Project Risk Management: Introduction PDF

PROJECT RISK MANAGEMENT: INTRODUCTION PROJECT RISK MANAGEMENT PRM-1005  PRM: INTRODUCTION Learning Outcome: Explain the inputs and outputs for PRM. Learning Objectives: LO1. Discuss project risk. LO2. Identify key concepts of RM and categorize risks. LO3. Risk...

PROJECT RISK MANAGEMENT: INTRODUCTION PROJECT RISK MANAGEMENT PRM-1005  PRM: INTRODUCTION Learning Outcome: Explain the inputs and outputs for PRM. Learning Objectives: LO1. Discuss project risk. LO2. Identify key concepts of RM and categorize risks. LO3. Risk notions. LO4. RM Processes.  1. INTRODUCTION Project Risk – a combination of identifying, analyzing, and responding to risk throughout the life of the project in order to meet the project objectives. VIDEO: What Is Project Risk? https://www.youtube.com/watch?v=nbhLDJkNnzY  1.1 POSITIVE VS NEGATIVE RISK EFFECTS Risk is always uncertainty that has either positive or negative effects.  1.1.1 POSITIVE RISK MANAGEMENT Unnoticed – causes positive impact on selecting a project, determining the scope, developing realistic schedules and cost estimates Helps stakeholders understand the nature of the project Helps to integrate other project management knowledge areas Called investment in opportunities www.risk-doctor.com  1.1.2 NEGATIVE RISK MANAGEMENT Crisis management Dangerous to the success of a project The actions are taken to avoid, lessen, change, or accept potential effects of risks on the projects But crisis is more visible than successful risk management and is often more rewarded. 1.2 TEXTS  TEXT ISSUES Organizations SHOULD put more effort into PRM to find the balance between risk and opportunities: -Define risks (study the possibility of loss or injury) -Manage risk (avoid, lessen, change, accept)  2. KEY CONCEPTS FOR PRM All projects are risky since they are unique Organizations should choose to take project risk in a controlled and intentional manner in order to create value while balancing risk and reward.  KEY CONCEPTS FOR PRM Project Risk Management aims to identify and manage risks that are not addressed by the other project management processes. When unmanaged, these risks have the potential to cause the project to deviate from the plan and fail to achieve the defined project objectives. The effectiveness of Project Risk Management is directly related to project success.  KEY CONCEPTS FOR PRM Risk appetite – a degree of uncertainty an entity is willing to take on Risk tolerance – maximum acceptable deviation an entity is willing to accept Risk utility – amount of satisfaction and pleasure received from potential pay off  KEY CONCEPTS FOR PRM Risk-seeking person - prefers more uncertain outcomes and is willing to pay a penalty (the more the pay-off, the bigger satisfaction) Eg.: Start-up Risk averse person – gets less satisfaction from risk when more money/pay-off at stake Eg: Will not deal with a vendor who hasn’t been in business Risk-neutral person – gets balance between a risk and pay-off Eg: Performs a range of analyses before making a decision  3. RISK LEVELS INDIVIDUAL RISKS OVERALL RISKS Overall project risk is the Individual project risk is effect of uncertainty on an uncertain event or the project as a whole, condition that, if it occurs, arising from all sources of has a positive or negative uncertainty including effect on one or more individual risks, project objectives. representing the exposure of stakeholders to the implications of variations in project outcome, both positive and negative. 3.1 RISK LEVELS: INDIVIDUAL RISKS Individual Project Risks - can have a positive or negative effect on project objectives if they occur. Project Risk Management aims: to enhance positive risks (opportunities) Opportunities that are captured can lead to benefits such as reduced time and cost, improved performance, or reputation. to avoid or mitigate negative risks (threats). Unmanaged threats may result in issues or problems such as delay, cost overruns, performance shortfall, or loss of reputation.  3.2 RISK LEVELS: OVERALL RISKS Overall Project Risk - can be positive or negative. Project Risk Management aims to keep project risk exposure within an acceptable range by: reducing drivers of negative variation promoting drivers of positive variation maximizing the probability of achieving overall project objectives. Risk is initially addressed during project planning by shaping the project strategy, BUT it should be monitored and managed as the project progresses to ensure that the project stays on track and emergent risks are addressed.  RISK LEVELS: OVERALL RISKS To manage risk effectively, the project team needs to know what level of risk exposure is acceptable in pursuit of the project objectives. HOW? Define measurable risk thresholds that reflect the risk appetite of the organization and project stakeholders. RISK THRESHOLDS: express the degree of acceptable variation around a project objective. are communicated to the project team and reflected in the definitions of risk impact levels for the project.  