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Managing Project Risk (Project Risk Management Processes (STEP 3 –…
Managing Project
Risk
Common Mistakes in Managing Project Risk
• Not understanding the benefits of risk management
• Not providing adequate time for risk management
• Not identifying and assessing risk using a standardized
approach
Effective & Successful Risk
Management Requires
• Commitment by all stakeholders
• Stakeholder responsibility
• Different risks for different types of projects
Definition of Risk (PMBOK® Guide)
An uncertain event or condition that, if occurs, has a positive or negative effects on one or more of the project objectives such as scope, schedule, cost and quality
Project Risk Management
Processes
Step 1 – Create A Risk Plan
Requires firm commitment by all stakeholders to the entire Risk Management (RM) approach
• RM should align throughout the organization
Risk Planning focuses on preparation
• Systematic preparation and planning can help minimize adverse effects on the project while taking advantage of opportunities as they arise
STEP 2 – Identify Risks through a Project Risk Identification Framework
Risk Identification Tools & Techniques
• Learning Cycles
• Brainstorming
• Nominal Group Technique
• Delphi Technique
• Interviews
• Checklists
• SWOT Analysis
• Cause & Effect (a.k.a. Fishbone/Ishikawa)
• Past Projects
Nominal Group Technique (NGT)
Each individual silently writes their ideas on a piece of paper
Each idea is then written on a board or flip chart one at a time in a round-robin fashion until each individual has listed all of his or her ideas
The group then discusses and clarifies each of the ideas
Each individual then silently ranks and prioritizes the ideas
The group then discusses the rankings and priorities
Each individual ranks and prioritizes the ideas again
The rankings and prioritizations are then summarized for the group
Risk Check List
Funding for the project has been secured
Funding for the project is sufficient
Funding for the project has been approved by senior management
The project team has the requisite skills to complete the project
The project has adequate manpower to complete the project
The project charter and project plan have been approved by senior management or the project sponsor
The project’s goal is realistic and achievable
The project’s schedule is realistic and achievable
The project’s scope has been clearly defined
Processes for scope changes have been clearly defined
SWOT Analysis
Strengths, Weakness, Opportunities, Threats
STEP 3 – Analyze Risks
Risk = f(Probability * Impact)
Risk assessment focuses on prioritizing risks so that an effective strategy can be formulated for those risks that require a response.
Qualitative Approaches
• Expected Value & Payoff Tables
• Decision Trees
• Risk Impact Table & Ranking
• Tusler’s Risk Classification
Quantitative Approaches
Discrete
• Binomial
Continuous
• Normal
• PERT
• TRIANG
Simulations
Monte Carlo
• Technique that randomly generates specific values for a variable with a specific probability distribution
• Goes through a number of trials or iterations and records the outcome •
RISK6®
• An MS Project® add in that provides a useful tool for conducting risk analysis of your project plan
Cumulative Probability Distribution
Sensitivity Analysis Using a Tornado Graph
STEP 4 – Develop Risk Strategies
Risk Strategies Depend On
• The nature of the risk itself
• Really an opportunity or threat?
• Impact of the risk on the project’s MOV and objectives
• Likelihood? Impact?
• The project’s constraints in terms of scope, schedule, budget, and quality requirements
• Successful response possible with available resources?
• Risk tolerances or preferences of the project stakeholders
Strategies to respond to opportunities with potential positive impacts on the project goal and objectives
• Exploitation – attempt to take advantage of the situation
• Sharing of Ownership – e.g. joint partnerships or joint ventures with customers or vendors
• Acceptance – PM and project team members’ minds are open in order to take advantage of opportunities as they arise
Copyright
•
Accept or Ignore
• Management Reserves
(Released by senior management)
• Contingency Reserves
(Part of project’s budget)
• Contingency Plans
•
Avoidance
•
Mitigate
• Reduce the likelihood or impact (or both)
•
Transfer
• E.g. insurance
STEP 5 – Monitor and Control Risk
• Risk Audits - External to project team
• Risk Reviews - Internal
• Risk Status Meetings & Reports
Response Plan that includes:
• A trigger which flags that the risk has occurred
• An owner of the risk (i.e., the person or group responsible for monitoring the risk and ensuring that the appropriate risk response is carried out)
• A response based on one of the four basic risk strategies
• Adequate resources
• Lessons learned and best practices help us to:
• Increase our understanding of IT project risk in general.
• Understand what information was available to managing risks and for making risk-related decisions.
• Understand how and why a particular decision was made.
• Understand the implications not only of the risks, but also the decisions that were made.
• Learn from our experience so that others may not have to repeat our mistakes.
