OutlineOutline

1. Definitions2. The Risk Management process3. Change Management

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1. Definitions1. Definitions

• Project risk is an uncertainty that can have a negative or positive effect on meeting project objectives

• Negative Risk: An uncertain or chance event that can negatively affect the project’s scope, duration, budget or quality

• Positive Risk: Uncertain opportunity that can positively affect the project

• Risk Management: A proactive attempt to recognize and manage negative risks.

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Risk ManagementRisk Management’’s Benefitss Benefits

• A proactive rather than reactive approach

• Reduces surprises and negative consequences

• Prepares the project manager to take advantage of appropriate risks

• Provides better control over the future

• Improves chances of reaching project performance objectives within budget and on time.

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2. The Risk 2. The Risk Management Management

ProcessProcess

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Step 1: Risk IdentificationStep 1: Risk Identification

• The process of understanding what potential events might hurt (or enhance) a particular project

• Risk identification tools and techniques include:–Interviewing people with similar project experience–SWOT Analysis–Brainstorming–The Delphi Method.

SWOT AnalysisSWOT Analysis

• A strategic planning method used to evaluate the:

• Strengths• Weaknesses • Opportunities• Threats involved in a project or in a business

venture

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BrainstormingBrainstorming

• A group creativity technique designed to generate a large number of ideas for the solution of a problem

• First suggested in 1953 by Alex Faickney Osborn in a book called Applied Imagination. Osborn proposed that groups could double their creative output with brainstorming

• Results are mixed in terms of effectiveness - still provides benefits, such as boosting morale, generating new ideas, enhancing work enjoyment, and improving team work.

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Delphi MethodDelphi Method

• Group decision process using a panel of experts • Responses to questions are anonymous• Experts are provided a summary of opinions• Experts are then encouraged to reconsider their

responses • After 2 or 3 rounds it is believed that the group

will converge toward the best response through this consensus process

• Experts can apply virtually - no need to travel

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Common risk categoriesCommon risk categories

Knowledge areas:•Schedule risks•Cost and funding risks•Quality risks•Scope risks•HR risks•Procurement risks•Communications risksOther risks:•Technology risks•External risks.

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Class ex. 1: Risk identificationClass ex. 1: Risk identification

• You have been asked to organize your cousin’s wedding in July, for a limited budget of $10,000

• List the 5 top risks associated with each of the 3 deliverables (1-the wedding ceremony in church, 2-the wedding reception and 3-the honeymoon)

• List one general risk associated with each of the 4 project constraints (scope, time, cost, quality) and one related to HR management

• Number your risks from 1-20.

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Step 2: Risk AssessmentStep 2: Risk Assessment

• Qualitative risk analysis: –Decision trees, computer simulation, sensitivity

analysis • Quantitative risk analysis:

–Probability/Impact matrix.

Sample Probability/Impact MatrixSample Probability/Impact Matrix

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Class ex. 2: Qualitative risk analysisClass ex. 2: Qualitative risk analysis

• Estimate the probability (high, medium, low) and the impact (high, medium, low) of each of the 20 risks on your list

• Enter the numbers of your risks into a Probability/Impact matrix

• Make a list of prioritized risks (1-20) based on your matrix.

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Step 3: Risk response strategies developmentStep 3: Risk response strategies development

• Risk avoidance: Avoiding the risk by totally eliminating its root causes

• Risk transference: Shifting the consequences and the responsibility for a risk to a third party

• Risk mitigation: Reducing the risk’s probability and having a contingency plan

• Risk acceptance: Accepting the consequences of a risk and/or having a contingency plan.

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Contingency Plans and Fallback plansContingency Plans and Fallback plans

• A Contingency Plan (Plan B) will be used if a foreseen risk event actually occurs, in order to reduce negative consequences

• Fallback plans are developed for high-impact risks; sometimes called contingency plans of last resort.

• Risks of not having a Contingency Plan:–Having no plan may slow managerial response

–Decisions made under pressure can be potentially dangerous and costly.

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Dealing with common risk typesDealing with common risk types

• i.e., Technical Risks–Backup strategies if chosen technology fails–Plan to do Pilot first–Plan to work in parallel on two different solutions

• Schedule Risks– Time buffers (e.g. determine slack in schedule)–Force Majeure clause– Incentives and penalties in procurement contracts.

Force MajeureForce Majeure

"Force majeure" is a contractual clause that frees parties, bound by a contract, from liability or obligation if an “disaster/event" happens

if Force Majeure events are not clearly defined they are assumed to be extraordinary events with an extremely low likelihood of occurring- little risk mitigation

Identifying Force Majeure clauses is recommended to shift risk allocation from project contractors to their customers or other contractual stakeholders.

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Force MajeureForce MajeureDefine what circumstances and events constitute a force majeure.

i.e., political unrest, riot, war, invasion, terrorism, radiation leaks, nuclear accidents, toxic explosions and natural disasters.

Define what constitutes the end of a force majeure.

Agree on a formal process in the event of a force majeure.i.e. Formal notice time , Method of notification of a force majeure event , Process for executing mitigation responses , neutral country where arbitration can be held

Identify risk planning and mitigation responsibilities.Processes for renegotiation of contracts reflecting any changes or cost increases

in the market, revision of schedules, recovery of costs, termination of contract

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Class ex. 4: Risk response strategiesClass ex. 4: Risk response strategies

• On your list, identify the best response strategy for each of your 20 prioritized risks, including their types

• Types: Risk Avoidance, Risk Transference, Risk Mitigation, Risk Acceptance.

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Class ex. 5: Risk response planningClass ex. 5: Risk response planning

• Two executives have to attend an important business meeting next Tuesday at 9 am in another city. The travel distance is 120 km, and it usually takes 2 hours to drive there

• Afraid of being late to the meeting, they have identified several risks, including a flat tire

• Plan possible risk response plans for this risk event based on avoidance, acceptance, transference and mitigation.

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Step 4: Risk Response ControlStep 4: Risk Response Control

• Risk control–Monitoring of triggering events–Execution of the risk response strategy–Initiating contingency plans–Watching for new risks

• Establishing a Change Management System–Monitoring, tracking, and reporting risk–Fostering an open organization environment–Repeating risk identification/assessment exercises–Assigning and documenting responsibility for managing risk.