4. TYPES OF RISK MANAGEMENT 1. Scope creep 2. Resource shortage 3. Budget overrun 4. Time delays 5. Inefficient communication https://miro.com/project-management/what-is-risk-in-project-management  4.1 SCOPE CREEP 1. Scope creep This risk refers to uncontrolled changes or continuous growth in a project's scope. It's one of the most common risks and can lead to projects exceeding their planned resources, time, or budget. How to mitigate it? Through proper project planning and management, project managers can mitigate the risk of scope creep. Setting clear objectives and communicating them clearly to stakeholders to get their buy-in, and regular check-ins and updates are just a few foundational ways of ensuring that the project will be focused on the pre-set goals. https://miro.com/project-management/what-is-risk-in-project-management  4.2 RESOURCE SHORTAGE 2. Resource shortages These can include both human resources and material resources. Key personnel may leave the project or organization, or critical materials might not be available when required, which could delay the project. How to mitigate it? While you can't predict operational changes, it's important that the team is well equipped to adjust to changes when they happen. This can involve the tool stack used that ease the transition when personnel leave the project, constant training etc. https://miro.com/project-management/what-is-risk-in-project-management  4.3 BUDGET OVERRUN 3. Budget overruns Projects can face the risk of costs spiraling beyond the allocated budget due to unexpected expenses, poor cost estimating, or scope creep. How to mitigate it? This is why it's important to plan the resource allocation thoroughly before the start of the project, and calculate the cost estimations as accurately as possible. For that, project managers can use past projects as a source of information for better planning. https://miro.com/project-management/what-is-risk-in-project-management  4.4 TIME DELAYS 4. Time delays Projects can suffer from time delays due to a variety of reasons including, but not limited to, inefficient processes, task dependencies, underestimated task duration, or resource shortages. How to mitigate it? As a basic rule, it's better to overestimate the time needed for certain project stages, rather than overcommit to delivering them sooner. The utilization of a Gantt chart or Timeline tool can facilitate better tracking and ensure alignment with the project schedule. Further, past projects should not be overlooked as they can provide valuable insights for future tasks. Drawing on experiences from completed projects can enhance the precision of estimates and task durations, leading to more effective project planning." https://miro.com/project-management/what-is-risk-in-project-management 4.5 INEFFICIENT COMMUNICATION 5. Inefficient communication Effective communication is critical in project management. The risk of communication breakdowns, be it within the team or with stakeholders, can lead to misunderstandings, misaligned expectations, and project failures. The result of inefficient communication is the lack of clarity among the project team and even stakeholders, which leads further on to a chain of other issues. How to mitigate it? Regularly providing progress updates and soliciting feedback can help set clear expectations among the team and stakeholders. Additionally, periodically revisiting and reinforcing the project goals keeps everyone aligned and focused, preventing deviations from the primary objectives. https://miro.com/project-management/what-is-risk-in-project-management  5. RISK MANAGEMENT PROCESSES 1. Plan risk – decide how to approach and plan risk management activities for the project (PM team reviews PMP, Project Charter, Stakeholder register, EEF, OPA and analyze risk management activities). Output: RMP 2. Identify risk – determine the risks that are likely to affect the project , and document the characteristics. Output: the start of a risk register  RISK MANAGEMENT PROCESSES 3.Perform qualitative risk analysis – prioritize risk based on probability and impact of occurrence (the project team uses tools and techniques to rank risks and update information in the risk register) Output: project documents updates 4.Perform quantitative risk analysis – numerical estimation of the effects of risks on project objectives (how much risk is accepted) Output: project documents updates  RISK MANAGEMENT PROCESSES 5.Plan risk response – take steps to enhance opportunities and reduce threats to meet project objectives (project team develops risk response strategies) Output: PMP updates, project documents updates 6.Control risk - monitor identified risks, identify new risks, carry out risk response plan, evaluate the effectiveness of risk strategies Outputs: work performance information, change requests, PMP updates, OPA updates RISK MANAGEMENT PROCESSES 6. TRENDS/ EMERGING PRACTICES IN PRM ❖Non-event risks ❖Project resilience ❖Integrated Risk Management  6.1 NON-EVENT RISKS Variability Risk Ambiguity Risk Uncertainty exists about some