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Project Risk ManagementOverview
Mike Dinnon ([email protected])LBNE Risk Manager
Mu2e WGMAugust 18, 2010
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Course Objectives1. Establish the 6 basic principles of Risk
Management2. Identify risk owner’s basic responsibilities3. Familiarize everyone with tools for identifying
risks4. Recognize that there are threats and
opportunities associated with risk5. Understand that risk management is iterative and
must be maintained throughout the project
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References:
• DOE Document DOE O 413.3a• Project Management Institute Body of Knowledge
Guide 2004• Project Management Institute, Project & Program
Risk Management, 1992• Project Management Institute, Practice Standard
for Project Risk Management, 2009
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Projects will utilize best practices in project risk management. Risk
management, when done successfully, helps to ensure both timeliness and cost
efficiency on a project and is the right way to manage a project. It involves a more precise plan and strategy that uses proper tools and simulations to
better characterize risk.
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Key Elements of Risk Management
1. Risk Planning2. Risk Identification3. Qualitative Risk Analysis4. Quantitative Risk Analysis5. Risk Handling and Mitigation Strategies6. Risk Monitoring
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What is the definition of a Project Risk?• A definable event with a probability of occurrence
and a consequence.• A situation that has the potential to cause an
unwanted or undesired change or a desired change (opportunity) in schedule, cost, scope, ES&H or technical success.
• Uncertainty in an event having a positive (opportunity) or negative (threat) impact on a project task.
• Risk has a definite cause and, if triggered, a resulting effect.
• Risk Severity = Probability X Impact
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Risk Management During CD Phases
Iterative process that needs to be continuous throughout the project life cycle
Initiation Definition Execution Transition/Closeout
CD-0 CD-1 CD-2 CD-3 CD-4 Approve Mission Approve Performance Approve Start of Approve Start of Need Requirements Baseline Construction/ Operation or & Alternative Authorization Project/Transition Selection to Complete Completion And Cost Range Implementation Risk Planning
Risk Management Documentation
Qualitative Analysis Process
Risk Communications
Lessons Learned
Closeout
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Goal of Project Risk Management
Establish proactive upfront planning and mitigation strategies to identify events or conditions along with their likelihood of occurrence and impact as to reduce threats (and capitalize on opportunities) before they can impact the project goals.
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Key Elements of Risk Management
1. Risk Planning2. Risk Identification3. Qualitative Risk Analysis4. Quantitative Risk Analysis5. Risk Handling and Mitigation Strategies6. Risk Monitoring
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Overall Objectives for Risk Planning• Establish the overall risk nature of the Project• Recognize the importance of the project to the DOE,
project stakeholders, and the collaboration• Set the stage and tone for Risk Management• Establish methods for managing risk• Establish a sound communication structure• Create proactive Risk Attitudes to uncover all risks
and opportunities• Stabilize poorly defined or ambitious
requirements• Develop Risk Management Plan
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Risk Planning Considerations
• Project Scope Statement• Work Breakdown Structure (WBS)• Attitudes and Stakeholder Tolerance• Definitions• Organizational suggested guidelines • Detailed Roles and Responsibilities• Establishment of proper tools and techniques• Establishment of Risk categories (RBS, DOE G 413
3-7 attachment 8, etc.)
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Risk Breakdown Structure
An RBS, like this example, can be used to determine risk categories. Always use an “other” category to solicit information through expert opinions and brainstorming sessions.
PROJECT
TECHNICAL
Requirements
Technology
Complexity & Interfaces
Performances & Reliability
Quality
Safety
Cost
Other
EXTERNAL
Subcontractors & Suppliers
Regulatory / Legal
Markets
Political
Funding
Cost
Other
ORGANIZATIONAL
Organizational Structure
Human Resources
Management
Prioritization
Dependencies
Cost
Other
PROJECT MANAGEMENT
Estimating
Planning
Communications
Controls
Cost
Other
Scope
Schedule
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Common Risk CategoriesCommon Project Risk Areas Significant RisksSupplier Capabilities Restricted number of available vendors. Restricted production capacity.Cost Realistic cost objectives not established early. Funding profile does not match needs. Fluctuations in exchange rates, space and utility costs, and cost of raw
materials.Technology
Project depends on unproven technology for success with no alternatives. Project success depends on achieving advances in state-of-the-art
technology.
Potential advances in technology will result in less than optimal cost-effective system or make system components obsolete.
Technology has not been demonstrated in required operating environment.
Technology relies on complex hardware, software,or integration design.
Management Acquisition strategy does not give adequate consideration to various essential elements (e.g., mission need, test and evaluation, technology, etc.)
Subordinate strategies and plans are not developed in a timely manner or based on the acquisition strategy.
Proper mix of people (in terms of experience, skills, stability) not assigned to the project.
