Risk Management, v 2001.

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Risk Management: Outline
 Introduction
 Risk Management Planning
 Risk Identification
 Risk Analysis
 Risk Response Planning
 Risk Monitoring and Control
 But first ...

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You Are Driving Down the
Road...

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 Risk Management Process
Risk Management Planning

Risk Monitoring &

Risk Identification Control
• Monitor & Evaluate
• Corrections
Risk Analysis • Communicate
• Qualification
• Quantification
• Prioritization

Risk Response Planning

Avoidance

Mitigation
Transfer
Acceptance

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Total Cost of Risk
Definitions:
 Project Risk
• An uncertain event or condition
that, if it occurs, has a positive or
negative impact on a project
objective
 Project Risk Management
• The systematic process of:
• Identifying,
• Analyzing, &
• Responding to project risks
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Risk Factors:
 Risk Event
 Risk Probability
 Impact
HIGH
PROBABILITY
LOW

LOW IMPACT HIGH

 Timing

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 Risk Management Planning
Risk Management Planning

Risk Monitoring &

Risk Identification Control
• Monitor & Evaluate
• Corrections
Risk Analysis • Communicate
• Quantification
• Qualification
• Prioritization

Risk Response Planning

Avoidance

Mitigation
Transfer
Acceptance

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Total Cost of Risk
Risk Management Planning
 Start with existing…
• charter, risk management policies, roles
and responsibilities?
• Stakeholder risk tolerances?
• Template for risk management plan?
• WBS

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Output from Risk Management
Planning
 Major Output is a Risk Management Plan
 Including decisions on …
• Methodology, roles and responsibilities
• Budget and timing for risk management
• Scoring and interpretation, thresholds
• Reporting formats, tracking of risks

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 Risk Identification
Risk Management Planning

Risk Monitoring &

Risk Identification Control
• Monitor & Evaluate
• Corrections
Risk Analysis • Communicate
• Qualification
• Quantification
• Prioritization

Risk Response Planning

Avoidance

Mitigation
Transfer
Acceptance

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Total Cost of Risk
Risk Identification
 Brainstorming
 Delphi Technique (later)
 Interviews
 S.W.O.T. analysis
 Checklists (later)
 Diagramming…
• Cause and effect
• Flow charts
• Influence diagrams
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Risk Identification
 Use the WBS and other documents!
• For each element, consider:
• procurement environment
• staffing plan
• estimates and schedules
• choice of technology
 Historical information
 Checklists

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Customer Priorities?

SCOPE

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Sources of Project Risk
PROJECT
INTEGRA-
COMMUNI-
SCOPE TION
CATIONS

PROJECT HUMAN
QUALITY RISK RESOUR-
CES

PROCURE-
TIME
MENT
COST

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… Another Classification of
Project Risk Sources
 Technical, quality or performances risks

 Project management risks

 Organization risks

 External risks

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Stakeholders are a
Source of Risk
 Stakeholders: “Individuals and
organizations who are involved in
or may be affected by project
activities”

 Stakeholders may be “hidden”

 or requirements may be unclear !

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 Risk Identification Statement
 Cause:
Definite events or sets of circumstances that exist in
the project of its environment, and which give rise to
uncertainty.
 Risks:
Uncertain events or sets of circumstances that, if
they occur, would affect the project objectives.
 Effect:
Unplanned variations from project objectives, either
positive or negative, which arise as a result of risks
occurring.

Project Risks, Hillson, PM Network September 2000 19

 Risk Identification Statement
“As a result of a <definite cause>,
an <uncertain event> may occur,
which could lead to an
<effect on the objective>.”

Project Risks, Hillson, PM Network September 2000 20

“Triggers”

 A symptom or indication that a risk has

occurred or is about to occur

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Risk Workshop # 1:
Risk Identification
 Form small groups
 Think of a real project
 You are in the planning phase
 Think of what can go wrong (some serious,
some small, be specific)
 Express as Risk Identification Statements
 Identify a “trigger” for each one.
 Do not solve these risks
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Delphi Method
 Panel of experts
 Iterative
 Convergent solution
 Useful for probability assessments
of future events where the risk
impact is critical

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“Qualitatively”
Describing the Risks
HIGH
PROBABILITY OF
OCCURRENCE

HIGH
MEDIUM

MEDIUM

LOW
LOW

LOW MEDIUM HIGH

IMPACT
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 A Risk Map
NEAR 5
L M H H HIGH
PROBABILITY

CERTAIN

HIGHLY 4 L M M H H
LIKELY

LIKELY 3 L M MEDIUM M H

LOW
LIKELIHOOD
2 L L L M M

NOT
LIKELY 1
LOW L L L M
1 2 3 4 5
LOW MINOR MODER- SIGNIFI- HIGH
ATE CANT
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IMPACT
 Risk Response Planning
Risk Management Planning

