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PM Mba 15 Risk

1) The document discusses risks and opportunities in project management, defining risks as events that could have negative outcomes while opportunities represent chances for advancement. 2) It categorizes risks and opportunities into strategic, operational, tactical, and product types and explains how to evaluate risks using probability and impact. 3) The main processes of risk management are identified as identifying risks, assessing risks through qualitative and quantitative analysis, developing risk response plans, and controlling and monitoring risks.

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72 views31 pages

PM Mba 15 Risk

1) The document discusses risks and opportunities in project management, defining risks as events that could have negative outcomes while opportunities represent chances for advancement. 2) It categorizes risks and opportunities into strategic, operational, tactical, and product types and explains how to evaluate risks using probability and impact. 3) The main processes of risk management are identified as identifying risks, assessing risks through qualitative and quantitative analysis, developing risk response plans, and controlling and monitoring risks.

Uploaded by

priyaa03
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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PM Elements 5 - Risks and Opportunities

MANAGING
PROJECT

In a project life cycle, several questions will arise:


What can go wrong?
What are the probabilities for mistakes
happening?
What are the consequences?
When and how can it be stopped or mitigated?
To what extent can it be tolerated or accepted?
How is it measured, reduced, and managed?

PM Elements 5 - Risks and Opportunities

RISKS AND OPPORTUNITIES

Risk is defined as the probability an injury, breakage, loss or other negative


outcomes. In the context of project management, it is the probability of not
getting results as planned.
Opportunity is defined as the possibility to achieve advancement or
progress. In project management, it is the possibility of increasing project
results.

In project management, risk and opportunity can each be divided into 2 categories:

Opportunity

PM Elements 5 - Risks and Opportunities

Definitions:

Risk

1.

Strategic

1.

Operational

2.

Tactical

2.

Product

RISK = PROBABILITY x IMPACT

PM Elements 5 - Risks and Opportunities

A risk occurs with emergence of 2 factors:


An unknown OUTCOME
A negative or uneasy IMPACT

PROBABILITY

MEDIUM
RISK
LOW
RISK

PM Elements 5 - Risks and Opportunities

HIGH RISK

IMPACT

PROJECT CYCLE PHASES


STRATEGIC
OPPORTUNITIES

NEW MARKET

TACTICAL
OPPORTUNITIES

SHORTEN THE SCHEDULE

NEW PRODUCT

COST REDUCTION

NEW APPROACH

PROCESS IMPROVEMENT

RE-ORGANISATION

REMOVAL OF
UNECESSARY ACTIVITIES

STRENGTH OF P&P

PM Elements 5 - Risks and Opportunities

PROJECT
OPPORTUNITIES

PROJECT OPPORTUNITY CATEGORIES


6

OPERATIONAL
RISK

PRODUCT
RISK

PROJECT LIFE CYCLE PHASE

EXTERNAL
RISK

INTERNAL
RISK

PAYMENT

PLANNING

POLITICAL SUPPORT

RESOURCE

TOOLS

SKILLS

SUB-CONTRACTOR
PERFORMANCE

PERFORMANCE

TECHNOLOGY SHARING

This leads to project cancellation/liquidation

DANGEROUS
RISK

FAILURE
RISK

MODE OF FAILURE

RADIATION

INVENTORY EXPIRY DATE

EXPLOSIVES

OUT OF STOCK
TEST FAILURE

POTENTIAL ENERGY

HIGH VOLTAGE

PROCESS SENSITIVITY

TOXIC

PM Elements 5 - Risks and Opportunities

PROJECT
RISK

This leads
to injury
and project
failure

PROJECT RISK CATEGORIES


7

Risk management involves risk reducing techniques like:


Identifying the potential risks
Evaluating the probabilities of occurring and the
impact/consequence if it does occur.
Making a decision to do nothing OR take preventative
action OR take contingency action.

PM Elements 5 - Risks and Opportunities

Risk Management
This is a systematic process to identify, analyse, and take action
towards a project risk, which includes the maximisation of the
probabilities of positive outcomes while at the same time the
minimisation of the probabilities of negative outcomes in the
project life.