Effective risk assessments not performed or results not understood and acted upon.
Communications with stakeholders lead to misunderstandings and loss of confidence.
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Roles for Risk Planning
• Project Manager will establish guidelines for Risk Management.
• Risk Manager will be named by the project management team.
• A Risk Management Plan will be developed by project management team.
• Risk Matrices will be developed for analysis.• Risk Manager will coordinate efforts with sub projects to
ensure understanding of plan.
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Key Elements of Risk Management
1. Risk Planning2. Risk Identification3. Qualitative Risk Analysis4. Quantitative Risk Analysis5. Risk Handling and Mitigation Strategies6. Risk Monitoring
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Principles of Risk Identification• Determine what risks will have a negative or
positive effect on the project and document the findings.
• Perform bottoms-up and top-down analysis of risks.
• Process is iterative, to be done throughout the project.
• Use Risk Breakdown Structure or similar method to group Risks.
• Use WBS as a reference to specify and clearly define the risks.
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Roles and Responsibilities OverviewProject Manager – Establish risk guidelines for identification and
analysis, schedule project risk meetings, ensure mitigation strategies are implemented properly. Perform top down risk identification.
Risk Manager – Bring identified risks together into risk register, work with subprojects to facilitate effective risk identification, analysis, and mitigation, Monte Carlo analysis.
L2 Manager – Identify risk owners, manage mitigation strategies for subsystem, schedule periodic risk review, communicate risks with risk manager and Project Manager.
L3 + L4 Managers – Identify risks (bottoms-up), assess identified risks and the resulting impacts, develop mitigation strategies, assess post-mitigated risk impact, document basis for impact on cost, schedule, technical, or ES&H, document findings as related to WBS number, continually reassess risks and identify any new risks as they become apparent. Solicit vendor and sub-contractor risk and incorporate into risk planning
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Types of Risk
Known-Unknowns – things we know exist but, do not know how they will effect the project. An identifiable uncertainty. (Management Reserve)
Examples: Oil prices increase, Budget delayed, Manufacturer has layoffs, safety, Design margins
Unknown-Unknown – an item or situation whose existence we cannot anticipate. (Available Contingency)
Examples: Natural disasters, Supplier closes doors
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Tools and Techniques for Risk Identification
• Information gathering sessions• Strengths, Weaknesses, Opportunities,
Threats(SWOT) analysis• Checklists• Assumptions Analysis• Flow Charts• Cause and Effect Diagrams• Expert Testimonials
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First Steps• Need to talk about risk as in groups.• Identify what worries us• Document the worries• Identify risks between handoffs of
subsystem integration and subproject interfaces.
• Everything else will fall into place moving forward.
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Documentation• Risk Management Plan – Sets the guidelines for dealing
with risk in the project and parameters for analyzing risk. (Written by the Project Office)
• Risk Forms – Will be filled out by risk owners or identifiers to identify each risk individually. (Form will be distributed by the Risk Manager)
• Risk Register – After risks have been properly identified with their triggers they are recorded in one database containing all of the identified risks.
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Common biases to be aware of when identifying risks
• Status quo – strong bias toward alternatives that maintain current direction.
• Confirming evidence bias – information that supports existing points of view are championed while avoiding information that contradicts.
• Anchoring – disproportionate weight is given to the first information provided.
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Specific Roles for Risk Identification
• L3 + L4 Managers will identify risks bottoms up and risks associated with contractors and vendors, document, communicate with L2 Manager and Risk Manager.
• L2 Manager will perform top down risk analysis and identify risk owners.
• Project Manager will perform top down analysis on entire project.
• Risk Manager will meet with individual groups to communicate plan to move forward.
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Key Elements of Risk Management
1. Risk Planning2. Risk Identification3. Qualitative Risk Analysis4. Quantitative Risk Analysis5. Risk Handling and Mitigation Strategies6. Risk Monitoring
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Qualitative Risk Analysis
Qualitative analysis is the process of adequately characterizing risk in words so as to initiate the development of an appropriate risk handling strategy. Additionally, qualitative analysis allows for an assigned risk rating for each risk, which enables a risk grouping process to occur.
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Risk Factors
• Risk Event – an event causing negative or positive impacts on the project.
• Risk Probability – How likely it is for the event to occur.
• Consequence – What ramifications (both positive and negative) the event has on the project.
• Time & Frequency – How the timing and occurrence of the event tie to the overall task or project.
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Project Risk Rating• The average risk rating can determine the overall
project risk rating. • Risk ratings are assigned via a matrix to the risk,
threat or opportunity, based upon the risk classification.
• Typical risk classifications are low, moderate, or high. • The classifications value can be tailored to the
project. • If the project’s risk threshold is reached, re-
evaluation of risks must be addressed to ensure a successful project.
