Project Management 6e

41Week EightProject Management 6e.4-172Where We Are Now

273Risk Management ProcessRiskUncertain or chance events that planning can not overcome or control.Risk ManagementA proactive attempt to recognize and manage internal events and external threats that affect the likelihood of a projects success.What can go wrong (risk event).How to minimize the risk events impact (consequences).What can be done before an event occurs (anticipation).What to do when an event occurs (contingency plans).374The Risk Event GraphFIGURE 7.1

475Risk Managements BenefitsA proactive rather than reactive approach.Reduces surprises and negative consequences.Prepares the project manager to take advantage of appropriate risks.Provides better control over the future.Improves chances of reaching project performance objectives within budget and on time.576The Risk Management ProcessFIGURE 7.2

677Managing RiskStep 1: Risk IdentificationGenerate a list of possible risks through brainstorming, problem identification and risk profiling.Macro risks first, then specific eventsStep 2: Risk AssessmentScenario analysis for event probability and impactRisk assessment matrixFailure Mode and Effects Analysis (FMEA)Probability analysis Decision trees, NPV, and PERTSemiquantitative scenario analysis778The Risk Breakdown Structure (RBS)FIGURE 7.3

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Partial Risk Profile for Product Development ProjectFIGURE 7.49710Defined Conditions for Impact Scales of a Risk on Major Project Objectives (Examples for negative impacts only)FIGURE 7.5

10711Risk Assessment FormFIGURE 7.6

11712Risk Severity MatrixFIGURE 7.7Failure Mode and Effects Analysis (FMEA)Impact Probability Detection = Risk ValueUser BacklashInterface problemsSystem freezingHardware malfunc-tioningLikelihoodImpactRed zone (major risk)Yellow zone (moderate risk)Green zone (minor risk)554433221112Risk Template

13714Managing Risk (contd)Step 3: Risk Response DevelopmentMitigating RiskReducing the likelihood an adverse event will occur.Reducing impact of adverse event.Avoiding RiskChanging the project plan to eliminate the risk or condition.Transferring RiskPaying a premium to pass the risk to another party.Requiring Build-Own-Operate-Transfer (BOOT) provisions.Retaining RiskMaking a conscious decision to accept the risk.14715Contingency PlanningContingency PlanAn alternative plan that will be used if a possible foreseen risk event actually occurs.A plan of actions that will reduce or mitigate the negative impact (consequences) of a risk event.Risks of Not Having a Contingency PlanHaving no plan may slow managerial response.Decisions made under pressure can be potentially dangerous and costly.15716Risk Response MatrixFIGURE 7.8

16717Risk and Contingency PlanningTechnical RisksBackup strategies if chosen technology fails.Assessing whether technical uncertainties can be resolved.Schedule RisksUse of slack increases the risk of a late project finish.Imposed duration dates (absolute project finish date)Compression of project schedules due to a shortened project duration date.17718Risk and Contingency Planning (contd)Costs RisksTime/cost dependency links: costs increase when problems take longer to solve than expected.Price protection risks (a rise in input costs) increase if the duration of a project is increased.Funding RisksChanges in the supply of funds for the project can dramatically affect the likelihood of implementation or successful completion of a project.18719Opportunity Management TacticsExploitSeeking to eliminate the uncertainty associated with an opportunity to ensure that it definitely happens.ShareAllocating some or all of the ownership of an opportunity to another party who is best able to capture the opportunity for the benefit of the project.EnhanceTaking action to increase the probability and/or the positive impact of an opportunity.AcceptBeing willing to take advantage of an opportunity if it occurs, but not taking action to pursue it.19720Contingency Funding and Time BuffersContingency FundsFunds to cover project risksidentified and unknown.Size of funds reflects overall risk of a projectBudget reservesAre linked to the identified risks of specific work packages.Management reservesAre large funds to be used to cover major unforeseen risks (e.g., change in project scope) of the total project.Time BuffersAmounts of time used to compensate for unplanned delays in the project schedule.Severe risk, merge, noncritical, and scarce resource activities20721Contingency Fund Estimate ($000s)TABLE 7.1

21722Managing Risk (contd)Step 4: Risk Response ControlRisk controlExecution of the risk response strategyMonitoring of triggering eventsInitiating contingency plansWatching for new risksEstablishing a Change Management SystemMonitoring, tracking, and reporting riskFostering an open organization environmentRepeating risk identification/assessment exercisesAssigning and documenting responsibility for managing risk22723Create a risk management plan for the ____?____ party project (30 mins)Using your party project create a risk management plan

This is an individual assignment23724Change Management ControlSources of ChangeProject scope changesImplementation of contingency plansImprovement changes

24725Change Control System ProcessIdentify proposed changes.List expected effects of proposed changes on schedule and budget.Review, evaluate, and approve or disapprove of changes formally.Negotiate and resolve conflicts of change, condition, and cost.Communicate changes to parties affected.Assign responsibility for implementing change.Adjust master schedule and budget.Track all changes that are to be implemented25726The Change Control ProcessFIGURE 7.9

