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Project Risk Management Observations and Thoughts






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Atlantic Management Center, Inc. AMCI is a strategic management systems company developing in-depth management capability for government and private sector clientsWe adopt our customer\'s missions as our own, making us the ideal partner to help organizations achieve their goalsWe immerse ourselves
Project Risk Management Observations and Thoughts

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1. Project Risk Management Observations and Thoughts Presented by: Chance Reichel,PMP, PRINCE2 09 Apr 08

2. Atlantic Management Center, Inc AMCI is a strategic management systems company developing in-depth management capability for government and private sector clients We adopt our customer?s missions as our own, making us the ideal partner to help organizations achieve their goals We immerse ourselves in their environment, dedicate our efforts to improving their processes, and guarantee our performance For over 20 years AMCI has specialized in building custom training curricula and providing consulting competencies to manage the acquisition of highly complex goods and services; project management; and human capital

3. AMCI?s Mission AMCI is the leading provider of custom business solutions in our industry Using teamwork and innovation, we accelerate our customers' success by integrating people, processes and technology We are evolving through a business model that demonstrates how success will result from a commitment to quality, guaranteed solutions, long-term partnerships, and trust.

4. From the CEO AMCI builds robust solutions that make the world a better place. Our valued customers are strategic leaders with bold goals. They seek to make a difference ? in national and international defense, and in the economic strength of our nation. They embrace change, but never alter their core values. For them we build solutions that are streamlined, practical, and powerful in the context of their worlds and their visions. In the midst of ongoing change, together we build a stable future. AMCI delivers firm fixed price products, guaranteed for successful results. And, when our customers succeed, AMCI has contributed to the well-being of our nation and the international community. How cool is that? Gloria Phillips President and CEO

5. Risk Management Life Cycle

6. Risk Quote George Bernard Shaw: A life spent making mistakes is not only more honorable but more useful than a life spent in doing nothing. 6

7. Risk - Defined 1:?possibility of loss or injury :?peril 2:?someone or something that creates or suggests a hazard 3 a:?the chance of loss or the perils to the subject matter of an insurance contract; also :?the degree of probability of such loss b:?a person or thing that is a specified hazard to an insurer <a poor risk for insurance> c:?an insurance hazard from a specified cause or source <war risk> 4:?the chance that an investment (as a stock or commodity) will lose value ? risk?less \'ris-kl?s\ adjective ? at risk :?in a state or condition marked by a high level of risk or susceptibility <patients at risk of infection> 7

8. 1?8 Risk Defined An uncertain event or condition, that, if it occurs, has a positive or negative effect on at least one project objective, such as Time, cost, scope, or quality May have one or more causes On occurrence, it may have one or more impacts Risks are not ?Issues?

9. Project Management is . . . ??application of knowledge, skills, tools, and techniques to? meet or exceed stakeholders needs and expectations.? PMBOK Project Management Estimating project schedules and budgets, planning for the unexpected is one of the key functions of project management. In fact the Risk Management Plan is key element of any well prepared project management work plan. In fact ALL PROJECTS EXPERIENCE THE UNEXPECTED? some project managers are ready for it. At the end of the day the fundamental questions asked of all project managers are how long? And how much? Through risk-based estimating, as part of our project management process, we hope to be better able to respond to those questions. The expectations of our stakeholders are assuredly measured in time and dollars, our schedules and estimates.Project Management Estimating project schedules and budgets, planning for the unexpected is one of the key functions of project management. In fact the Risk Management Plan is key element of any well prepared project management work plan. In fact ALL PROJECTS EXPERIENCE THE UNEXPECTED? some project managers are ready for it. At the end of the day the fundamental questions asked of all project managers are how long? And how much? Through risk-based estimating, as part of our project management process, we hope to be better able to respond to those questions. The expectations of our stakeholders are assuredly measured in time and dollars, our schedules and estimates.