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Qualitative Risk Threat Analysis Matrix Example
Consequence
Matrix Negligible(<.2) Marginal(.3<.4) Significant (.5<.7) Critical (.8<.9) Crisis (.9<)
Cost
Schedule
Scope
ES&H and Quality
Negligible or No Impact
Some Applications Affected
Significant Applications Affected
Concerns That May Jeopardize Project
Key Deliverables Cannot Be Met
Probability
Very Likely >90% Low Moderate High High HighLikely 75% to 90% Low Moderate Moderate High HighSomewhat Likely 26% to 74%
Low Low Moderate High High
Unlikely 10% to 25% Low Low Moderate Moderate HighVery Unlikely <10% Low Low Low Low Moderate
Project Specific Inputs
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Opportunity Risk Analysis
• Risks can be positive and not just negative.• These risks will have a positive impact on the
project.• Harder to identify and fewer in definition but
must be addressed just the same.Examples:Early procurement will decrease a lag in schedule, Having an existing
wafer board upgraded early so that a redesign is not necessary if a company is planning a re-tooling that does not support existing specs (Schedule, Cost).
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Qualitative Opportunity Risk Analysis Matrix Example
Consequence
Matrix Negligible(<.2) Marginal (.3<.4)
Significant (.5<.7)
High Impact (.8<.9)
Very High Impact (.9<)
Cost
Schedule
Scope
ES&H and Quality
Minimal or No Improvement Minor Improvement Noticeable
ImprovementSubstantial Improvement
Significant Improvement
Probability
Very Likely >90% Low Moderate High High HighLikely 75% to 90% Low Moderate Moderate High HighSomewhat Likely 26% to 74%
Low Low Moderate Moderate High
Unlikely 10% to 25%
Low Low Low Moderate Moderate
Very Unlikely <10% Low Low Low Low Moderate
Project Specific Inputs
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Specific Roles for Qualitative Analysis• All owners and identifiers of risk will perform a
qualitative analysis on their risks using matrices supplied by the Project.
• Risk Manager will coordinate efforts and combine all records of risk for further analysis.
• Risk Manager will group risks accordingly and enter into preliminary Risk Register.
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Key Elements of Risk Management
1. Risk Planning2. Risk Identification3. Qualitative Risk Analysis4. Quantitative Risk Analysis5. Risk Handling and Mitigation Strategies6. Risk Monitoring
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Quantitative Risk Analysis• Used to estimate the impact of risks on project
cost and schedule.• A Monte Carlo analysis of the probability and
consequence of individual risks that addresses the overall project risk through the use of simulations and models.
• Information necessary for accurate analysis should be provided by the risk identifier such as: worst/likely/best scenarios and logic behind, any historical data, vendor quotes
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Monte Carlo Analysis• Used by the risk manager and/or Project Controls on data
supplied by the risk owners/identifiers from all subprojects to determine probabilities of achieving project objectives while managing risks.
• Identifies risks requiring the most attention by the use of simulation (critical path analysis).
• Quantify project risk exposure and determine the size of cost & schedule management reserve.
• Quantitative risk analysis outputs will determine a realistic contingency plan for higher risks.
• Outputs will generate graphs and sensitivity analysis for use in CD review process to justify reserve amounts.
• Key tool to forecast risks and eliminate most uncertainty using statistics and expert data.
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Specific Roles for Quantitative Analysis
• Risk owners will communicate with Risk Manager to set up parameters needed for proper analysis.
• Risk Manager/Project Controls will, in cooperation with risk owners/identifiers, perform necessary analysis and formulate plan for moving forward and soliciting mitigation strategies.
• After analysis, establishment of ownership on analysis will be confirmed between the Risk Manager and risk owner.
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Key Elements of Risk Management
1. Risk Planning2. Risk Identification3. Qualitative Risk Analysis4. Quantitative Risk Analysis5. Risk Handling and Mitigation Strategies6. Risk Monitoring
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Risk Handling • Develop options and determine actions to
enhance opportunities and reduce threats to the project.
• Must identify and assign individuals to be responsible for each agreed upon risk.
• Iterative process that accounts for continuing change in the project.
• Assumptions of risk need to be monitored frequently and mitigated properly.
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Negative Risk Mitigation Strategies Negative risk handling covers a number of risk
strategies, including risk acceptance, avoidance, mitigation, and transfer. When weighing these negative risk approaches, the risk identifier should account for the following:
• The options’ achievability in terms of the project’s objectives, and baseline funding and schedule.
• The expected effectiveness of the risk handling strategy and document it for analysis by the tools used by the project.
• Cost and schedule impacts .• The impact on other technical portions of the project.• Changes to cost and schedule will always utilize the proper change
control techniques and documentation.
