Project Management II Week 3 PDF

Project Management II BUSN 10279 Week 3 Sandra Napoleone 1  Today Risk management continued Risk after class assignment Individual Risk Assignment 2  Risk definitions Ri...

Project Management II BUSN 10279 Week 3 Sandra Napoleone 1  Today Risk management continued Risk after class assignment Individual Risk Assignment 2  Risk definitions Risk An uncertain event of condition that, if it occurs, has a positive or negative effect on one or more project objectives. Risk register A project document that contains the results of a risk assessment and is displayed in a table or spreadsheet format. Risk event A specific, uncertain events that may occur to the detriment or enhancement of the project 3  Overall project risk Overall risk is the effect of uncertainty on the project as a whole, arising from various sources of uncertainty. This includes individual risks and the exposure to the project outcomes, both positive and negative. Overall risk is often a function of complexity, ambiguity and volatility. Responses are considered for the overall project and can be applied to the overall project rather than to a specific event. If the overall risk on the project is too high, the organization may choose to cancel the project(avoidance) or mitigate the risk. Should always consider ‘at what cost’ the mitigation will ‘cost’. 4  Overall project risk As project managers our role is to navigate the elements of scope, time, cost, quality and risk as it relates to the project objectives. In order to manage this effectively the project team and the PM need to know what the level of risk exposure is acceptable in pursuit of the project objectives. 5 Project Risk Management Project risk management process Planning risk management Identification of risks Analysis of risks Responses to risk Monitoring and controlling risks 6  Trigger event When we think of a trigger events – we are thinking about what will cause or what caused the risk to happen? Risk triggers – Environment (physical), Geography(location), Resources (people, finances, systems) 7  Risk classification Pure risk is a situation in which there are only the possibilities of loss or no loss (ie. earthquake) risk is beyond human control and can result in a loss if it occurs. Speculative risk is a situation in which either profit or loss is possible (ie. some thing that we take on, financial investing, risk that is taken on a voluntary basis 8  Risk classification Strategic Risk refers to uncertainty regarding the firm’s financial goals and objectives. Operational risk results from the firm’s business operations(day to day) Financial Risk refers to the uncertainty of loss because of adverse changes in commodity prices, interest rates, foreign exchange rates, and the value of money. IT risk is a broad classification that refers to all things systems related, software, 9 hardware, connections, app’s  Probability and Impact Use of this analysis helps us quantify our risks and determine the likelihood of occurring and the impact of those risks. This is a way for us to review the risks and prioritize or rank the most critical risks. Analysis tools will vary from organization to organization, depends on risk tolerance, complexity, type of project being delivered Each risk will need some type of ranking or prioritization, and analysis so that you know what the focus is 10  Question How many risks do you identify in the course of the project? Do you have to have a plan for all the risks identified? How do you know you have the ‘right’ risks? Do you ever stop thinking about risk? 11 Probability and Impact Probability and impact matrix 12 Probability and Impact Matrix 1 3  Risk Management & Contingency PM’s must consider the financial contingencies available to them at the beginning, during and at the end of the project. Risk financing refers to techniques that provide for the funding of anticipated or unknown losses. Contingency reserve is set a side to address identified risks should they occur during your project, it can also be used for other unplanned costs related to scope and time changes. Management reserve is budget category used for the unknown events such as unplanned scope. Access normally requires management1 (stakeholder) approval or beyond to c suite 4  Enterprise Risk Management Enterprise Risk Management single unified treatment of all major risks faced by the organization, Consolidating and viewing all major risks into a single program, the business can offset one risk against another, prioritize, manage them wholistically If risks are not perfectly correlated, the firm can offset one risk against another, thus reducing the firm’s overall risk. For some firms, treatment of financial risks requires the use of complex hedging techniques, financial derivatives, futures contracts and other financial instruments. For many firms risk management can be handled internally and when needed can be managed with support from external sources. 1 5  Risk What is the main output of the risk identification process is? Risk register Risk log RACI Information needed to create the project risk register. 1 6  Risk register exercise Consider what risk register items should, at minimum be included? Item # Risk description Priority Probability Impact Threat level Owner 1 7 Risk register example 1 8  Risk register example No. Potential responses(action Rank(priority): plan) Risk to: New customer Risk owner Description: Probability Risk Category(type of Impact area risk): Status (R,G,Y) Root cause 19  Is this true…? ‘Time is money’ Why or why not? How is the phrase ‘time is money’ connected to Project 2 0  Risk Management and Finances Risk managers use the time value of money to analyze the big picture when making risk-control decisions The time value of money must be considered when decisions involve cash flows over time (eg project life cycle). Consider the interest-earning capacity of money The present value is converted to a future value through compounding The future value is converted to a present value through discounting 2 1  Risk management and Finances Generally speaking, what do we need to make decisions? Data, Information Money Authority to make decisions 2 2  Risk management and Finances Applied analytics is when data is used, and the insights they gained from analyzing that data is used to enhance a project or business. A key characteristic of applied analytics is that such insights are acted upon. Predictive