10. 7?10 Project Risk Management KA NOTE TO DTP: Place JUST the graphic in the Word file ? not the whole slide. Ensure it is as large as possible. (Note that it probably won?t be necessary to actual replace the graphic each time the course is updated. Not unless the graphic itself changes.)NOTE TO DTP: Place JUST the graphic in the Word file ? not the whole slide. Ensure it is as large as possible. (Note that it probably won?t be necessary to actual replace the graphic each time the course is updated. Not unless the graphic itself changes.)

12. To insert this slide into your presentation Save this template as a presentation (.ppt file) on your computer. Open the presentation that will contain the image slide. On the Slides tab, place your insertion point after the slide that will precede the image slide. (Make sure you don't select a slide. Your insertion point should be between the slides.) On the Insert menu, click Slides from Files. In the Slide Finder dialog box, click the Find Presentation tab. Click Browse, locate and select the presentation that contains the image slide, and then click Open. In the Slides from Files dialog box, select the image slide. Select the Keep source formatting check box. If you do not select this check box, the copied slide will inherit the design of the slide that precedes it in the presentation. Click Insert. Click Close. To insert this slide into your presentation Save this template as a presentation (.ppt file) on your computer. Open the presentation that will contain the image slide. On the Slides tab, place your insertion point after the slide that will precede the image slide. (Make sure you don't select a slide. Your insertion point should be between the slides.) On the Insert menu, click Slides from Files. In the Slide Finder dialog box, click the Find Presentation tab. Click Browse, locate and select the presentation that contains the image slide, and then click Open. In the Slides from Files dialog box, select the image slide. Select the Keep source formatting check box. If you do not select this check box, the copied slide will inherit the design of the slide that precedes it in the presentation. Click Insert. Click Close.

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16. 4-16

17. 1?17 Risk Tolerance Risk tolerance is a key strategic driver All organizations have a risk tolerance What would happen to an organization that didn?t take any risks? INS: What would happen to an organization that didn?t take any risk? Is that even possible? What would the risk be if you padded the bid to the point where you would definitely be able to deliver it? You wouldn?t win it ? organizations constantly trade off risk. Risk tolerance (risk appetite) is a strategic driver. Examples of organizations that have a low risk tolerance? E.g. NHS. Examples of organizations that want risk? Venture capital. Different types of organization want different types of risk ? many organizations have well defined processes for maturing emerging technologies for example, so should be more confident in addressing technology risk than a company that came to the market cold.INS: What would happen to an organization that didn?t take any risk? Is that even possible? What would the risk be if you padded the bid to the point where you would definitely be able to deliver it? You wouldn?t win it ? organizations constantly trade off risk. Risk tolerance (risk appetite) is a strategic driver. Examples of organizations that have a low risk tolerance? E.g. NHS. Examples of organizations that want risk? Venture capital. Different types of organization want different types of risk ? many organizations have well defined processes for maturing emerging technologies for example, so should be more confident in addressing technology risk than a company that came to the market cold.

18. 2?18 Risk Tolerance May have different thresholds for different risk categories INS: Simple example on a probability impact diagram ? we?ll look more at these in the next chapter but outline the principles. Risks to the right of the red line needs action plans in place to mitigate them to an acceptable level, or to be signed off as accepted or escalated.INS: Simple example on a probability impact diagram ? we?ll look more at these in the next chapter but outline the principles. Risks to the right of the red line needs action plans in place to mitigate them to an acceptable level, or to be signed off as accepted or escalated.

