Project Management from Simple to Complex

1. Project Management from Simple to Complex

2. This work is licensed under the Creative Commons Attribution-Noncommercial-Share Alike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA

3. Chapter 11Managing Project Risk

4. Learning Objectives • Define project risk • Define the difference between known and unknown risks • Describe the difference between the business risk of the organization and project risk • Identify the major elements in managing project risk • Describe the processes for identifying project risk • Describe the processes for evaluating risk

5. Learning Objectives • Describe the processes for mitigating risk • Describe the elements of risk management during the initiation phase • Describe the elements of risk management during the planning phase • Describe the elements of risk management during the execution phase • Describe the elements of risk management during the closeout phase • Identify the relationship between project risk for external, internal, technical, and environmental complexity

6. Defining Risk • Risk: Possibility of loss or injury • Project risk: An uncertain event or condition that, if it occurs, has an effect on at least one project objective • Risk management: Identification, evaluation, and mitigation of risk

7. Defining Risk • Known risk: Risks that can be anticipated, such as exceptionally bad weather • Other risks are unknown or unforeseen • Organizational risk: Possible loss that is associated with the business purpose of the project

8. Risk Management Process • Elements in managing project risk: • Risk assessment: Identification of the possibility for loss due to an event and an estimate of its effect • Risk mitigation plan: Plan to reduce or eliminate loss from unexpected events • Risk event: Possible occurrence that may have a negative impact o the project

9. Risk Identification • Checklists can be helpful in: • Identifying specific risks • Expanding the thinking of the team • Valuable sources for identifying potential risk on a project: • Past experience of the project team • Project experience within the company • Experts in the industry

10. Risk Identification • Identifying risks by category is another method for exploring potential project risks • Some examples of categories for potential risks include: • Technical • Cost • Schedule • Client • Contractual

11. Risk Identification • Risk breakdown structure (RBS): Organization of risks associated with each activity in the work breakdown structure using a similar graphical approach • Helps identify known risks • Restrictive in identifying unknown risks and risks not easily found inside the work breakdown structure

12. Figure 11.1 - Risk Breakdown Structure (RBS) Click below to view full-size

13. Risk Evaluation • Evaluation of risk based on the probability that the risk event will occur and the potential loss associated with the event • A positive correlation exists between project risk and project complexity • There are barriers to identifying risks • Low understanding of the tools and benefits of a structured analysis of risk • Lack of formal risk management tools • Managerial psychological dimensions

14. Figure 11.2 - Risk and Impact Click below to view full-size

15. Risk and Impact — Exercise High Impact/High Likelihood Reduce the likelihood Match the Type of Risks to the Action Plan to be Taken Low Impact/High Likelihood Can Ignore High Impact/Low Likelihood Pay Close Attention Low Impact/Low Likelihood Reduce the Impact; Have a Contingency Plan

16. Risk and Impact — Exercise High Impact/High Likelihood Reducethe likelihood Low Impact/High Likelihood Can Ignore High Impact/Low Likelihood Pay Close Attention Low Impact/Low Likelihood Reduce the Impact; Have a Contingency Plan

17. Risk Evaluation • Proactive: Making decisions and taking action to anticipate an expected difficulty • Reactive: Making decisions and taking action in response to events • Risk averse: A project manager or decision maker who avoids taking risks

18. Risk Evaluation • Depending on the complexity of the project: • Items considered risk items may be tracked informally • Items perceived to be higher risk may be tracked during project reviews • Risk assessment meeting(s) may be held to assess risks at different phases of the project • An outside expert may be included in the risk assessment process

19. Risk Evaluation • On complex projects, statistical models may be used to evaluate risk • Monte Carlo simulation • Simulates a possible range of outcomes by trying different combinations of risks based on their likelihood

20. Risk Mitigation

21. Contingency Plan • An alternative method for accomplishing a project goal when a risk event has been identified that may frustrate the accomplishment of that goal • Contingency funds are set aside to address unforeseen events • Typically managed as one line item in the project budget

22. Project Risk by Phases • Initiation phase • Risks are identified that could threaten the viability of the project • Mitigation options are considered to see if they can protect the project • Planning phase • Risks are identified for each activity group in a risk breakdown structure • Mitigation is planned for each risk • Execution phase • Risks are checked off as activities are completed or mitigation is performed • New risks are identified and added to the plan

23. Project Risk by Phases • Closeout phase • Insurance contracts are cancelled and partnerships terminated • Actual costs associated with risks are compared with initial estimates • Successes and failures of the risk management plan are saved with the project documentation to add to the company’s corporate knowledge

24. Project Risk And The Project ComplexityProfile • High scores for external complexity • High risks to the schedule, budget, and quality due to unknown factors and limited resources • High scores for internal complexity • High risks to the budget, schedule, and quality due to organizational complexity • Changes of scope due to lack of clarity in project and scope statements

25. Project Risk And The Project ComplexityProfile • High scores for technological complexity • High risks to the budget, schedule, and quality due to unknown flaws in the technology and lack of familiarity with it • High scores for environmental complexity • High risks for delay and expensive resolution to lawsuits, public opposition, changes for political considerations, and unforeseen ecological impacts