BUSG 2002-2 Project Risk Management Unit 8 Exam Review PDF

College of Business – BUSG 2002-2 PROJECT RISK MANAGEMENT - UNIT 8 1  PROJECT RISK MANAGEMENT What is a risk? Wh...

College of Business – BUSG 2002-2 PROJECT RISK MANAGEMENT - UNIT 8 1  PROJECT RISK MANAGEMENT What is a risk? What is risk management? How are risks identified? What can be done to prepare for risks? 2  REALITY CHECK there are always risks in projects: deliveries are late, people get sick, accidents happen, machinery breaksdown, etc. Risks if they occur will impact projects. Risk management is the process in which risks are identified and their potential impact is planned for. 3  WHAT IS PROJECT RISK? An uncertain event or condition that if it occurs will impact at least one project objective: scope, schedule, cost, quality. It is always in the future. It may have more than one causes, which can be a requirement, an assumption, a constraint, a condition. They create the possibility of a negative or positive outcome. 4  TYPES OF RISK KNOWN RISK Identified & analyzed with a planned response UNKNOWN Cannot be proactively managed, have a contingency plan RISK POSITIVE RISK Aim to maximize opportunities where good things happen NEGATIVE RISK Minimize threats that are potential project problems RISK THAT HAS Is no longer a risk but a project issue HAPPENED 5  RISK EXAMPLES RISK EXAMPLE CAUSE PROJECT IMPACT +IVE OR -IVE A project Negative if permit is not granted in the time Environmental Permit Impact the timeline requirement required. Limited expertise available to do Positive if there is no limit on the expertise A project assumption Impact the timeline a particular project task. needed or could be negative if there is. Negative if the organization has too many Company has multiple projects going Impact timeline, demands on it and cannot respond as needed A project condition on at once budget, and/or quality by the project. Positive if projects can share resources effectively. Negative if external company does not deliver Require external company to provide Impact budget and A project constraint on time. Positive if external company delivers deliverable on the critical path timeline ahead of time. 6 PMBOK RISK MANAGEMENT PROCESSES 7  PMBOK RISK MANAGEMENT PROCESSES 1. Plan Risk Management How to perform project risk management 2. Identify Risks Document which risks may affect project 3. Perform Qualitative Risk Analysis Prioritize risks for further analysis 4. Perform Quantitative Risk Analysis Numerical models of risk analysis 5. Plan Risk Responses Options, actions & contingency plans 6. Monitor and Control Risks Start and manage risk plan 8  1 - PLAN RISK MANAGEMENT PROCESSES Risk Categories What are the broad categories of risk the project is vulnerable to. Risk Breakdown Structure Takes the categories and breaks them down into specific components related to the project. (see next slide) Guidelines for determining the potential impact Define different impact levels for time and budget that will be used when analyzing risks. I.e. is 2 day impact a major or minor impact? Probability Scale Define probability levels that will be used when analyzing risks.  1 - RBS - RISK BREAKDOWN SCHEDULE A RBS defines the risk categories for the plan. It is very similar to a WBS, in that the major risk areas of the project are defined and then detailed out Once the project risks are identified, they can be categorized by one of these categories. This categorization will help understand the risk level and the way it should be dealt with. 10  3 & 4 – PERFORM QUALITATIVE & QUANTITATIVE ANALYSIS WHAT IS THE LIKELIHOOD OF A RISK HAPPENING? WHAT IS THE IMPACT THE RISK COULD HAVE TO THE PROJECT AND PROJECT BUDGET?  QUALITATIVE ANALYSIS Applying the Project Impact Scale created the Risk Register = PRIORITY & URGENCY Risk Risk Risk Probability Impact Potential Root Risk # (Project (1,2,3,4,5) Owner Name Description Category Response Causes Impact Scale)  QUALITATIVE ANALYSIS THIS HELPS IDENTIFY: high impact high probability risks that will need to be proactively Low impact low probability risks that can be put at a very low management priority  QUANTITATIVE ANALYSIS Gather Analyze Update GATHER THE ANALYZE THE UPDATE THE RISK INFORMATION INFORMATION REGISTER Talk to the people that know about the risks and get them to give three-point cost estimates Sensitivity Analysis on their impact. Expected Monetary Value (EMV) Probability distribution – using Modeling and Simulation statistics. Expert Judgement. EMV = EXPECTED MONETARY VALUE – A WAY TO QUANTIFY RISK  EMV = EXPECTED MONETARY VALUE – A WAY TO QUANTIFY RISH EMV Applied on Camping Trip Project 1. Start with your probability and Impact of each risk: Essay : RISK PROBABILITY IMPACT define risk , probability and High Winds 35% cost $300 to replace equipment impact and then Mudslide 5% cost $750 in damage find the EMV. Wind generator is usable 20% save $800 in petrol costs RV rental unavailable 5% cost $550 for last-minute rental 2. Calculate the EMV for each risk RISK PROB X IMPACT EMV High Winds 35% X $300 = - $105.00 Mudslide 5% X $750 = - $37.50 Wind generator is usable 20% X $800 = + $160.00 RV rental unavailable 7% X $550 = - $38.50  APPLYING EMV IN 2 WAYS 1. What is the EMV for all the Risks? -$105.00 + -$37.50 + $160.00 + -$38.50 = -$21.00 Adding $21.00 to the budget should account for all these risks 2. What is the monetary value of a decision? High Winds -$700 35% -$300 35% X -300 = -105 The risk mitigation decision to rent a Yes Rent a bigger 65% Low Winds -$20 65% X -20 = -13 heavier RV makes sense heavier RV No 35% High Winds -1400 35% X -1400 = -490 -$330 Essay question 65% Low Winds -60 65% X -50 = -39 Compare the 2 branches: Heavier RV = -$ 700 +-$ 105+-$ 13 = -$ 818 Lighter RV = -$ 330+-$ 490+-$ 39 = -$ 859 17  5 – PLAN RISK RESPONSE WHAT IS PLANNED RESPONSE OR TACTIC TO DEAL WITH THE RISK?  4 WAYS NEGATIVE RISK IS DEALT WITH AVOID MITIGATE TRANSFER ACCEPT Prevent it from Taking action Pay someone If you cannot happening that will cause else to accept avoid, mitigate it to do as little it from you. or transfer the damage as i.e. insurance, risk, you possible extra warranty accept it. Mcq 19  4 WAYS POSITIVE RISK IS DEALT WITH EXPLOIT SHARE ENHANCE ACCEPT Ensure it happens Allocate the Increase the Be willing to take responsibility to a probability and/or advantage of it, if it third party that is the positive impact comes along best to capture the of the opportunity opportunity mcq 20  6 – MONITOR RISK WHAT ARE NEW RISKS, WHAT ARE RISKS THAT HAVE NOT HAPPENED, WHAT HAS BEEN THE IMPACT OF RISKS HAPPENING?  MONITOR & CONTROL RISKS The process of monitoring the implementation of agreed-upon risk response plans, tracking identified risks, identifying and analyzing new risks, and evaluating risk process effectiveness throughout the project. The key benefit of this process is that it enables project decisions to be based on current information about overall project risk exposure and individual project risks. This process is performed throughout the project. 22 TOOLS & TECHNIQUES USED TO MONITOR AND CONTROL RISKS Risk Variance and Risk audits Reassessment trend analysis Technical Reserve Status Performance analysis meetings measurement mcq 23