Proj Risk Mgt

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Risk Management


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Risk Definitions

Risk

Uncertain event that has a positiveor negative effect on at least one of

the project objectives (scope,schedule, budget, quality).

A general definition of project risk is an

uncertainty that can have a negative orpositive effect on meeting project

objectives.


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Negative Risk

Negative risk involvesunderstanding potential problemsthat might occur in the project andhow they might hold back projectsuccess.

Negative risk management is like a

form of insurance; it is aninvestment.


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Risk Can Be Positive

Positive risks are risks that result ingood things happening; sometimes

called opportunities.

The goal of project risk management is

to minimize potential negative risks

while maximizing potential positive

risks.


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Risk Definitions

Opportunity

A project risk that has a positive

effect.

Project Managers will look for waysto enhance, exploit, or share the

effects of an opportunity.


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Risk Utility

Risk utility orrisk tolerance is the amount of

satisfaction or pleasure received from a

potential payoff.

Utility rises at a decreasing rate for peoplewho are risk-averse.

Those who are risk-seeking have a higher

tolerance for risk and their satisfactionincreases when more payoff is at stake.

The risk-neutral approach achieves a

balance between risk and payoff.


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Risk Utility Function and Risk

Preference


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Risk Definitions

Risk Management

The practice of dealing with project

risk. It includes planning for risk,assessing risk, developing riskresponse strategies, and monitoring

risk throughout the project life cycle.


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Risk Definitions

Project risk management is the artand science of identifying, analyzing,and responding to risk throughoutthe life of a project and in the bestinterests of meeting projectobjectives.


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Risk Planning Process

Risk Management Planning

The objectives of Risk Management

Planning are to increase theprobability and impact of positiveevents (opportunities) and decrease

the probability and impact of adverseevents (threats) to project objectives.


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Common Sources of Risk in

Information Technology Projects Several studies show that IT projects share some

common sources of risk.

The Standish Group developed an IT success

potential scoring sheet based on potential risks.

Other broad categories of risk help identify

potential risks.


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12 INSE 6230

Information Technology Success

Potential Scoring SheetSuccess 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


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13 INSE 6230

Risk Breakdown Structure

A risk breakdown structure is a hierarchy

of potential risk categories for a project.

Similar to a work breakdown structure but

used to identify and categorize risks.


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Sample Risk Breakdown Structure

IT Project

Business Technical OrganizationalProject

Management

Competitors

Suppliers

Cash flow

Hardware

Software

Network

Executive

support

User support

Team support

Estimates

Communication

Resources


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15 INSE 6230

Project Risk Management Processes

Risk management planning: Deciding how toapproach and plan the risk management activitiesfor the project.

Risk identification: Determining which risks are

likely to affect a project and documenting the

characteristics of each.

Qualitative risk analysis: Prioritizing risks

based on their probability and impact of

occurrence.


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16 INSE 6230

Project Risk Management Processes

(contd)

Risk monitoring and control: Monitoring

identified and residual risks, identifying new

risks, carrying out risk response plans, andevaluating the effectiveness of risk strategies

throughout the life of the project.

Quantitative risk analysis: Numerically

estimating the effects of risks on project


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Risk response planning:Taking steps to

enhance opportunities and reduce threats to

meeting project objectives.


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18 INSE 6230

Risk Identification Risk identification is the process of

understanding what potential events mighthurt or enhance a particular project.

Risk identification tools and techniques

include:

Brainstorming

The Delphi Technique

Interviewing

SWOT analysis


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Brainstorming

Brainstorming is a technique by which agroup attempts to generate ideas or find a

solution for a specific problem by amassing

ideas spontaneously and without judgment.

An experienced facilitator should run the

brainstorming session.


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Be careful not to overuse or misuse

brainstorming.

Psychology literature shows thatindividuals produce a greater number of

ideas working alone than they do through

brainstorming in small, face-to-facegroups.

Group effects often inhibit idea

generation.


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Delphi Technique

The Delphi Technique is used to derive a

consensus among a panel of experts who

make predictions about future

developments.

Provides independent and anonymous input

regarding future events.

Uses repeated rounds of questioning and

written responses and avoids the biasing

effects possible in oral methods, such as


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Interviewing

Interviewing is a fact-finding technique for

collecting information in face-to-face,

phone, e-mail, or instant-messaging

discussions.

Interviewing people with similar project

experience is an important tool foridentifying potential risks.


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23 INSE 6230

SWOT Analysis

SWOT analysis (strengths, weaknesses,

opportunities, and threats) can also be used

during risk identification.

Helps identify the broad negative and

positive risks that apply to a project.


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24 INSE 6230

Risk Register The main output of the risk identification process

is a list of identified risks and other information

needed to begin creating a risk register.

A risk register is:

A document that contains the results of variousrisk management processes and that is often

displayed in a table or spreadsheet format.

A tool for documenting potential risk events

and related information.

Risk events refer to specific, uncertain events that

may occur to the detriment or enhancement of the

project.


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25 INSE 6230

Risk Register Contents

An identification number for each risk

event.

A rank for each risk event.

The name of each risk event.

A description of each risk event.

The category under which each risk event

falls. The root cause of each risk.


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Qualitative Risk Analysis

Assess the likelihood and impact ofidentified risks to determine their

magnitude and priority.

Risk quantification tools and techniquesinclude:

Probability/impact matrixes

The Top Ten Risk Item TrackingExpert judgment


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27 INSE 6230

Probability/Impact Matrix A probability/impact matrix orchart lists the

relative probability of a risk occurring on oneside of a matrix or axis on a chart and the

relative 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

occurrin and the conse uences to the ro ect


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Risk Management Planning Step 3

Impact/Probability Matrix

A common method/tool to determine

whether a risk is considered low,moderate, or high by combining thetwo dimensions of a risk: its

probability of occurrence, and itsimpact on objectives if it occurs.


