Transcript Effective Risk Management

Managing Risk in a
B2B Environment
Breakout Session # 317
Name: Holly Walker, Corporate Learning Solutions
Date: July 19, 2010
Time: 3:45 PM
1
1
Effective Risk Management
• Describe the steps of the risk management
process
• Understand the elements that constitute risk
in projects
• Examine typical risk categories and types of
risk in each category
• Describe probability and consequences of
risk
• Evaluate the use of risk mitigation strategies
2
Risk Management Implementation
Not this
3
Risk Management
•
•
•
•
Risk identification
Risk assessment
Risk mitigation
Risk monitoring
4
Effective Risk Management
IDENTIFY
UNCERTAINTIES
ANALYSE
RISKS
ASSESS
MEASURE &
CONTROL
CONTROL
PLAN FOR
EMERGENCIES
PRIORITIZE
RISKS
MITIGATE RISKS
5
Effective Risk Management
IDENTIFY UNCERTAINTIES
MITIGATE RISKS
Explore the contract and
relationship for areas of
uncertainty
Take advance action to
reduce effect. It is better to
spend on mitigation than to
include contingency.
ANALYSE RISKS
Specify how each uncertainty
can impact performance duration, cost, meeting
requirements
PLAN FOR EMERGENCIES
PRIORITIZE RISKS
Track the effects of the risks
identified and manage to a
successful conclusion.
For all significant risks, have
an emergency plan in place.
MEASURE AND CONTROL
Establish risks to be eliminated
(too severe), requiring
committed management
attention, minor in effect
6
Risk Identification
• Identify risks that could impact
performance
• Brainstorming
• Review of past projects
• Industry risk templates
• Personal experience
• Fishbone diagrams
7
What Constitutes Risk in Projects?
•
•
•
•
•
•
•
•
•
•
•
•
•
New technology.
Uncommon systems or methods.
Uncertain funding.
Unusual financing arrangements.
Controversial functions are provided by the project.
Unrealistic completion dates and/or budgets.
Changing customer ownership/contol
Unusual contracting arrangements
Project scope is not clearly defined.
Project need and alternatives have not been rigorously evaluated.
Large number of approvals are required.
Conflict among project participants.
Relationship between parent organization's role and the project is not
clear
8
Typical Risk Categories
•
•
•
•
•
•
•
Technical Feasibility
Political and External Market
Financial and Economic
Legal and Contractual
Human Behavior
Scope and Schedule
Project Organization
9
Technical/Feasibility Risks
• Organizational lack of familiarity with the technology
• Relative level of technical complexity
• Maturity of the technology (new vs. tried and tested)
• Interconnectivity of technology with existing systems
• Existing assets are underutilized in this project
• Obsolete approach for program delivery
• Customer demand projections incorrect
• Uncertainty over customer ownership and control
10
Political/External Risks
• Marketplace Positioning/competition
• Regulatory Environment unfavorable
• Customer Corporate/Organizational changes in priorities
• Customer Commitment/viability of project
• Changes in decision makers
• Natural Hazards
• Political changes (new laws, tax policies etc.)
11
Financial/Economic Risks
• Project costs can exceed budget
• High inflation or cost increases
• Customer bankruptcy
• Cash flow profile unfavorable
• Funding not approved by customer
• Excessive price fluctuation on imported components
• Required investment too high for return
12
Legal and Contractual Risks
• Breach of contract/termination's
• Penalty clauses
• Excessive warranties
• Contract claims/failure to perform
• Contract disputes escalation procedure inadequate
• Excessive liability
• Patent/copyright infringement
• Team unfamiliar with procurement method
13
Human Behavior Risks
• Unavailability of Internal technical expertise
• Unavailability of External technical expertise
• Lack of staff support for project
• Delays in customer approvals
• Delays in documentation
• Actions by labor unions
14
Scope and Schedule Risks
• Unreality of stated deadlines
• Inadequate project definition
• Standards incompatible with requirements
• Design incorporates high maintenance materials
• Lack of resource availability
• Lack of product availability
• Poor coordination of resources
• Requirement inflexibility
15
Project Organization Risks
•
•
•
•
•
Unavailability of key project personnel
Change of key customer personnel
Unsatisfactory choice of subcontractors
Engineering design not kept to schedule
Inadequate coordination of partners and
subcontractors
• Staff not trained in time
• Inadequate contract documentation
• Inadequate security of site during installation
16
Risk Assessment
• Likelihood of occurrence
• Impact of occurrence
• Brainstorming
• History
• Personal experience
17
Probability or Likelihood
of Occurrence
Rating
Almost
certain
Likely
Moderate
Unlikely
Rare
Probability
Description
Will occur in most
instances
Could occur in most
instances
Should occur at
some time
Might occur
occasionally
Will only occur in
exceptional
circumstances
18
Consequence
Rating
Description
Catastrophic Will cause
cancellation of the
project
Major
Significant time or
cost overruns
Moderate
Some time or cost
overruns
Minor
Some
inconvenience
Insignificant
No noticeable
effect
Risk
Likelihood
Impact
Mitigation
Inability to
hire IT
specialists.
80%
OT costs of
$50k.
Hire subs or
temps.
Use agency.
Permits not
received.
50%
Two-week
schedule
delay.
Fail to
receive
customer
property on
time.
75%
One-week
schedule
delay.
Apply for
permit early.
ID alternate
facility.
Identify
alternate
sources for
purchase of
item.
19
Risk Analysis and Mitigation
Identify
Uncertainties
Plan for
Emergencies
Analyze the risks
Prioritize the risks
Measure and
Control
20
Mitigate Risks
Risk Mitigation/Handling
• Now that you have assessed the risks how
do you deal with them?
– Avoid
– Control
– Transfer
– Assume
• Know the costs of the options !
21
Risk Mitigation
Mitigation Option
Reduce the probability.
Examples
 Implement quality assurance.
 Review contract conditions.
 Conduct further project analysis.
 Increase supervision requirements.
 Regularly analyze the project
environment.
 Partnering/teaming agreements.
 Contingency planning.
 Provide greater cost and time
contingencies.
 Increase charge for project
 Sub Contract some of the risky parts of
the project
 Risk sharing agreements with customer,
other companies or Government
Agencies.
 Umbrella Insurance.
 Management of the risk using existing
procedures.
 Cease the activity affected by the risk.
Reduce the consequence.
Transfer the risk.
Accept the risk.
Avoid the risk.
22
Risk Mitigation
•
•
•
•
•
•
•
•
Price adjustments
Terms and conditions
Redundancy
Subcontract delegation
Performance modification
Schedule adjustment
Insurance
Inspection
23
Risk Monitoring
•
•
•
•
•
Program reviews
Earned value reporting
Critical path assessments
Risk monitoring assignments
Feedback loop
24
Who’s Responsible
•
•
•
•
•
•
Program Manager
Contracts
Subcontracts and purchasing
Legal
Senior management
(All of the above)
25
When should Risk
Management be Performed
•
•
•
•
•
•
Program planning
During solicitation
During performance
After performance
A continuous process - risks evolve
Communication is key!
26
Effective Risk Management
Always determine
the risk and
consequences of
your approach to
that risk before
you act
QUESTIONS
?????
27