PROJECT RISK MANAGEMENT
Presentation by:
Jennifer Freeman&
Carlee Rosenblatt
http://gussyingupthetuttle.blogspot.com/2009/10/risk.html
Topics We Will Cover...Controller’s FunctionProject Failures and Project ManagementProject Team’s OptionsProject Risk Management (PRM)PRM BenefitsProject Risk CategoriesProject Management RisksPRM Approach
Controller’s Function
The Controller...
• lends their expertise to the different projects
• provides financial analysis
• participates on project teams
Project Failures
Management is frequently disappointed with project results because they fall far below original expectations.
Reasons for failures vary, but there is one common denominator:
Earlier in the life of the project, the reasons were risks to the project.
Project ManagementTrack and manage issues that impact the project
negatively.
Implement an effective process for identifying and addressing project risks before these risks become issues.
http://wilderdom.com/Risk.html
Project Team’s Options
• Priorities or schedules may be changed
• Key decisions escalated to higher levels of management
• Activities added or enhanced
• Additional or different resources obtained
Project Risk Management (PRM)• The systematic process of identifying, analyzing, and
responding to risk by applying risk management principles and processes at the project level.
• It seeks to maximize the probability and consequences of positive events.
• It seeks to minimize the probability and consequences of adverse events.
• The goal is to prevent or reduce risk in a cost-effective manner without compromising quality or harming the mission.
PRM Benefits
• Ensures that project plans are realistic, with corresponding improvements in the overall business case and definition of project net benefits.
• Enhances the management’s understanding of the project’s implications during the early stages of the project.
PRM Benefits Continued
• Provides the opportunity to identify and consider a broader range of options than may be possible when the risk has become an issue, which can conserve resources.
• Allows for more time to be made available to address the risks in a careful and well-planned manner.
Project Risk Categories
• Issue – A current problem that is negatively impacting a project.
• Risk – A possible occurrence that would expose a project to potential failure in some or all respects.
Sometimes a risk is an issue that will happen in the future, but not all project risks become issues.
Categorizing Project Risks
• Valuable in assisting a project team to identify and consider the potential risks the project may face.
• Four categories of common project risks: Project management risks Technical risks Human risks Business risks
Project Management Risks
• Potential for unmet requirements in areas such as project management capabilities, project planning, and resource requirements.
• Examples of project management risks: Inadequate project management processes, procedures, or
skills Incomplete planning assumptions Overly aggressive time, budget, or benefits estimates Inadequate project resource commitments Resource coordination difficulties Failure to coordinate intraproject linkages and relationships
Technical Risks• Potential for unmet requirements in terms of project
designs, delivery schedules, information availability, and the like.
• Examples of technical risks: Inadequate definition of future state requirements Designs that do not address the full scope of objectives Hardware or software incompatibility Missed delivery schedules Design incompatibility or scheduling problems between
interdependent project components
Human Risks• Potential for various human dynamics to impede
project objectives or to reduce or negate benefits.
• Examples of human risks: Sponsorship that is inadequate to legitimize and sustain
the project Inadequate support from middle or lower levels of
management Differing or unclear understanding about the project
scope or impacts Inadequate or ineffective communication Project overload Residual issues from previous project implementations
Business Risks• Potential for occurrences external to the
organization, or in other parts of the organization, that could negatively impact the project.
• Examples of business risks: Strikes Competitor actions Legislative or regulatory changes Significant problems or opportunities that redirect
executive attention and/or funding.
http://santafeandthefatcityhorns.blogspot.com/2007_11_01_archive.html
Times to consider risk• During initial stages of the project• After achievement of key project milestones• Before beginning new project phases• When relevant information is received
Knowledge about changes in business conditions
Announcement of organizational changes Announcement of or discussion about changes
in a project sponsor or project member
PRM Approach – 6 Steps1. Identify the risks relevant to the project2. Evaluate risks to determine which needs most
attention3. Assign people to “own” key risks4. Address key risks through containment or
contingency plans5. Revisit the project plan for adjustment or
enhancement if the plan has been prepared6. Manage and track risks throughout the life of the
project
http://leadershipchamps.wordpress.com/2008/06/24/risk-management-processes/
1. Identify the Relevant Risks
• Prerequisites Objectives must be clear Proposed targets for schedule, budget, and
resource requirements understood
• Develop list of relevant risks
• Identify essence and develop risk statements for each category of risk
2. Evaluate the Risks
HighMedium Severity
High Severity
Very High Severity
MedLow
SeverityMedium Severity
High Severity
LowLow
SeverityLow
SeverityMedium Severity
Low Medium High
Pro
ba
bil
ity o
f O
cc
urr
en
ce
Potential Negative Impacthttp://www.youtube.com/watch?v=FRvsa-yNZk8
Probability of RiskThe relationship of risks and their probability across the project
life-cycle process
Controlling
Executing
ProbabilityClosing
Planning
Initiating
ImpactThe inverse relationship of probability and impact as the
project progresses through the life-cycle processes
ControllingExecuting
Probability
ClosingPlanningInitiating
Impact
ControllingExecuting
Probability
ClosingPlanningInitiating
Impact
3. Assign Risk Owners
• Risk owners are accountable for......Preparing the containment or contingency plans
...Monitoring changes in the probability and/or impact of the risk and notifying the project manager and team of any significant changes
...Taking the lead in initiating and managing the containment or contingency plans
4. Address Key Risks
Actionable Not Actionable
Very High
Containment Plan
Contingency Plan
HighContainment
PlanContingency
Plan
Med
Tracking List or
Containment Plan
Tracking List or Contingency
Plan
Low Tracking List Tracking List Degr
ee o
f Ris
k Se
verit
y
Containment – Specific actions that will be taken
Contingency – Plan that prepares for actions in the event that a nonactionable risk becomes an issue
Tracking List – Mechanism to ensure risks are retained and tracked as project moves forward
5. Revisit the Project Plan
• Revisit the original project plan after the containment and contingency plans have been prepared.
• Evaluate plan carefully for additional actions and trade-offs that will make the plan more achievable.
6. Manage and Track the Risks
• The risks that have been identified need to be: Managed carefully Monitored closely Tracked for changes in probability and/or impact
• Include steps to review and oversee PRM activities in the project plan.
Questions Answered by PRM• Are we losing sight of goals & objectives as the project moves forward?
• Are we ensuring that the results of the project will improve the organization’s ability to complete its mission? (The result should be an improvement over the previous process.)
• Are we ensuring sufficient funds are available, including to address risks?
• Are we tracking implementation to ensure “quicker/better/cheaper” objectives are being met?
• Are we applying appropriate RM principles throughout the project?
• Are we taking corrective action to prevent or fix problems, rather than simply allocating more money and time into them?
• Have changes in the environment, such as new IT systems or leadership, created new risks that need to be managed?
• http://www.youtube.com/watch?v=laKprX-HP94
References• Bragg, Steven M. and Roehl-Anderson, Janice M.
The Controller’s Function – The Work of the Managerial Accountant, 3rd Edition, 2005. 399-409.
• www3.od.nih.gov/oma/ma/NewRisk/PRM.doc• http://www.youtube.com/watch?v=FRvsa-yNZk8• http://www.youtube.com/watch?v=laKprX-HP94