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Positive Risk Mitigation Strategies Positive risk handling covers a number of risk
strategies, including risk exploiting, sharing, and enhancing. When weighing these positive risk approaches, the risk identifier should account for the following:
• Actions taken by the organization to ensure that an opportunity is realized.
• Actions may include; increasing resources to reduce schedule, early procurement, Forming risk sharing partnerships.
• Influence and identify inputs that drive key risk opportunities.• Strengthening opportunity risk by promoting the occurrence of
positive risk triggers.• Changes to cost and schedule will always utilize the proper change
control techniques and documentation.
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Contingency Planning • Documented contingency planning (mitigation
strategy) addresses specific risk events ahead of their occurrence .
• It is executed when an identified condition occurs indicating the risk is evident.
• Cost and schedule contingency are assigned through Monte Carlo Analysis on the risk and the mitigation strategy that accompanies it.
• The analysis of their effects on the project will lead to a more defined cost and time distribution for the implementation of project Management Reserve.
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Common Risk Mitigation Strategies(basic matrix example)
Note: ES&H strategies should be solicited from ES&H personnel
Project Impact High Moderate LowCost
Closely monitor cost and spendingClosely monitor cost and spending
Monitor cost,schedule, and spending
Consider implementing phased procurements
Obtain at least two bottoms up independent cost estimates
Obtain multiple bottoms up independent cost estimates
Perform value management vendor visits
Schedule Increase lead time substantially by initiating procurements 6-8 weeks early
Increase lead time by initiating procurements 2-4 weeks early
Monitor cost,schedule, and spending
Vendor visits and oversight Vendor visits and oversight Add additional vendors
Performance Perform major redesign Moderate redesign as requiredQA/acceptance testing
Increase prototype cycles Define QA/acceptance testing Evaluate alternate technology Increase prototype tests
Request additional process control steps during fabrication
Define extensive QA/acceptance testing
Increase lead time/increase testing cycles
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Specific Roles for Risk Handling• Risk Manager will identify risks that need mitigation
strategies from analysis on information submitted from risk owners.
• Risk owners will develop and document mitigation strategies and give to Risk Manager.
• Risk Manager will ensure analysis on mitigation strategies and communicate with risk owners on results.
• L2 Managers will be communicated with and mitigation strategies approved.
• Project Manager will approve/reject final strategies or recommend discussion with Risk Management Board.
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Key Elements of Risk Management
1. Risk Planning2. Risk Identification3. Qualitative Risk Analysis4. Quantitative Risk Analysis5. Risk Handling and Mitigation Strategies6. Risk Monitoring
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Risk Monitoring• Involves a disciplined, continuous monitoring and
evaluating of the effectiveness and accuracy of the risk handling strategy.
• Monitoring is executed for individual risks by analyzing risk triggers and continually updating the project risk status.
• The risk monitoring process should provide both qualitative and quantitative information to decision-makers regarding the status of the risks and what mitigation strategies are being implemented.
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Risk Monitoring Considerations The risk monitoring process should be more than a risk
tracking documentation process (DOE O 413.3a). Things to monitor:
• Risk identification is current with the plan of the project and that risk management is a continuous and iterative process within the project.
• Risks, including accepted and low risks, have not changed since first identified.
• Mitigation strategies are implemented according to schedule, and that risk triggers are showing that the risk is not presenting itself.
• Monitoring done on a monthly basis and discussed in PM group meetings.
• Review existing risks for change and see if new risks arise.• Evaluate if risks can be retired and Management Reserve moved to
Contingency
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Risk Monitoring Considerations cont.
• Review any back-up plans and determine if any others need to be put into place based upon performance of the current handling strategies.
• Review the cost and schedule contingency calculations for current mitigation strategies and those that will be implemented in the near future based upon recent performance to gauge their accuracy.
• The risk register and other risk-related forms are up-to-date.• Communication of risks and triggers follows guidelines set forth in
the Risk Management Plan.• Communicate Effectively so that proper responses to risk triggers
can be put into action as to not effect the project adversely.
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Specific Roles for Risk Monitoring
• Risk Monitoring will be done by risk owners in communication with the L2 Managers and Risk Manager
• L2 Managers will incorporate risk monitoring updates into meetings
• Project Manager will incorporate risk monitoring into Project Management meetings and keep Risk Management Board informed
• Risk Manager will keep the risk register updated and status all risks
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Summary• Risk management process has steps associated with it.• Understanding those 6 basic principles:
1. Risk Planning2. Risk Identification3. Qualitative Risk Analysis4. Quantitative Risk Analysis5. Risk Handling and Mitigation Strategies6. Risk Monitoring
• Iterative process that must be maintained.• A risk owner will be assigned and be responsible for all
aspects of owned risks.
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Thank You