CEESP Project Managment. Unit Four

7/29/2019 CEESP Project Managment. Unit Four

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Project Management

Risk Management

Lecturer: Javier Daz lvarez

Electrical EnergyConversion andPower Systems

Universidadde Oviedo


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Risk Management Introduction

Plan Risk Management

Risks Identification

Risk Analysis

Risk Responses

Monitor and Control Risks


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Definition & Management- Project Risk: an uncertain event or condition that, if occurs, has an effect

(positive or negative) in the project in one of the following aspects:

- Cost

- Scope

- Time

- Resources- Quality

- Risk Management includes all the proceses related with planning,

identification, analysis, response and control of the risks in a project.


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Key Elements of a Risk

An event that can be defined. We have to know what might happen.

The probability that it occurs. Likelihood that the event will occur.

The consecuences (impact) of its occurrence. Loss or gain should the eventoccur, often referred to cost, scope, time, resources or quality.


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Categories of Risk

Known risks: has been identified, has been analyzed and can be managed.

Unknown risks: may be addresed through a general contingency based onexperience with similar projects.

Threats (negative)

Opportunities (positive)


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Impact Probability Matrix (example)


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Exercise 4.1 Project. Promotion and construction (civil works, transport

and erection o a wind farm of 40 MW (20 wind turbines) in

Leon mountains (1500 masl).

Preliminar Risks Identification. Write them in 5 minutes.

Compare the responses of the assitants and save them.


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Risks Identification Risk Analysis

Risk Responses



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Risk Managment PlanDescribes how risk management will be structured andperformed on the project. It includes the following:

1.-Methodology. Defines the approaches, tools and data sources thatmay be used to perform risk managment on the project.

2.- Roles and responsibilities. Defines the lead (Project Manager),support, and risk management team members for each type of activityin the risk managment plan, and clarifies responsibilities.


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Risk Management Plan (II)3.-Budgeting. Assigns resources, estimates funds needed for riskmanagement. They should be included in the cost performance

baseline. Finally protocols for application of contingency reserve shouldbe stablished.

4.-Timing. Defines when and how often the risk management process

will be performed throughout the project life cycle, establishes protocolsfor application of schedule contingency reserves, and stablishes risksmanagement activities to be included in the project schedule.

5.-Risk categories. Provides a structure that ensures a comprehensiveprocess of systematically identifying risks to a consistent level of detail.It contributes to the effectiveness and quality of the Identify Risksprocess.


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Risk Categories

Technical

Requirements

Technology

Complexity andInterfaces

Performancesand Reliability

Quality

Law relatedissues

Permitting

Contracts

Legalproceedings

Organizacional

ProjectDependencies

Resources

Funding

Priorization

ProjectManagement

Estimating

Planning

Controlling

Communication

External

Subcontractorsand suppliers

Regulatory

Market

Customer

Weather


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Risk Management Plan (III)

6.-Definitions of risk probability and impact. They should be defined

according to each individual project. Each project target (Cost, Time,Scope and Quality) should have categorized the impact of the risks.


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Impact scale of a RiskProject

Objective

Very low Low Moderate High Very high

Cost Insignificantincrease

< 1%increase

1-3 %increase

3-10%increase

>10%increase

Time Insignificant

increase

< 5%

increase

5-10%

increase

10-20%

increase

20%

increase

Scope Barely

noticeable

decrease

Minor areas

of scope

affected

Major areas

of scope

affected

Unacceptable

reduction to

sponsor

Project item

is effectively

useless

Quality Barelynoticeable

degradation

Only verydemanding

applications

are affected

Sponsorapproval

required

Unacceptablereduction to

sponsor

Project itemis effectively

useless


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Risk Management Plan (IV)

7.-Revised stakeholders tolerances. They should be reviewed in the Plan

Risk Management process.

8.-Reporting formats. Create templates for documenting the outcomesof the risk management processes. Define how to analyze andcommunicate.

9.-Tracking. Documents how risk activities will be recorded for thebenefit of the current project, as well as for future needs and learntlessons.


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Risk Responses



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Risks Identification Risk events must be specific and must be completely defined.

It must include what, when and the impact of each risk.

Identification process should be done from the task list. Develop a complete risk list.

Identification tasks should be done as team work or in

different teams constituted by members of the team project. Focus on Risk Identification, do not try to analyze them at this

moment


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Tools for Risks Identification

Experience. Interwiev with experts (could be telematic)

Brainstorming Analogy method

Documents review

Root cause analysis Other (Cause-effect, fishbone, process flowcharts, etc.)


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Experience. Interview with experts

Expertsidentification

Prepare the

interview.Focus on thespecific issue

Ask opinionand generalinformation

Write theMinutes ofMeeting

Include the

conclusion inthe List of

Risks


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Brainstorming

Ideas formulation

Ideas evaluation

Very important: Do not start Ideas evaluation before the

previous stage (Ideas formulation) is finished.


