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Risk Management

Why carry out Risk Assessment?

Is the project too risky? Threat intensity?

Improve decision making Clarification of terms

Targets Expected values Commitments

Documentation

RISK

RISK

COST

COST

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Risk Management

The Risk Management Process - RMP

OWNERSHIP risks

responsibilities and contractors

DEFINE the project

DEFINE the risk

management process

IDENTIFY risks and response

ORGANISE prioritise risks and responses

ESTIMATE size the risks

EVALUATE

PLAN plans and strategies

MANAGE

INITIATION

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Risk Management

Simple estimating of risk – more detail

0.1

0.3

0.2

4 6 8 10 12 14 16

A=0.15

A=0.35

A=0.2

A = area

Pro

bab

ilit

y d

ensi

ty

Delay

A=0.05 A=0.05A=0.1A=0.1

2

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Risk Management

Cumulative probability graph

0.2

0.4

0.6

10 12 14 16

Cu

mu

lati

ve P

rob

abil

ity

Delay

0.8

1.0

18 20 22 24

A and B, with B conditional on A

0.12

0.12 + 0.33

0.12 + 0.33 + 0.25

0.12 + 0.33 + 0.25 + 0.24

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Risk Management

Types of plans Initial plan Reference plan Base plan Contingency plan Horizon plan Action plan

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Risk Management

Cost model

With uncertainty Use of a range 3 - point estimate

Task CostMin Likely Max Distribution

A 2 4 5 3.7

B 1 3 6 3.3

C 2 3 4 3.0

D 5 7 9 7.0

E 3 6 7 5.3

F 1 6 11 6.0

G 3 4 5 4.0

H 8 10 12 10.0Total 25 43 59 41.3

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Risk Management

Monte Carlo risk distribution

1.0

0.8

0.6

0.4

0.2

0.0

TOTAL COST

RIS

K O

F E

XC

EE

DIN

G T

AR

GE

T C

OS

T

VALUE EXCEEDED BY 20% OF SAMPLE

TARGET WITH 20% RISK OF BEING EXCEEDED

Because of the values put into the model there will be zero risk of exceeding total cost ‘x’.

All sample total costs will fall below value ‘x’. Hence, the risk is 1.0.

Easy to see what target cost will have a 20% risk of being exceeded.

Trying to set a target near the middle is sensitive to larger changes in the risk.

X

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Risk Management

PROJECT

USING RISK ASSESSMENT

TASK

TRADITIONAL APPROACH

COST = £5000

DURATION= 3 WEEKS

3 POINT

ESTIMATE

LIKELIHOOD AND IMPACT OF

+VE AND –VE EVENTS

MODEL COSTS

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Risk Management

Human relations Benefits

Can make all aware of the risks involved, relieving the pressure on individuals

If you wait for more data it may be too late to act Early assessment enhances bid and budget control The plan can run during risk assessment Can focus resources in high risk areas Risk assessment can bolster confidence in the plan One needs confidence that any costs will not exceed the bid price May be client driven May be stakeholder driven

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Risk Management

SIMPLE NETWORK NO LAG

TASK START DURATION COMPLETIONminimum likely maximum contribution

A 0.0 3 5 8 5.3 5.3B 5.3 2 3 5 3.3 8.7C 5.3 2 4 6 4.0 9.3D 9.3 3 6 8 5.7 15.0

Task A

Task B

Task C

Task D

FS FS(3, 5, 8)

(2, 3, 5)

(3, 6, 8)

(2, 4, 6)

Note 3 Note 1 Note 2