analytics is the analysis of data to generate information that will help make more informed decisions eg use of credit scoring when making decisions on who, how much credit to give (insurance, banking) 23  Risk Management and Finances Expected Monetary Value (EMV) - Expected monetary value is a statistical technique used in risk management. It’s a way of quantifying the expected loss or gain from undertaking a project, given the probability of different outcomes. The expected monetary value equation is EMV = Probability x Impact Return on Investment (ROI) - a measure of financial return compared to the cost, ROI is generally an input to the decision to undertake the project. By measuring ROI throughout the project, the project team can determine if it makes sense to continue the investment. ROI = Net Return on Investment​× 100%​ 24 Cost of investment  Net present value Net present value (NPV) - is the sum of the present values of the future cash flows minus the cost of the project. And measuring it throughout can determine if it makes sense to continue. See npv tutorial week 3 module 25  Risk Calculation The formula for calculating risk is often expressed as: Risk = Probability (P) x Consequence (C) 1.Probability: Probability refers to the probability or chance of a risk event occurring. It is typically expressed as a percentage or on a scale (e.g., low, medium, high). 2.Consequence: Consequence represents the potential consequences or severity of a risk event if it were to occur. Consequence can be measured in terms of financial loss, project delays, reputation damage, e 26  Other Risk Management Resources Enterprise Risk Management group has tools (applications,calculations) for the PM and the organization to use to analyze and measure risk. Risk management information system (RMIS) is a computerized database that permits the risk manager to store, update, and analyze risk management data. Risk management intranet is an internal site with search capabilities for a limited, internal audience. Enterprise Risk Resources (subject matter experts) they can be internal, external to the organization (regulators, industry experts). 27  Risk A risk response to a specific threat might include multiple strategies. For example, if the threat cannot be avoided, it may be mitigated to a level at which it becomes viable to transfer or to accept it. Speaks to risk tolerance and appetite. The goal of implementing risk responses is to reduce the amount of negative risk. Risks that are accepted sometimes are reduced simply by the passage of time or because the risk event does not 28 occur or may not be as impactful as first  ‘Additional’ Project Funding In most organizations the senior leadership team determines what projects will be funded annually. The prime objective being that these projects will deliver value for the organization, the employees, customers and shareholders. An ROI of some sort, or something to show for the ‘spend’. You will need to know this process so that, should there be a need for additional resources($$) for your project, you will know and be prepared to request what's needed for 29 your project. (think project change request) Project Funding/Approval Project approval processes can vary from organization to organization, for the most part the standard practice is to plan for projects annualy based on what you planned or know is needing to be done and ensure money is budgets annually for them. Projects are completed for the following: Realization of strategic objectives and goals (future) Regulatory, Compliance requirements To ensure the business day to day 30 operations is maintained  Project Budget Budget definition – is the approved estimate for the project or any work breakdown structure(WBS) component or any schedule activity. Budgets evolve from agreed to estimates for the project work and should include contingency reserves to allow for uncertainty. ** contingency reserves are to implement a risk response or to responds to risk events ** management reserves are set aside for unexpected activities related to in-scope work (depending on the organization structure these funds may be managed 31 at different levels in the organization and likely need  Project Complexity No matter the industry or size of project, project type (construction, technology, events, real estate sales & purchases, mergers and acquisitions, vacations, moving of any type) we know that projects are complex Constraints like scope, time, cost, competing priorities, risk, quality, etc cause challenges in our projects 32  Project Complexity In a large complex projects, no matter how competent the risk planning is, how diligent the team members are in identifying, analyzing and controlling risk, it is impossible to anticipate all the potential problems. Some aspects will inevitably be overlooked, and problems unexpectedly emerge. Resources must be made available to respond to these types of problems as they occur. Fundamentally, project managers must have a well thought out response to risks and be able to improvise around the actions taking place in a project. 33  PC Net After Class Assignment PCNet Project Case You will read and review the PC Net case, it’s a complex, very detailed involved project that spans multiple operational areas in different geographies. Through understanding what is happening in this case you will appreciate the many tasks involved in managing project risk. 34  PCNet After Class Assignment Due Jan 29th Answer the following, submit via myCanvas. Please make sure you include the questions in your submission. A maximum of 3 marks will be deducted if the format is not followed. Read the PC Net case study and answer the following question. 1. What are the fundamental steps that the PCNet project ‘team’ is using to respond to the project risks they identified. 2. Describe 3 of the responses and tell me why you think they are helpful, or not helpful? 35  Gore Mutual Individual Risk Assignment – Due Jan 31st Read the Gore Mutual case study and answer the questions below, be clear, concise! DO NOT repeat yourself. NOTE : not available until Thurs Jan 23rd 4:00 pm A maximum of 3 marks will be deducted if the format is not followed. Question 1. Answer 1. 36  Next Class Wed Jan 29th Virtual Class PC Net After Class Assignment Due Wed Jan 29th Gore Mutual Individual risk assignment review Due Fri Jan 31st Risk review for test on Wed Feb 5th in-person Scheduling starts 37