19. 2?19 Risk Tolerance Discussion Develop appropriate risk thresholds for the following projects INS: Discuss one first, then give various others (not Bluto) to groups, use different scales to emphasize value of absolute rather than relative bandings. Roadrunner is a management challenge ? we believe it is going to overrun, how do we set thresholds for it? Bluto is a chance to discuss performance requirements and critical design features e.g. range, power draw, heat, ECCM capability in the Bolair witch project. These will vary with your clustering of risks and where you set your risk threshold but the key is to differentiate different levels of significance to your project. Even massive multi-billion programs in BAES tend to set the VH impact at ~?10M / euro 15M. Schedule is more difficult ? costs are additive but delays may not be. Do a quick sanity check for projects with penalties to ensure that there is some correspondence between costs incurred for each. INS: Discuss one first, then give various others (not Bluto) to groups, use different scales to emphasize value of absolute rather than relative bandings. Roadrunner is a management challenge ? we believe it is going to overrun, how do we set thresholds for it? Bluto is a chance to discuss performance requirements and critical design features e.g. range, power draw, heat, ECCM capability in the Bolair witch project. These will vary with your clustering of risks and where you set your risk threshold but the key is to differentiate different levels of significance to your project. Even massive multi-billion programs in BAES tend to set the VH impact at ~?10M / euro 15M. Schedule is more difficult ? costs are additive but delays may not be. Do a quick sanity check for projects with penalties to ensure that there is some correspondence between costs incurred for each.

20. 1?20 Why Bother with Risk? If you plan a project without accounting for risk: you will only succeed if everything you want to happen, happens Does everything you want to happen always happen? INS: Does everything you want to happen always happen? If not, you need to account for this into your plans.INS: Does everything you want to happen always happen? If not, you need to account for this into your plans.

21. 21

22. Must I Manage Risk? ?Isn?t that what happens to other people?? ?Never happened before!? Might my project really suffer from Risk realization? 22

23. Must I Manage Risk? ?Isn?t that what happens to other people?? ?Never happened before!? Might my project really suffer from Risk realization? 23

24. 1?24 Project Risk and Opportunity Management (PROM) Systematic process to identify and plan for project risks and opportunities, by Maximizing the probability and impact of opportunities Minimizing the probability and impact of risks occurring Dealing effectively with them if they do Regularly reassessing risk characteristics and action plans Regularly identifying new risks and opportunities Providing financial and schedule contingencies for risks Communicating risk to affected stakeholders INS: cost benefit point is crucial, don?t want to start identifying thousands of things that might go wrong, need to watch for PMs gaming risks to make up for variance.INS: cost benefit point is crucial, don?t want to start identifying thousands of things that might go wrong, need to watch for PMs gaming risks to make up for variance.

25. 1?25 PROM Process Components INS: You may want to point out there is a more detailed view of the LM01/02 process followed at different points in the lifecycle in their notes ? should they review the course at a later date the process material will be (logically) grouped together in this chapter. What we are going to do now is go through each of the process steps in more detail.INS: You may want to point out there is a more detailed view of the LM01/02 process followed at different points in the lifecycle in their notes ? should they review the course at a later date the process material will be (logically) grouped together in this chapter. What we are going to do now is go through each of the process steps in more detail.

27. Dilbert?s Take? This is funny, but it does tell us one major thing about Risk Management?Your agency or business must practice Project Management, or what I will be going over today will on no use?This is funny, but it does tell us one major thing about Risk Management?Your agency or business must practice Project Management, or what I will be going over today will on no use?