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Analogy method

Stage 1 Identify required information (project risks)

Stage 2

Identify similar projects

Focus on similar components of the project

Stage 3

Accumulate useful data

Analyze data

Stage 4 Include the conclusion in the list of risks


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Tools for Risk Identification Documents review. It consists on collecting documentation

related with the project and perform, first, an individualanalysis and, then, a group analysis.

Root cause analysis. An examination of the causes ofindividual risks and any groupings that seem to occur as aresult.


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List of RisksRisk

Category

Code

(task)

Threat /

Opportunity event

Probability Impact Prob x

Imp

Priority


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Risk Register At the end of the proccess, the Risk Register will be done. It is

an evolutionary document that serves to capture riskinformation. It includes:

List of Risks

List of potencial responses

Root causes of risks

Update of the Risk Cathegories Chart


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Exercise 4.2 Project. Promotion and construction (civil works, transport

and erection o a wind farm of 40 MW (20 wind turbines) inLen mountains (1500 masl).

Starting from the Tasks List and using some of the explained tools, write the List of Risks.

Assign probability and impact and complete List of Risks Chart.

Elaborate a list of potencial responses.

Find root causes of the risks

Make a proposal for updating the Risk Cathegories Chart


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Risk Responses



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Qualitative Risk Analysis The input for performing the qualitative analysis (and also for

the quantitative analysis) is the Risk Management Plan.

It is the process of assesing and combining the impact andlikelihood of identified risks. It prioritizes risks according totheir potential effect on project performance.

This type of analysis, in general, is more subjective than

quantitative analysis, even when we assign numbers to ourqualitative analysis. This is due to our own perception of therisk and our emotions at the time we do the evaluation.


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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Very low Low Moderate High Very high

Impact Probability Matrix

Impact

Pr

obability


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Impact Probability Matrix Probabilities description:

Low probability. It is not likely that the event occurs (0-30%).

Medium probability. It is likely that the event occurs (30-60%). High probability. It is very likely that the event occurs (60-90%).

Events with probability higher than 90% are not risks, they arecertainties which must be planified.

Impacts description: Very low impact. If the event occurs, it will not impact in cost, time,

quality or client satisfaction.

Low impact. If the event occurs, it will have a mild effect.

Medium impact. If the event occurs, it will impact moderately.

High impact. If the event occurs, it will have a significant effect.

Very high impact. If the event occurs, it will have a very important

effect.


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Quantitative Risk Analysis It consists on a numerical measurement of the probability and

the consequences of risks and an estimation of theirconsequences on project objectives.

This method is more objective than Qualitative Analysis.

The most common tool for this analysis is the Decision treeanalysis.


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Decision tree analysis (I) Guidelines:

A box represents a decision

Circles represent events with multiple possible outcomes

We are evaluating the primary decision (root decision) which is placed atthe left side of the decision tree, and the tree is drawn from that root.

Find the most advantageous path at each decision node (box). Whatmakes a path advantageous (lowest cost, greatest return, etc.) dependson the specific situation.

Draw all possible paths for the scenario.

Place values on each path segment if appropriate.

Place probabilities on the path segments leading from events. Decisionnodes have no probabilities associated with their alternatives


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Decision tree analysis (II) Guidelines:

Determine the risk values for each path segment by multiplying allprobabilities to the left of the segment (including any probability for the

segment itself) by each other and then by the value of the segment (ifany).

For each decision node, determine the most advantageous path byadding the risk values for the alternatives. You must work from right to

left. Determine the paths for the right-most decision nodes, and thenwork your way to the left. The reason for choosing one path is that thepaths are mutually exclusive; you can only choose one path.

For event nodes, consider each path and add the results. The reason for

including all paths is that they are mutually inclusive; that is, togetherthey form the entire universe of possible outcomes.


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Decision tree analysis (III) Guidelines:

Continue working to the left until you can determine the mostadvantageous path for your root decision.


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Decision tree analysis. Example. Wind Farm in Leon (40 MW). Analyze the posibility of testing

the power transformer.

The test costs 40 k. The failure of the transformer costs one month of production

losses (250 net equivalent hours, 80 /MWh)


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Decision tree analysis. Example.

Test Power

Transformer

1 week; 30 k

0

1%

99%

5%

95%

Fail

Pass

Fail

Pass

30+0,01*800+0,99*0= 38 k

0+0,05*800+0,95*0=40 k

4 weeks x 40 MW x 250 neh + 80 /MWh = 800 k


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Exercise 4.3

Project 40 MW in Leon (3000 neh/year). Analyze thepossibility of starting the works one week before obtaining thework licence using the decision tree analysis.

