Risk Assessment
Excellent Opportunity Low Risk
Excellent Opportunity High Risk
Marginal Opportunity High Risk
Marginal Opportunity Low Risk
High
Medium
Low
Low
High
Medium
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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Project Risk Scoring
Identify factors and assess the probability (Pf ) and consequences (Cf) of failure
Calculate overall probability & consequence
Calculate overall risk factor
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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Risk Mitigation Strategies
Accept
Minimize
Share
Transfer
Contingency Reserves
Task contingency
Managerial contingency
Mentoring
Cross training
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Control & Documentation
Help managers classify and codify risks, responses, and outcomes
Change management report system answers
- What?
- Who?
- When?
- Why?
- How?
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Project Risk Analysis & Management
Extends risk management over project’s life cycle
Key Features of PRAM
Risk management follows a life cycle
Risk management strategy changes over the project life cycle
Synthesized, coherent approach
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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Nine Phases of Risk Assessment
- Define
- Focus
- Identify
- Structure
- Clarify ownership of risks
- Estimate
- Evaluate
- Plan
- Manage
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