28. 3?28 A ?Failure of Imagination? January 27th 1967 INS: January 27, 1967. Tragedy struck on the launch pad during a preflight test for Apollo 204 (AS-204), which was scheduled to be the first Apollo manned mission, and would have been launched on February 21, 1967. Astronauts Virgil Grissom, Edward White, and Roger Chaffee lost their lives when a fire swept through the Command Module (CM). Frank Borman was questioned by a Senate Committee. After rehearsing how it happened?that fire that rapidly spread through the capsule, Borman was asked why it happened. He thought for a moment, and answered, "It was a failure of imagination. We were preparing to deal with a capsule fire 180 miles above the earth. We never imagined that one would happen in a simulated test on the launching pad." The learning point is that humans frequently ignore what is outside of close limits of their expectations ? a failure of imagination. People fail to envisage what could go wrong, and are completely unprepared to prevent it or deal with it when it happens. There are many examples from history. The Command Module contained many types and classes of combustible material in areas contiguous to possible ignition sources. The test was conducted with a 16.7 pounds per square inch absolute, 100-percent oxygen atmosphere. Determination: The test conditions were extremely hazardous. From the NASA report: Procedures for emergency escape called for a minimum of 90 seconds. But in practice the crew had never accomplished the routines in the minimum time. Grissom had to lower White's headrest so White could reach above and behind his left shoulder to actuate a ratchet-type device that would release the first of a series of latches. According to one source, White had actually made part of a full turn with the ratchet before he was overcome by smoke In the spring of 1967, NASA's Associate Administrator for Manned Space Flight, Dr. George E. Mueller, announced that the mission originally scheduled for Grissom, White and Chaffee would be known as Apollo 1 in honor of those who died. INS: January 27, 1967. Tragedy struck on the launch pad during a preflight test for Apollo 204 (AS-204), which was scheduled to be the first Apollo manned mission, and would have been launched on February 21, 1967. Astronauts Virgil Grissom, Edward White, and Roger Chaffee lost their lives when a fire swept through the Command Module (CM). Frank Borman was questioned by a Senate Committee. After rehearsing how it happened?that fire that rapidly spread through the capsule, Borman was asked why it happened. He thought for a moment, and answered, "It was a failure of imagination. We were preparing to deal with a capsule fire 180 miles above the earth. We never imagined that one would happen in a simulated test on the launching pad." The learning point is that humans frequently ignore what is outside of close limits of their expectations ? a failure of imagination. People fail to envisage what could go wrong, and are completely unprepared to prevent it or deal with it when it happens. There are many examples from history. The Command Module contained many types and classes of combustible material in areas contiguous to possible ignition sources. The test was conducted with a 16.7 pounds per square inch absolute, 100-percent oxygen atmosphere. Determination: The test conditions were extremely hazardous. From the NASA report: Procedures for emergency escape called for a minimum of 90 seconds. But in practice the crew had never accomplished the routines in the minimum time. Grissom had to lower White's headrest so White could reach above and behind his left shoulder to actuate a ratchet-type device that would release the first of a series of latches. According to one source, White had actually made part of a full turn with the ratchet before he was overcome by smoke In the spring of 1967, NASA's Associate Administrator for Manned Space Flight, Dr. George E. Mueller, announced that the mission originally scheduled for Grissom, White and Chaffee would be known as Apollo 1 in honor of those who died.

29. A ?Failure of Imagination? Frank Borman was questioned by a Senate Committee. After rehearsing how it happened?that fire that rapidly spread through the capsule, Borman was asked why it happened. He thought for a moment, and answered, "It was a failure of imagination. We were preparing to deal with a capsule fire 180 miles above the earth. We never imagined that one would happen in a simulated test on the launching pad." 29

31. 4-31

32. 4-32 The Importance of Risk Identification Risks must be known so that they can be managed appropriately Opportunities must be identified to maximize the project?s performance Early recognition of risks and risk potential reduces costs of responding Planned responses yield more effective risk responses than unplanned responses (workarounds)

33. The Importance of Risk Identification 33

34. Risk Quote Mark Twain Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. 34

35. Risk and the Project Life Cycle

36. Risk Identification

37. Risk Identification

38. Risk Identification

39. Risk Quote Winston Churchill The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty. 39

41. 5-41

42. 5-42 Definition: Qualitative Risk Analysis The process of prioritizing risks for subsequent further analysis or action by assessing and combining their probability of occurrence and impact. PMBOK? Guide, Third Edition, Glossary

43. 5-43 Qualitative Risk Analysis Two primary questions are answered during Qualitative Risk Analysis: How likely is this risk to occur? And, if it occurs: How significant is the impact to the project? The result of this process is a prioritized list of all risks that have been identified

44. 5-44 Risk Impact Scale Sample?$12M/Two Year Project

45. 5-45 Proportionate Expenditure of Risk Analysis Techniques Subjective techniques Low complexity Low dollar value Qualitative Objective techniques High complexity High dollar value Quantitative