80/MWh

60% possibility of the stop of the works (0,5 weeks of delay) and 150 k penalty

30% possibility of 150 k penalty

10% possibility of nothing


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Exercise 4.3

Start Works

before obtaining

work permit

1 week; 62,5 neh

0

60%

10%

Stop Works + Penalty

Nothing

190,4 k -(0,6*(150+95,2)+0,3*150+0,1*0)=

190,4 - 192,13 = -1,72 k

0 k

Penalty30%

1 week; 62,5 neh. 40 MW x 250 neh/month x 1 month /4,2 weeks x 80 /MWh = 190,4 k

0,5 weeks ? 190,4 k / 2 = 95,2 k


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Comparison of methods

Qualitative

Fast and easy to administrate

Difficult of using in a uniform way in the organizacin

Ir requires definitions, rules, standards and processes

Quantitative

It is preferred (most of the times obligued) by the direction

More time is required, it needs estimation Numbers give a precission image, but it depends on the precission of the

estimation

It is difficult if team project doesnt want to give figures

It allows to see tendences

Easier to predict

More valuable


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Risk Analysis Instructions Study the complete list of risk events

Assign risk analysis tasks to the appropiate members of theteam

Quantify or qualify probability and impact of each identifiedrisk

Identify the best, the worst and more probable results of risk

events with high grade of uncertainty

Review the result of the analysis with the members of theteam

Do not advance, at this moment, in priority assignation


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Impacts to Project Cost Each Risk Event must be analyzed to evaluate potential

impacts to project cost:

Cost of power of work (people)

Task duration

Direct materials

Equipment and tools


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Impacts to Project Time Each Risk Event must be analyzed to evaluate potential

impacts to project time baseline:

Resorces shortage

Length extension

Other delays

Net diagram must be analyzed to evaluate potential impacts

due to: Dependent tasks

Tracks convergence


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Time Risks Analysis Network diagram

Experts judgment

Finantial analysis Net Present Value (NPV)

Expected value (EV = Probability * Impact)

Decision tree (explained).


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Network diagram Example

Calculate critical path using a balanced average time:(Optimistic value + 4*Probable value + Pesimistic value)/6


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Exercise 4.4 The activities for the construction of one new wind turbine in

an existing wind farm are the following:

Draw network diagrams and calculate critical paths for Expected Values and for BalancedAverage time: (Optimistic value + 4*Probable value + Pesimistic value)/6

Activity Predeccessor Optimistic Expected Pesimistic

Balanced

average time

1.- Wind turbine foundation digging - 2 5 7 4,83

2.- Wind turbine erection 1 3 5 7 5,00

3.- Cable conection to wind turbine and tests 2, 5 1 4 8 4,17

4.- Trench digging - 2 5 14 6,00

5.- Cable lying 4 1 4 10 4,50

6.- Cable connection to substation 5 1 2 4 2,17

7.- Tests and energizing 6 0,5 1 10 2,42


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Exercise 4.4

0 5 5 10 10 14

Task 1 (5) Task 2 (5) Task 3 (4)

0 5 5 10 10 14

0 14

Start End

0 14

0 5 5 9 9 11 11 12

Task 4 (5) Task 5 (4) Task 6 (2) Task 7 (1)

1 6 6 10 11 13 13 14

0 4,8 4,8 9,8 10,5 14,7

Task 1 (4,8) Task 2 (5) Task 3 (4,2)

1,1 5,9 5,9 10,9 10,9 15,1

0 15,1

Start End

0 15,1

0 6,0 6,0 10,5 10,5 12,7 12,7 15,1Task 4 (6) Task 5 (4,5) Task 6 (2,2) Task 7 (2,4)

0 6 6 10,5 10,5 12,7 12,7 15,1


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Expected Value

Best

case

Probabilit

y

Expected Value Worst case

Base case 10.000 10.000 10.000

Concrete

problem

0 50% 200 400

Productivity

increase

-200 10% -20 0

Snow in april 0 50% 400 800

Total 9.800 10.580 8.800


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Prioritize Risks Project Team must prioritize the risks which should be taken

into account because there will not be enough time andresources to respond to risks.

Prioritization must be done from Risk Register.

Work should be done by all the team.

In this stage, do not think about responses.


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Prioritize Risks Qualitative method. Clasify taking into account only the

impact (not the probability). Do two lists, one with costimpacts and another one with time impacts.

Quantitative method. Clasify risks according to their ExpectedValue (probability x impact).

Filtered. Elaborate a list of questions and filter all the risks.

Ask each question to all the remaing risks. Start with thefirst question and discard the risks with non significativeimpact. Then the second question.


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Filtered method Filter one. Is the impact significative (performance, quality,

cost, time, scope)?

Filter two. Has anybody seen it before? Do conditions orcircunstances which make the risk more probable exist?

