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Creating Risk Intelligence A High Level “How To” Guide for Program Managers Nathan Houser & Sean Conlin, Deloitte November 2006 This presentation is incomplete without the accompanying discussion Agenda What’s in it for me!? A day-in-the-life…can we make this better? Making it happen…

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creating risk intelligence a high level how to guide for program managers

Creating Risk IntelligenceA High Level “How To” Guide for Program Managers

Nathan Houser & Sean Conlin, Deloitte

November 2006

This presentation is incomplete without the accompanying discussion

agenda
Agenda
  • What’s in it for me!?
  • A day-in-the-life…can we make this better?
  • Making it happen…
  • Critical success factors…
    • What can I do on Monday morning?
what is a risk
What is a Risk?
  • RISK = potential loss from inability to achieve a program’s objectives
    • caused by people, process, system, or external factors
    • Impact can be positive or negative
  • Risks can result from any combination of factors
    • people, process, systems, technology, science, or external events
doe s world of risk management

Federal Project Directors

Contractor Project Managers

DoE’s World of Risk Management

Program Managers

what s in it for me
What’s in it for me?

Leaders, managers, and staff alike benefit from risk management.

  • Higher impact programs
  • Better control of the overall portfolio
  • Stronger focus on long-term rather than short-term
  • Time to focus on areas currently neglected
  • More predictable cost estimates
  • Less chaotic days, that are more productive
  • More visibility in project activities
  • Fewer and simpler legislative reporting requests
  • Better client relationships
  • More predictable quality of life
  • Mechanism to raise issues and have resolved
  • More follow-on work
risk intelligence differs by program project
Risk Intelligence Differs by Program/Project

Specific objectives dictate desired level of risk sophistication.

Built into decision-making

Risk interactions are managed with incentives

Intelligent risk taking

Sustainable

“Risk management is everyone’s job”

Integrated response to adverse events

Performance linked metrics

Rapid escalation

Cultural transformation underway

Bottom-up

Proactive

Tone set at the top

Policies, procedures, risk authorities defined and communicated

Business function

Primarily qualitative

Reactive

Reaction to adverse events by specialists

Discrete roles established for small set of risks

Typically finance, insurance, compliance

Ad-hoc / chaotic;

depends primarily on individual heroics, capabilities and verbal wisdom

1: Tribal & Heroic

2: Specialist Silos

3: Top-Down

4: Systemic

5: Risk Intelligent

the life of the tribe
The Life of the Tribe

Daily life is chaotic, ad-hoc; heroics carry the day.

  • Negative surprises are the norm
  • Regular re-baselining
  • Difficult conversations with FPDs & Appropriators
  • Lots of stress, reacting to events
  • To do list grows not shrinks
  • Stay late, no kids, no gym
  • Less job satisfaction
  • Despite planning, seem to be reacting
  • Difficult client meetings
  • Long hours, stressful days
  • Muddled job satisfaction
the life of the tribe8
The Life of the Tribe

Project assessments in a reactive culture.

“The risk assessment performed does not adequately distinguish amount of contractor risk and government risk.”

“The risk contingency is considered marginal at best.”

“The potential for substantial changes in the project design as a consequence of external reviews is an unrecognized risk.”

life with leadership
Life with Leadership

Senior Leadership imposes top-down risk controls

  • On a mission to stop rampant re-baselining
  • Establish new risk policy/procedures
  • Many meetings to rigorously enforce policy/procedures
  • Reactive but feeling of progress
  • Increased OH due to PM pressure on cost re-baselining
  • Some additional risks factored into re-baselines
  • Still reactive
  • Increased OH
  • Numerous meetings to discuss risks & mitigation
  • Difficult contingency budget conversations with FPD
  • Concern risk conversations distracting from PM role
the good life
The Good Life…

Risk Intelligence proactively a part of all activities

  • FPDs proactively anticipate risk/mitigation plans
  • Stable baselines
  • DOE studied as best practice for Risk Intelligence
  • Seen as proactive/credible by Appropriators
  • Reduced OH
  • Proactively out ahead of mitigating prioritized risks
  • Recognized for excellence in PM
  • Recent crisis, executed plan, still home at normal time
  • Excellent client relationship
  • DOE business growing
  • Monthly reports include updates on top risks/mitigation
  • Strong job satisfaction/personal health up, working out
getting there from here
Getting there from here…

Structured methods, tools, and reporting provide predictable results.

Methodology

Tools

Management Reporting

five step risk management lifecycle

Department

Operations

Programs

IT Investments

Procurement

Legislature

Strategic Planning

Risk Management

Human Capital

Five-step Risk Management Lifecycle

The risk lifecycle applies across all parts of a program or project. .

ExecutionComponents

Managing Risk

1.

Identify

Risks

2.

Assess & Measure Risks

3.

Respond to Risks

4. Design & Test Controls

5. Monitor, Assure & Escalate

Governance

Technology

Strategic

Operational

Hazard

People

Process

Compliance

Financial

FoundationalElements

Risk Areas

step 1 identify the top relevant risks
Step 1. Identify the Top (relevant) Risks

Hundreds of insignificant risks can easily distract from a few critical.

step 2 assess and measure the risks
Step 2. Assess and Measure the Risks

Evaluate each risk and its impact on cost, scope, and schedule.

major weather event

Natural Environ.

dominate party change

Political

reduction in supplyavailability ↓

constituent priority shift

External Risks

Social

Reduction in available funding ↑↓

technology innovation

Technological

reduction inavailable funding ↓

reorganization

Inter-Dept/Agency

Changes solution ↑↓

Objective: Complete entire Project by 2010 within budget

Infr. not avail. ↓

changespriorities ↑↓

Union contract expires ↑↓

Inadequate projectmonitoring ↓

Infrastructure

Improved constructionmethods ↑

Personnel

Internal Risks

Process

Technology

step 3 respond to risks
Step 3. Respond to Risks

Choose the corrective actions, execute, and evaluate effectiveness.

Identify corrective actions

Monitor effectiveness of actions

step 4 design test controls
Step 4. Design & Test Controls

Corrective actions result in mitigated risk, but come with a cost.

Sample risk: Technology advances and innovation require design changes.

Very High

# 1

#2,3

High

Incremental Mitigated Risk(Perform Cost/Benefit Analysis)

#2,3,4

Corrective Actions

Residual Risk

Medium

#2,3

Low

#2,3,4

Actual

Planned

Very Low

Q3 ‘08

Q1 ‘06

Q2 ‘08

Q2 ‘06

Q3 ‘06

Q4 ‘06

Q1 ‘07

step 5 monitor assure and escalate

Corrective Action Status

Risk reduced to an acceptable level

Risk reduction occurring, not complete

Further action required

Step 5. Monitor, Assure, and Escalate

Complete set of risks must be considered to understand the risk profile.

Very

5

6

High

10

3

1

3

8

7

2

Inherent (Gross) Risk

4

  • Example Risks:
  • Technology Innovation
  • Departmental Reorganization

9

Very

Very

Current Residual (Net) Risk

Low

High

critical success factors
Critical success factors…

Everyone has a role to play in making risk management part of the culture.

  • Seek and maintain senior leadership sponsorship
  • Establish common language for risk management
  • Integrate risk management across programs
  • Focus on changing the culture, not on executing the tactics
  • Assign ownership of risks as appropriate (gov’t, contr.)
  • Coordinate risk management across project
  • Focus on the value to all of managing risk, not the burden
  • Raise ALL risks identified “on the ground”
  • Designate operational accountability for corrective actions
  • Make risk management a priority
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