Transcript Risk Management - Mark McPhee Home Page

Risk Management
Production Process
Lecture content
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Recap on last week
What is risk management?
Quantitative risk evaluation
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Decision trees
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Expected Value
Sensitivity analysis
Failure Mode Effect Analysis
Last week
What is ‘risk management’?
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“A risk is any event that could prevent the
project realising the expectations of
stakeholders as stated in the agreed project
brief or agreed definition”
(Young 1996. P71)
Types of risk
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Project & Process risks
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Estimation errors
Planning assumptions
eventualities
Project manager’s job
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Identify & evaluate risk
Get agreement on plans to minimise risk
Take action & monitor results
Quickly fix issues arising from risks
Why is it necessary?
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The plan is your route to success
Try to anticipate changes to plan & head off
Highlights areas for attention
Prevent risks from becoming issues
Identifying & Ranking risk
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Identify – How?
Rank risks on probability scale (1=low,
9=high)
Assess impact of risk
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High – significant impact on success
Medium –less serious, but costs attached
Low – little effect on project or costs
Probability
Impact on Project
Low
Medium
High
7-9
Medium
High
Unacceptable
4-6
Low
High
Unacceptable
1-3
Low
Medium
High
Quantitative risk evaluation
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Lots of different methods
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Catastrophe theory
Game theory
Monte-Carlo simulation
Pert Analysis (read about this from the core text)
Decision Trees
Expected Value
Sensitivity analysis
Failure Mode Effect Analysis
Decision trees
0.75
A
£100k
0.25
£20k
0.5
B
outcome
decision
£200k
0.5
£0
Expected Value
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EV of an event = possible outcomes
multiplied by the probability of
occurrence
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E.g. a project with a 50% chance of
increasing profit by £50k = 0.5*50k
=£25k
Expected Value II
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What is the expected value of projects
‘A’ & ‘B’ in the decision tree slide?
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Project A
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(0.75*100)+(0.25*20) =£80k
Project B
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(0.5*200)+(0.5*0) =£100k
Sensitivity analysis
Shows the likely change in finance if
variables alter
 People + materials major costs of
projects
 How?
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Identify the main inputs
Assess the optimistic and pessimistic
value
Sensitivity analysis II
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Costs:
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Revenues
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Materials – 60k
Labour – 20k
Contribution to overheads – 35k
Fixed at 120k
Profit = revenue-materials-labour-o/head
Sensitivity analysis III
Labour + overheads
Materials
-10%
Expected
+10%
-10%
120-54-49.5=16.5
120-60-49.5=10.5
120-66-49.5=4.5
Expected
120-54-55=11
120-60-55=5
120-66-55=(1)
+10%
120-54-60.5=5.5
120-60-06.5=(0.5)
120-66-60.5=(6.5)
Failure Mode Effect Analysis
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Consider
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How serious a particular ‘failure’ would be?
How likely is it that the problem would go
unnoticed?
How likely it is to occur?
Total risk = (Seriousness)*(likelihood
unnoticed)*(likelihood of occurrence)
(Maylor 1999, p132)
Failure Mode Effect Analysis II
Activity
seriousness
Likelihood
unnoticed
Likelihood of
occuring
Total
Carry out
tests using
automated
equipment
8
9
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144
Enter data
manually
8
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7
112
Risk Register
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Documentation showing all identified risks &
control mechanisms to reduce them
Record
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Reference
Title & description
Current status
Potential impacts
Risk owner
Actions
Action log
References
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Maylor H(1999) Project Management,
Prentice Hall, UK
Young T (1996) The handbook of Project
Management, Kogan Page, UK.