26727Benefits of a Change Control SystemInconsequential changes are discouraged by the formal process.Costs of changes are maintained in a log.Integrity of the WBS and performance measures is maintained.Allocation and use of budget and management reserve funds are tracked.Responsibility for implementation is clarified.Effect of changes is visible to all parties involved.Implementation of change is monitored.Scope changes will be quickly reflected in baseline and performance measures.27728

Sample Change RequestFIGURE 7.1028

729Change Request LogFIGURE 7.1129730Create a change management process for the ____?____ party project (30 mins)Using your party project create a change management process

This is an individual assignment30731Key TermsAvoiding riskBudget reserveChange management systemContingency planManagement reserveMitigating riskOpportunityRetaining riskRiskRisk breakdown structure (RBS)Risk profileRisk registerRisk severity matrixScenario analysisTime bufferTransferring risk31532For Next ClassRead Larson and Gray pages 250 to 279

Group assignment: Read the Case titled Silver Fiddle Construction on page 233 and answer the three questions (you can use the risk template found in this .PPT)

Project Management 6e.5-32Appendix 7.1PERT and PERT Simulation733

33734PERTProgram Evaluation Review TechniqueAssumes each activity duration has a range that statistically follows a beta distribution. Uses three time estimates for each activity: optimistic, pessimistic, and a weighted average to represent activity durations.Knowing the weighted average and variances for each activity allows the project planner to compute the probability of meeting different project durations.34735Activity and Project Frequency DistributionsFIGURE A7.1

35736Activity Time CalculationsThe weighted average activity time is computed by the following formula:

(7.1)36737Activity Time Calculations (contd)The variability in the activity time estimates is approximated by the following equations:The standard deviation for the activity: The standard deviation for the project: Note the standard deviation of the activity is squared in this equation; this is also called variance. This sum includes only activities on the critical path(s) or path being reviewed.

(7.2)(7.3)

37738Activity Times and VariancesTABLE A7.1

38739Probability of Completing the Project

The equation below is used to compute the Z value found in statistical tables (Z = number of standard deviations from the mean), which, in turn, tells the probability of completing the project in the time specified.(7.4)

39740Hypothetical NetworkFIGURE A7.2

40741Hypothetical Network (contd)FIGURE A7.2 (contd)

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742Possible Project Duration

Probability project is completed before scheduled time (TS) of 67 unitsProbability project is completed by the 60th unit time period (TS)

FIGURE A7.342743Z Values and ProbabilitiesTABLE A7.2

43DescriptionsDescriptionsColumn NamePossible ValuesDescriptionRiskID #Incremental numbers starting with 001Unique identifier that all parties can refer to and know they are talking about the same issue. Will be used in team meetings to refer to a line item.Risk Category1-5 Word TitleBrief explanation of the issueRisk DescriptionDescriptionSummary of the descriptionWBSWBS NumberWork breakdown structure number identified as containing a possible risk.Activity TitleSchedule TaskThe title of the activity (work breakdown structure).Probability(%)2 Low5 Medium7 High10 AbsoluteLikelihood (percentage) the risk will occur over the identified time frame. This is critical to help determine the level of risk.Impact Level1 - negligible2 - marginal3 - significant4 - critical5 - catastrophicThe impact the risk will have on the project if the risk occur. Noting whether something is High, Medium or a Low risk is a helpful field to skim down when looking for the more critical risks. The level should be determined by the impact, as well as the probability of occurrence.ExposureProbability * Impact LevelThis will determine the exposure (severity) to the risk and will be used to rank the risks with the highest value being the highest exposure.Impact DescriptionDescriptionImportant to note why this is considered a risk and what could be impacted if the risk occurred.Date IdentifiedDate ValueDate that the risk identified assists in historical data tracking for reference.Risk OwnerTeam MemberImportant to know who is the owner of the risk; therefore if the issue arises there is someone who will take on the responsibility of working out the problem.Risk ResponseCritical to note what the plans are for each risk in case it occurs. A response could be avoidance, transference, mitigation and acceptance.

&LRisk Management Document (Galileo Operations Project Plan)&LPrepared by: David McKenna&R&DThe impact the risk will have on the project if the risk occur.Impact is rated as 1 - negligible 2 - marginal 3 - significant 4 - critical 5 - catastrophicRisk Response: Acceptance Avoidance MitigationTransfer&CRisk Assessment TemplatePM7030 - Risk ManagementGroup Project&LPrepare by: Group 1&C&D&RPage &P of &N&LRisk Management Document (Galileo Operations Project Plan)&LPrepared by: David McKenna&R&D&LRisk Management Document (Galileo Operations Project Plan)&LPrepared by: David McKenna&R&D

AssumptionsSWAG:Cost30KTimeline3 monthsWhat we knowWhat we think we know (Assumptoins)What we don't Know (Questions)