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Impact/Probability Matrix Incorrect: confusing or combining

Impact & Probability

It is very unlikely, therefore the impact is low

Correct: Keep Impact & Probability

independentProbability is low, but if it happens, the project

will fail. Therefore the impact is high


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Impact

Probability

Low

High

Low High

Green: Low Risk

(Passive Acceptance workarounds)

Yellow: ModerateRisk (Active

Acceptance

contingency)

Red: High Risk (RiskResponse Planning)

Using a 2x2 Impact/Probability Matrix


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Impact

Risk: Key project

team member withspecialized skillleaves project teambefore work is done.

Impact: High

Probability: Low

Yellow Zone Moderate Risk

2x2 Impact/Probability Matrix example

Impact

Probability

Low

High

Low High


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X


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Impact

Risk: Change to

regulatory ordinancerequires additionalwetland mitigation,requiring additionalR/W

Impact: High

Probability: High


Impact

Probability

Low

High

Low High

X


40 Red Zone High Risk


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Impact

Risk: Mariners first

World Series game isscheduled on thesame date as theEnvironmentalHearing

Impact: Low

Probability: Low


Impact

Probability

Low

High

Low High

X


40 Green Zone Low Risk


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Comparative Risk Rating


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A

B

C

D

A B C D

A

C

B

C

A C

Risk A 2

Risk B

1

Risk C 3

Risk D 0

Priority Order:

C A B D


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Exercise Qualitative Risk Analysis

Qualitative Risk Analysis Exercise

Using a 2x2 impact & probability matrix, assess

the risks identified in the last exercise.

First, evaluate the impact of the risk event on theproject objectives

Then, with the risks identified as high impact,

assess the probability of the risk event.

Perform a comparative risk rating on the high-

high (red zone) risk events


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Quantitative Risk Analysis

The process of numerically analyzing

the effect of identified risks on theprojects objectives. (In particular,

the project schedule and the project

costs).


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Cost Risk Estimating &Management (CREM) Office

CRA: Cost Risk Assessment (pg.37) $25 million or more $5 million or more with specific characteristics

CEVP: Cost Estimate ValidationProcess (pg.37)

$100 million or more


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Quantify possible outcomes for the

project

Assess probability of achievingspecific project objectives

Identify risks requiring mostattention


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Identify realistic and achievable

cost, schedule, or scope targets,given project risks

Determine best management

decision when conditions oroutcomes are uncertain



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Quantitative Risk Analysis tools

Interviewing (SMEs)

Decision Tree Analysis

Monte Carlo Simulation



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Quantitative Risk Analysisproducts

Updated Risk Register

Probabilistic analysis for projectsuccess (time and cost)

Updated priority of risk events

Trends in risk analysis



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25%

50%

75%

100%

0%

$30m $33m $36m $39m

$37.5m

90%

15%

COST

PROBAB

ILITY

TOTAL PROJ ECT COSTSCumulative Chart

Contingency


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Risk Response Strategy

The process of developing options

and actions to enhance opportunitiesand to reduce threats to the projectobjectives.


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Proactive, not reactive

Appropriate to significance of risk

Cost effective

Timely


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Realistic within project context

Agreed upon by project team and allparties involved

Assigned to / owned by a responsibleperson


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Risk Response Definitions

Avoidance Changing a project

objective to eliminate the threatposed by an adverse risk event.


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Transference Shifting the negative

impact of a threat, along with theownership of the response, to a thirdparty.


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Mitigation Reducing the Probability

or Impact of an adverse risk event(threat) to an acceptable threshold.


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Acceptance The project team

decides not to change projectobjectives to deal with the risk.

Passive acceptance: no action , deal withthreats as they occur (workarounds)

Active acceptance: establish a contingencyreserve to handle risks


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Impact

Probability

Low

High

Low High

ATM

Passive

A

cceptance

(w

orkaround)

Active

Acceptance(or

A T M)

Risk Response Strategy (threats)


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Exploit This strategy seeks to

eliminate the uncertainty with anopportunity by changing a projectobjective to ensure it happens.


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Share Allocating ownership of the

positive risk event to a third partywho is best able to capture theopportunity for the project.


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Enhance Increasing the probability

and/or positive impact of anopportunity.


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Ri k M Pl i S


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Contingency Not a risk response,

but an output from risk planning.Developed for actively acceptedproject risks. This is typically

defined as time or funds.


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E i Q lit ti Ri k A l i


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Exercise Qualitative Risk Analysis

Risk Response Strategy Exercise

Using the results from the qualitative analysis

from the last exercise:

Identify risk response strategies for the high-high

(red zone) risk events.

Decide who will be the responsible person to

monitor the risk event and the effectiveness of the

risk response

Decide if active acceptance or further risk

response planning will be required for the high-

low (yellow zone) risk events.

Ri k M t Pl i St 6


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Risk Monitoring & Control

Managing the Risk Register during the

Work the Plan phase of the project. Recognize the probability and impact of

risk events may change during the life ofthe project.

Also recognizing that additional risksevents can be identified during the Work

the Plan.


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Ri k M t Pl i St 6


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Assign a responsible party

(ownership) of the risk event.

Track risk event status

Active/Dormant: risk is currently beingmonitored and analyzed

Retired: risk event (trigger) no longerposes a threat to the project.


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Ri k M t Pl i St 6


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Risk Registers should be a standing

agenda item for project team meetings. Risk reporting should be an standing

reporting item for all project progressreporting

WSDOT tools for reporting (PDIS, QPR,GMAP).


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Ri k M t


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Monte Carlo Simulation Exercise

Risk Management

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