1. Identifying
risks
2. Assess risks
(qualitative and
quaitative
analysis)
3. Risks plan
response

PM Elements 5 - Risks and Opportunities

MAIN PROCESSES OF RISK MANAGEMENT

4. Risk control
and
investigation/
monitoring
9

Identify Risks

Can jeopardize accomplishing the project


objective
Brainstorm sources of risks
Establish categories for risks and evaluate
Use historical information
Progressively elaborate and identify new risks
as more information becomes available

Assess Risks
Determine the likelihood the risk event will occur
Evaluate degree of impact on the project objective
Prioritize
Likelihood of occurrence and degree of impact
Position relative to the critical path

The procedures and processes to identify, detail, quantify, and evaluate each
risk and its respective significance.

Identify risk Use the cause and effect diagram (fishbone).


Evaluate risk probability and impact (consequences) Two (2) ways:
(i) Qualitative analysis
(ii) Quantitative analysis
Difficulty in calculating the probability of a risk happening, usually done
from experience or research. The decision tree can be used.
Identifying the relations/ties of one risk to another using the influence
diagram.
Organise a list of priorities
Action towards risk avoid, reduce, move, accept, contigency.

PM Elements 5 - Risks and Opportunities

Risk Evaluation/Analysis

The following title shows a qualitative approach in risk analysis.


12

PM Elements 5 - Risks and Opportunities

BASIC PROCESS OF
RISK ANALYSIS

13

PM Elements 5 - Risks and Opportunities

IDENTIFYING RISKS: CAUSE AND EFFECT DIAGRAM FOR B8 PROTON COMPONENT


14

F1
Design does not
meet standards

M1
Fabricator may
bankrupt

Bought items
received late

P1
Main staff
sick/on leave
F2
Design
Specification
may change

H2
Poor welding
P2
Low worker
productivity

F3
Design needs to
be re-engineered

F4
Procurement
Procedure untidy

H3
Items do not
meet
specifications

M2
Cash flow not
sufficient to
pay bills

M3
Import tax may
increase

PM Elements 5 - Risks and Opportunities

H1

P3
External agency
lags scheduling

H4
Manufacture differs
from design

INFLUENCE
CHART
15

PROBABILITY OF
OCCURRING

IMPACT

R = 0-10%

R = 1-5 DAYS

S = 11-20%

S = 6-15 DAYS

T > 20%

T > 15 DAYS

PM Elements 5 - Risks and Opportunities

RATINGS FOR MAIN ORDER OF RISKS

An illustration on how qualitative estimations can be quantified to show


relative importance.

16

Function
F1
F2
F3
F4
H1
H2
H3
H4
P1
P2
P3
M1
M2
M3

Untidy procurement procedure

Chances
Level
%
S
20
T
30
R
5
R
10

Impact
Level
%
S
10
R
5
T
20
T
20

Conseq
uences

2
1.5
1
2

This method shows main order but does not


give a cut-off point on which action should be
taken and which should not. The cut-off point
can be defined if required.

30

PM Elements 5 - Risks and Opportunities

B-8 Component: Consequences Late Delivery

1.5

17

Mechanical Approach
-120000

80000
0.5
Success

0.5
Win Contract

Electrical Approach
2

250000

-50000

90000

90000

150000

0.5
Fail-Change to mechanical
-120000

30000

0.7
Success
Prepare Proposal
Magnetisc Approach
-50,000

120000

20000
-80000

84000

0.3
Fail-Change to mechanical
-120000

PM Elements 5 - Risks and Opportunities

Decision Tree Method

0.5
No Contract

20,000

-50000

No Proposal
0

18

Risk Assessment Matrix

Plan Risk Responses


Set of actions
Prevent or reduce the likelihood of occurrence or the impact of a risk
Implement if the risk event occurs

Establishes a trigger point for implementing an action


Assigns responsibility for implementation
Avoid, mitigate, or accept the risk
Include a contingency fund to cover implementation cost

This is all the responses that are taken regarding the risk or combination of
risks.

Techniques/Categories of response towards risks are:


Avoid Change the project plan to remove the risk or situation, to
protect the project from the impact to the said risk. This involves
redefining the requirements, gathering more information, improving
communications, or using an expert.
Mitigate through design, suitable materials choice, using certain
procedures, training, and others.
Move Shift to a third party through a contract agreement,
insurance, warranty, guarantee, performance bond, and others.
Accept examples include the readiness to accept losses, sales of
assets, increased loans, or buying more internal insurance.
Contingency Plan used when the project is in operation like
increased cost, time, before and after the event.

