Transcript Risk Management

Risk Management
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Risk
Risk (in general, in finance): deviation, variance
The change can be positive or negative
Project risk: any possible event that can
negatively affect the viability of a project
Project Risk = Expected value of the risk
(Probability of Event) (Consequences of Event)
Project opportunity: possible events that can
positively affect the project
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Risk management
Risk management = the art and science of
identifying, analyzing, and responding to risk
factors throughout the life of a project and in the
best interest of its objectives.
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Risk Vs Amount at Stake
Total Project Life Cycle
Plan
Phase 2
Develop
(D)
Phase 3
Execute
(E)
Phase 4
Finish
(F)
Period of
highest
risk impact
Opportunity and risk
$ Value
Increasing Risk
Phase 1
Conceive
(C)
Produce
Amount at stake
Time
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Process of Risk Management
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What is likely to happen?
What can be done?
What are the warning signs?
What are the likely outcomes?
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Four Stages of Risk Management
1. Risk identification: reasonable risk factors
2. Analysis of probability and consequences
3. Risk mitigation strategies
4. Control and documentation: knowledge base
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Identification: Risk Clusters
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Financial
Technical
Contractual/Legal
Common Types
• Absenteeism
• Resignation
• Staff pulled away
• Time overruns
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Commercial
Execution
Skills unavailable
Ineffective Training
Specs incomplete
Change orders
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Risk Factor Identification
 Brainstorming meetings
 Expert opinion
 Past history
 Multiple (or team based) assessments
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Project Risk Scoring I.
• Identify factors and assess the probability and
consequences of failure
• Measure the factors individally and their effect
• Summarize them
• Two factors:
– Technological failure
– Market failure
Project Risk Scoring I.
• Probability of failure:
– Probability of techn. failure: 0.3
– Probability of market failure: 0.1
• Consequence of failure:
– Consequence of techn. failure: 1000 dollar
– Consequence of market failure: 10000 dollar
• Overall project risk: 0.3*1000+0.1*10000
Risk Impact Matrix
Consequences
High
High
Likelihood
Low
Low
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Project Risk Scoring II.
1. Identify factors and assess the probability
(Pf ) and consequences (Cf) of failure
2. Create scaling for both dimensions that is
generally used in the whole organization
3. Calculate overall probability & consequence
4. Calculate overall risk factor
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Project Risk Scoring II.
• Sources (factors) of risks:
Pm  Pc  Pd
Pf 
3
– Maturity: low (0.2)
– Complexity: low (0.1)
– Dependency: high (0.8)
0.37
• Effects (consequences) of failure:
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–
Cost: medium (0.5)
Schedule: medium (0.4)
Reliabilty: medium (0.6)
Performance: high (0.8)
Cf 
Cc  Cs  Cr  C p
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0.575
RF  Pf  C f  ( Pf )(C f )
0.73225
Risk Mitigation Strategies
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Accept/ignore: if risk is not strong
Minimize
Share
Transfer
Contingency Reserves
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Mentoring & Cross training
– Task contingency
– Managerial contingency
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Control & Documentation
Help managers classify and codify risks,
responses, and outcomes
Change management report system answers
• What?
• Who?
• When?
• Why?
• How?
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Project Risk Analysis & Management
Extends risk management over project’s life cycle
Key Features of PRAM
Risk management follows a life cycle
Risk management strategy changes over the
project life cycle
Synthesized, coherent approach
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Nine Phases of Risk Assessment
1. Define
2. Focus
3. Identify
4. Structure
5. Clarify ownership of risks
6. Estimate
7. Evaluate
8. Plan
9. Manage
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Thanks for your attention!
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