Risk Monitoring &

Risk Identification Control
• Monitor & Evaluate
• Corrections
Risk Analysis • Communicate
• Qualification
• Quantification
• Prioritization

Risk Response Planning

Avoidance
Mitigation
Transfer
Acceptance

Risk Avoidance Risk Mitigation Contractual Insurance Risk Financing

• Revised strategy
• Safety Program • Representations • Bonds • Cash Flow
• Adopt not-at-risk
• Inspections • Warrantees • Liability • Allowances
process
• Loss Control • Remedies • Automobile • Reserves
• Redundancies • Liquidated • Property • Lines of credit
• Contingency Plans Damages • Financial Engineering
• Disaster Response • Hold Harmless
• Recovery Plans • Indemnification

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Total Cost of Risk
Risk Response: Assign an
“Owner”

 What do we mean by that ?

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 Reducing Risk When …?
 Technical risk is high …

 Cost risk is high …

 Schedule risk is high ...

Couillard, Project Management Journal, Dec 1995. 28

Risk Response Planning
 We can classify our response to
each specific risk:
• Avoidance
• Mitigation
• Transfer
• Contractual
• Insurance
• Acceptance
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Avoidance
 “Eliminate the risk or condition or to
protect the project objectives from its
impact”...
 Decline the project ?
 Reduce the scope / requirements ?
 Change technology ?
 Revise your strategy ?
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Mitigation
 “Reducing the expected monetary
value of a risk event by:
• Lowering the probability of
occurrence, or
• Reducing its effect”

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Transfer by Contracting
 Who is the source of the risk?
 Who can best manage it?
 Does client want to retain involvement
in managing the risk?
 Can recipient withstand consequences?
 Is the risk premium reasonable?
 Will the risk transfer lead to other
risks?

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Acceptance
 Passively ignoring (hopefully not!), or...
 Actively recognizing and accepting the
consequences
 Could have “contingency reserves” in the
budget and schedule, or
 “Allowances” for specific risks

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Output from Risk Response
Planning
 The major output is a Risk Response
Plan !
• Also known as a “Risk Register”
 Residual risks are those that remain
 Secondary risks are those that arise as a
result of our risk responses
 Contractual Agreements
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A Risk Communication Sheet
RISK CONTROL SHEET PROJECT NAME: PROJECT ID:
Risk Item Control #: Revision: WBS Impacted:

Risk Description:

Risk Impact:

Risk Probability Risk Consequences Risk Factor Risk Class

Probability
Low 1 Minimal 1 3 Med High High
Low
Likely 2 Moderate 2 2 Low Med High Medium
Very Likely 3 Major 3 1 Low Low Med High
1 2 3
Consequence
Risk Solution:

Solution(s) Impact:

Originator:
Organization: Name: Date:
 Risk Monitoring and Control
Risk ManagementPlanning

Risk Monitoring &

Risk Identification Control
• Monitor & Evaluate
• Corrections
Risk Analysis • Communicate
• Qualification
• Quantification
• Prioritization

Risk Response Planning

Avoidance
Mitigation
Transfer
Acceptance

Risk Avoidance Risk Mitigation Contractual Insurance Risk Financing

• Revised strategy
• Safety Program • Representations • Bonds • Cash Flow
• Adopt not-at-risk
• Inspections • Warrantees • Liability • Allowances
process
• Loss Control • Remedies • Automobile • Reserves
• Redundancies • Liquidated • Property • Lines of credit
• Contingency Plans Damages • Financial Engineering
• Disaster Response • Hold Harmless
• Recovery Plans • Indemnification

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Total Cost of Risk
Risk Monitoring & Control
 Keeping track of the identified
risks
 Ensuring the execution of the risk
plans
 Look for indicators (cost and
schedule trends)
 Communicate risks, status, plans

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Risk Monitoring & Control
 Respond to actual risk events as they
occur:
• implementing planned responses
• “workarounds” (unplanned responses)
 Respond to potential new risks as they
arise:
• identification, assessment
• quantification
• response planning
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Risk Monitoring & Control
 Update risk management plan
• re-analyze schedule and budget
• especially contingency reserves
 Evaluate and document risk
management results
• recognition & reward
• keep as “lessons learned”
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 Learning Objectives
 Use a common framework and terminology of Project
Risk Management, as defined by PMI
 Value the importance of including risk management in
project planning and execution
 Be able to facilitate team discussions to identify project
risks and formulate risk responses
 Be able to utilize decision trees and expected monetary
value
 Be aware of other techniques such as Delphi method and
Monte Carlo simulation, and when they are applicable

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Any good ideas in this chapter?

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End of Chapter

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