47. 6-47

48. 6-48 Definition: Quantitative Risk Analysis The process of numerically analyzing the effect on overall project objectives of identified risks. PMBOK? Guide, Third Edition, Glossary

49. 6-49 Purpose of Quantitative Risk Analysis Understand the risk?s potential effect Provide an analysis of potential risk strategies Identify the risks requiring most the attention Determine the risk exposure and contingency costs Model the probability of achieving the stated targets for the project objectives Set realistic targets for project objectives

50. 6-50 Monte Carlo Simulation Sample

51. 51

52. Project Cost and Uncertainty Over Time

53. 7-53

54. 7-54 Definition: Risk Response Planning The process of developing options and actions to enhance opportunities and to reduce threats to project objectives. PMBOK? Guide, Third Edition, Glossary

55. 7-55 Risk Response Planning Purpose is to ensure the risk response is: Appropriate Timely Cost effective Realistic Agreed upon Owned by a responsible person or party Risk response planning is proactive in nature

56. Risk begets Risk 56

57. 8-57 Risk Monitoring and Control

58. 8-58 Definition: Risk Monitoring and Control The process of tracking identified risks, monitoring residual risks, identifying new risks, executing risk response plans, and evaluating their effectiveness throughout the project life cycle. PMBOK? Guide, Third Edition, Glossary

59. 8-59 Purpose of Risk Monitoring and Control Tracks and controls information about: Changes in risks as the project progresses New risks as they develop, and whether or not they were successfully identified and managed before they materialized The effectiveness of risk response plans Whether or not risks materialized, and why

60. Case Study 60

61. Case Study 61

62. Case Study 62

63. 4?63 Exposure Assumes a Recovery Plan An micro-UAV (unmanned aerial vehicle) project risk Risk impact is not what happens if you ?do nothing? It?s what you would do to absorb/manage the risk impact, should it happen INS: Very common misconception that risk impact is cost if you do nothing. Risk impact is cost of bringing project back on track ? how you would absorb/ manage the impact. For example, if there is a risk of chief engineer leaving, cost is not project having no chief engineer (?well the project would just fail, lets go home?) but of their replacement. Examination of cost of replacement and interim chief engineer (the fallback plan) enables justification of costs of mitigation (succession planning, improving package, etc).INS: Very common misconception that risk impact is cost if you do nothing. Risk impact is cost of bringing project back on track ? how you would absorb/ manage the impact. For example, if there is a risk of chief engineer leaving, cost is not project having no chief engineer (?well the project would just fail, lets go home?) but of their replacement. Examination of cost of replacement and interim chief engineer (the fallback plan) enables justification of costs of mitigation (succession planning, improving package, etc).

64. 4?64 Risk Timeline for the ?Insufficient Thrust? Risk NOTE TO DTP: This slide does NOT appear in the printed manuals. It is ANIMATED. A print-appropriate version appears next. INS: Timeline shows how circumstances before intervention and fallback determine pre-mitigation characteristics, action/ mitigation plans determine post-mit. EDIT: printable version of this slide to replace this one in participant notes is nextNOTE TO DTP: This slide does NOT appear in the printed manuals. It is ANIMATED. A print-appropriate version appears next. INS: Timeline shows how circumstances before intervention and fallback determine pre-mitigation characteristics, action/ mitigation plans determine post-mit. EDIT: printable version of this slide to replace this one in participant notes is next

65. 4?65 Risk Timeline for the ?Insufficient Thrust? Risk NOTE TO DTP: THIS slide gets placed in the printed guides! It is the print-appropriate version of the previous slide.NOTE TO DTP: THIS slide gets placed in the printed guides! It is the print-appropriate version of the previous slide.

66. 4?66 Risk Timeline for the ?Insufficient Thrust? Risk NOTE TO DTP: This slide does NOT appear in the printed manuals. It is ANIMATED. A print-appropriate version appears next. NOTE TO DTP: This slide does NOT appear in the printed manuals. It is ANIMATED. A print-appropriate version appears next.