Filter three. Does the risk have an inmediate effect on theproject? Does it require a long actuation? Do we have to act

in a short time? Filter four. Does the risk have a solution that is out of Board

control?


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Exercise 4.5

Project 40 MW in Leon. Starting from the Risk Register, prioritize risks using the filtered method.


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Risk Management

Introduction



Risk Responses



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Strategies Strategy for threats and opportunities

Accept

Strategies for threats Mitigate

Transfer

Avoid

Strategies for opportunities Exploit

Share

Enhance

Contingent response strategies


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Accept Acceptance:

Active. Develope a contingency plan

Passive. Do not do anything. Accept consecuencies.

If a risk is acceptable for the project and for the company:

Review company tolerances

Document and communicate strategy Keep reevaluating the risk during the life of the project


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Mitigate Take specific actions to:

Reduce risk probability

Reduce risk impact

Estimate and evaluate mitigation strategy

Document and communicate strategy

Keep reevaluating the risk during the life of the project


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Transfer Subcontract

Use guaranties (Warranties)

Contractual guaranties (Guaranties) Ensurances

Contract with client

id


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Avoid If risk exposure is not acceptable or mitigation and/or transfer

are not enough, risk cause must be avoide and threat must beeliminated.

Review tolerances of the organization.

Evaluate task Vs avoid the project

Document and communicate strategy

Keep reevaluating the risk during the life of the project

S i f i i


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Strategies for opportunities Accept

Enhance

Maximize event probability

Maximize event impact

Exploit (making sure that the opportunity is materialized)

Share (assign part of the bennefit to a third party)

Ri k t i


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Risks response matrix

Response 1 Response 2 Response 3 Response 4

Risk 1

Risk 2

Risk 3

Risk 4

- Try to identify responses that mitigate several risks at the same time.

- For positive impacts, write +

- For negative impacts, write

- If impacts do not exist, dont write anything

S li f i k


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Scaling of risks response If team project cant develope response strategies for severe

threats or significant opportunities, the Project director isresponsible for scaling to the directors of the company

R


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Reserves Provision to mitigate risks (cost or time). It is an amount of

money or time which is used to reduce deviation risk.

To determine rerseves, consider the following:

Tipe of contracts

Threaten exposure

Tolerance to risk

Consecuences of deviation Learnt lessons

E i 4 6


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Exercise 4.6

Project 40 MW in Leon. Starting from the filtered risks register, develope the risks responses.

Ri k M t


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Risk Management

Introduction



Risk Responses


Monitor and Control Risks Purpose


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Monitor and Control Risks Purpose Monitor residual Risks

Identify new and secondary risks

Execute risk responses

Evaluate risk process effectiveness

Follow up and Control of Risks


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Follow up and Control of Risks The process consists on:

Identification, analysis and planification of new risks

Making the follow up of identified risks

Reanalyze existent risks Follow up of conditions that trigger plans for using reserves

Follow up of residual risks

Review of the execution of risks responses while evaluating itseffectiveness.

It must be integrated with plannification, execution andcontrol of the project.

Stablish a System of Early Detection


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Stablish a System of Early Detection The target is detect deviations of the plan which could be or

could cause risk triggers.

Some examples:

Cost deviations

Time deviations

Changes in the estimated finishing date

Changes in the attitude of stakeholders New alternative critical paths

Exercise 4 7


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Exercise 4.7

Think about other risks triggers

Evaluate results of Corrective Actions


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Evaluate results of Corrective Actions Have the mitigated risks been sufficiently content?

Can materialized and accepted risks be tolerated?

Have the result of contingency plans have been satisfactory?

Has the lifecycle of the risks been finished?

Is another action required?

Risks reevaluation


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Risks reevaluation What new risks are due to time or cost variations?

What new risks are due to changes in client requirements?

What new risks are a result of changes of personnel orstakeholders?

What new risks are result of organizacional or environmentalchanges?

What new risks are possible due to changes in resources or itsutilization?

Which of the identified risks have changed?

Risks Reevaluation. Analysis and RisksClasification


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Clasification

Has the ocurrence probability of each risks changed?

Is the impact of the risk the same?

Are risk priorities the same?

Are organizacional tolerances the same?

Have the stakeholders changed?

Are there new risks?

Is there any response strategy that doesnt work?

Exercise 4.8


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Exercise 4.8

Question: when do you think that a new risk reevaluationshould be done?

It depends on the project duration.

5 years project. Once a month could be ok. 4 weeks project. Once a week couldnt be enough.

Risk Documentation


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Risk Documentation It is the base for risk analysis in future projects

Learnt lessons should be transmited to all the organization toavoid that the same problems could happen again

It could be used to demonstrate to the direction of thecompany the work that has been done and when they wereinvolved in project problem solutions.