PM Elements 5 - Risks and Opportunities

RESPONSE TOWARDS RISKS

21

Managing Risks
for Information Systems Development
Risks can be categorized into seven types

Technological risk
Human risk
Usability risk
Project team risk
Project risk
Organizational risk
Strategic and political risk

IS Example: Risk Assessment Matrix

Critical Success Factors


Identify risks and their potential impacts before the project
starts.
Involve the project team or experts in assessing risks.
Assign high priority to managing risks that have a high
likelihood of occurrence and a high potential impact on the
project outcome.
Develop response plans for addressing high priority risks.

PROBABILITY OF FAILURE

High

Establish
Contingency
Plans
Status Regularly
Acceptable,
Do nothing

Medium

Status Regularly

Acceptable,
Do nothing
Status
Occasionally

Establish
Contingency
Plans
Act Immediately
if Cost Effective
Establish
Contingency
Plans
Status
Frequently
Establish
Contingency
Plans
Status Regularly

Low
Low

Unacceptable
Take Immediate
Action
Establish
Contingency
Plans
Act Immediately
if Cost Effective

PM Elements 5 - Risks and Opportunities

RISK DECISION MATRIX EXAMPLE

Establish
Contingency
Plans
Act Immediately
if Cost Effective

Medium

UNWANTED CONSEQUENCES

High
25

Choosing a suitable response involves the appraisal of its effect on the original risk. One
of the approaches is evaluating the cost/benefit. A choice can be made as follows:

Prepare the baseline


Consider each response and estimate the operational cost including the
respective effects towards the original probability ratings.
Re-evaluate the risk impact with the assumption that it occurred and the
response taken.
Strategy forming in Risk Management

PM Elements 5 - Risks and Opportunities

Choosing a Response

In risk management, the assessment of risk methods need to be studied. This


includes the method for documentation. In the larger projects, a staff member
should be appointed to manage this.
A good way is to hold risk workshops so that all that are involved will
understand and will be unified in overcoming the associated risks.
26

Identifying and categorising risks can follow:


WBS
hardware, function, resource (finance, human, material), responsibilities
(identify the parties responsible for the risk, contract).

The field of work most exposed to risks.


Scheduling, capital costs, economics, contract.

Financers classifications in the project.


Pre-completion risks (sponsors, shareholders, contractors, technical,
environment), during completion (operation and maintenance, raw material
supply, product marketing), finance (cost overrun, foreign exchange, interest
rates, inflation), country (political & socio-culture), miscellaneous (force
major, operational bond).

PM Elements 5 - Risks and Opportunities

Identifying Risks

Risk decision effectiveness


Information quality
Quality of Method/Rules
The process of acceptance
Currently, the perception of the public towards risks
influences the companys risk strategy very much
27

Summary

Risk is an uncertain event that, if it occurs, can jeopardize accomplishing the


project objective.
Risk management involves identifying, assessing, and responding to project
risks in order to minimize the likelihood of occurrence and/or potential
impact of adverse events on the accomplishment of the project objective.
Risk identification includes determining which risks may adversely affect the
project objective and estimating what the potential impacts of each risk might
be if it occurs.
Assessing each risk involves determining the likelihood that the risk event
will occur and the degree of impact the event will have on the project
objective, and then prioritizing the risks.
A risk response plan is a defined set of actions to prevent or reduce the
likelihood of occurrence or the impact of a risk, or to implement if the risk
event occurs.
Regularly review and evaluate all risks to determine if there are any changes
to the likelihood of occurrence or the potential impact of any of the risks, or
if any new risks have been identified.

(individual)

1. Base on the Assignment 5 project, list and categorize three


risks that could jeopardize the project.
2. Create a risk assessment matrix including a response plan for
each of the risks.
3. What risks for the project have the highest priority? Does
the priority for a risk change as the project progresses?
4. What changes are made to the risk assessment matrix as the
changes occur?

PM Elements 5 - Risks and Opportunities

Assignment/Exercise

29

PM Elements 5 - Risks and Opportunities


30

PM Elements 5 - Risks and Opportunities


31

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