67. 4?67 Risk Timeline for the ?Insufficient Thrust? Risk NOTE TO DTP: THIS slide gets placed in the printed guides! It is the print-appropriate version of the previous slide.NOTE TO DTP: THIS slide gets placed in the printed guides! It is the print-appropriate version of the previous slide.

68. Phased Estimating Revised 03/06.1 68 See explanation in Verzuh ? pp 160-162See explanation in Verzuh ? pp 160-162

69. Revised 03/06.1 69 Uncertainty Spectrum

70. Revised 03/06.1 70 Risk Management Life Cycle More unknowns at the project inception creates a greater amount of risk Less at stake at the beginning of the project because less has been invested in terms of cost, time, and impact to change is minimal Highest Risk Impact is during Execution, because of the degree of exposure to negative events and their probable consequences impacting on the project objectives expressed in terms of scope, cost, time, qualityMore unknowns at the project inception creates a greater amount of risk Less at stake at the beginning of the project because less has been invested in terms of cost, time, and impact to change is minimal Highest Risk Impact is during Execution, because of the degree of exposure to negative events and their probable consequences impacting on the project objectives expressed in terms of scope, cost, time, quality

71. Risk Reporting Format Sample

78. Risk Management Table

79. Case Study: Titanic The most spectacular shipwreck in history.

80. Question? Did the Titanic have to Sink? Poor risk management? At what stage? Design? Execution? Both?

81. Overview The RMS Titanic is used to illustrate the two categories of project risks: strategic and execution

83. Case Study: RMS Titanic 1907: Plans made to build two luxury liners The Olympic and the Titanic 1911: Olympic leaves on maiden voyage. Collision with Royal Navy cruiser. In dock. 1912: March 31 Outfitting of Titanic is completed April 10: Wednesday - Sailing Day

84. Strategic Risks ?Introduction of factors that can jeopardize a project.? Introducing dimensions of quality that are not important to customers Luxury Vs. Lifeboats Inadequate research (effort) on product design Glancing blow to Titanic not speculated upon.

85. Strategic Risks The initial design of the ship provided sufficient lifeboat capacity. However, this was subsequently changed by the owners.

86. Knowledge Management and Communications North Atlantic crossings held perils well known to mariners, and firsthand reports of ice conditions had reached the officers of the Titanic earlier in the day. The Titanic had a radio, and both sent and received a steady stream of messages throughout the voyage. However, the "bandwidth" for these messages was reserved for "paying customers," a convenience for the wealthy passengers who treated it as a novelty.

87. This Disaster Was Completely Avoidable. In response to annoyed directives from the Titanic the nearby Californian radio operator shut down for the night Californian radio operator was told that his warnings about pack ice were "clogging the airwaves", preventing the backlog of paid messages from getting through.

88. Speed! People in 1912 were awed by the prowess of the Titanic Owners ordered "full speed ahead" through icy waters.

89. Communications Seven ice warnings received by wireless operators: Jack Phillips and Harold Bride. Backlog due to break down in communication devices on the 12 and the 13. Messages were posted for navigation officers to look at. Some were passed on to Captain Smith and other officers. Busy transmitting messages from passengers to relatives, friends and business contacts (on contact with Cape Race Newfoundland) Important ice warning left aside, $ came first.

90. Execution Risks Communications Inadequate staffing poor system for messaging Speed Speed of the Titanic at impact: 20.5 knots Route More southerly Schedule under pressure to reach early catching up on lost time

91. NASA?s X-43A Risk Management 91

95. 5-95 Risk Score Changes Over Time

96. 8-96 Trend Analysis Format Sample

97. Risk Quote 97

99. Final Risk Quote Abraham Lincoln Give me six hours to chop down a tree and I will spend the first four sharpening the axe. 99

100. Questions? and Thank you Questions? Thank you for your time and attention Contact Info: www.AMCIweb.com Contact Chance Reichel at AcademyPM@comcast.net


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