key Uncertainty exists about what characteristics of a planned event, might happen in the future. activity, or decision. E.G.: elements of the requirement E.G.: productivity may be above or or technical solution, future below target, the number of errors developments in regulatory found during testing may be higher or frameworks, or inherent systemic lower than expected, or unseasonal complexity in the project. weather conditions may occur during the construction phase. Ambiguity risks are managed Variability risks can be addressed using gap analysis, SME input, or using Monte Carlo analysis, with the benchmarking. range of variation reflected in Ambiguity is also addressed probability distributions, followed by through incremental actions to reduce the spread of development, prototyping, or possible outcomes. simulation. Project Management Institute. (2017). A Guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.  6.2 PROJECT RESILIENCE Unknowable-unknowns - risks that can only be recognized after they have occurred. This requires each project to have: Right level of budget and schedule contingency for emergent risks, in addition to a specific risk budget for known risks; Flexible project processes that can cope with emergent risk while maintaining overall direction toward project goals, including strong change management; Empowered project team that has clear objectives and that is trusted to get the job done within agreed-upon limits; Frequent review of early warning signs to identify emergent risks as early as possible; and Clear input from stakeholders to clarify areas where the project scope or strategy can be adjusted in response to emergent risks.. Project Management Institute. (2017). A Guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute  6.3 INTEGRATED RISK MANAGEMENT Projects exist in an organizational context, and they may form part of a program or portfolio. Risk exists at each of these levels, and risks should be owned and managed at the appropriate level. Some risks identified at higher levels will be delegated to the project team for management, and some project risks may be escalated to higher levels if they are best managed outside the project. A coordinated approach to enterprise-wide risk management ensures alignment and coherence in the way risk is managed across all levels. This builds risk efficiency into the structure of programs and portfolios, providing the greatest overall value for a given level of risk exposure. Project Management Institute. (2017). A Guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.  7. TAILORING CONCIDERATIONS Project size. Does the project's size in terms of budget, duration, scope, or team size require a more detailed approach to risk management? Or is it small enough to justify a simplified risk process? Project complexity. Is a robust risk approach demanded by high levels of innovation, new technology, commercial arrangements, interfaces, or external dependencies that increase project complexity? Or is the project simple enough that a reduced risk process will suffice? Project importance. How strategically important is the project? Is the level of risk increased for this project because it aims to produce breakthrough opportunities, addresses significant blocks to organizational performance, or involves major product innovation? Project Management Institute. (2017). A Guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.  TAILORING CONCIDERATIONS Development approach. Is this a waterfall project, where risk processes can be followed sequentially and iteratively, or does the project follow an agile approach where risk is addressed at the start of each iteration as well as during its execution? The outcomes of tailoring decisions are recorded in the risk management plan. Project Management Institute. (2017). A Guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.  8. CONSIDERATIONS FOR AGILE/ADAPTIVE ENVIRONMENT High-variability environments has more uncertainty and risk. To address this, adaptive approaches make use of frequent reviews of incremental work products and cross- functional project teams to accelerate knowledge sharing and ensure that risk is understood and managed. Risk is considered when selecting the content of each iteration, and risks will also be identified, analyzed, and managed during each iteration. The requirements are kept as a living document that is updated regularly, and work may be reprioritized as the project progresses, based on an improved understanding of current risk exposure. Project Management Institute. (2017). A Guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.  KEY POINTS Brainstorming, contingency allowances, contingency plans, contingency reserves, decision tree, Delphi technique, fallback plans, flowcharts, influence diagram, interviewing, known risks, management reserves, Monte Carlo Analysis, probability matrix, risk acceptance, risk-averse, risk avoidance, RBS, RMP, risk mitigation, risk-neutral, risk owner, risk register, risk-seeking, triggers, unknown risks, watch list