Tools for Managing Risk

C o n f i d e n t i a l1

Program : MBA

Semester : IV

Subject Code : PM0016

Subject Name : Project Risk Management

Unit number : 9

Unit Title : Tools for Managing Risk

Lecture Number : 9

Lecture Title : Tools for Managing Risk

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C o n f i d e n t i a l

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Objectives :

The objectives of this lecture are to:

• Explain the importance of risk management tool

• Describe the Quality Control tool

• Explain the six risk management tools

• Calculate the probability of risk events

• Draw flow charts for some of the processes

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Unit-9 Tools for Managing Risk

Tools for Managing Risk


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Lecture Outline

• Introduction

• Risk Management Tools

• Quality Control Tools

• Seven Quality Control Tools-Check sheet

• Seven Quality Control Tools- Graphs

• Seven Quality Control Tools-Histograms, Pareto chart

• Seven Quality Control Tools- Cause and effect diagram, Scatter diagram

• Seven Quality Control Tools- Control Chart

• Probability Techniques• Risk Event Probability

• Flow Charts

• Fishbone Diagram

• PERT/CPM for Project Scheduling and Management

• PERT/CPM Network

• Project Insurance

• Summary

• Check Your Learning

• Activity

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Introduction

● Risk management is the practice of controlling risk.

● Risk management tools help in managing project risks appropriately and

give an edge over competitors.

● Initial risk analysis and risk management techniques help to assess these

risks and decide the preventive/corrective actions.

● Different risk management tools are used for different projects based on

the requirements.

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The usage of appropriate risk management tools to identify and handle

risks helps in establishing an effective risk management process.

The risk management tools and techniques are:

● Quality Control Tools.

● Probability Techniques.

● Flow Charts.

● Fishbone Diagrams.

● PERT/CPM Techniques.

● Project Insurance.

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Risk Management Tools



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Quality Control Tools

● Quality control tools encourage and enhance teamwork as problems

are addressed through groups.

● They anticipate potential problems and improve quality.

● They help in the continuous improvement of processes.

● They provide objective analysis of problems based on facts and data.

● They provide greater customer satisfaction through superior quality

and services.



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Check sheet

● It is a pre-designed format for data collection.

● It encourages collection of data in an organised manner and then groups it into categories.

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Seven Quality Control Tools-Check Sheet

Date:

Employee Name:

_______________

_______________

Problem Frequency

List categories you want to measure such as problems,

errors, defects, etc

Add a check for the appropriate category as you

collect your data

Problem 1

Problem 1

Problem 1

Problem 1

II

IIII

I

III

Check Sheet


Seven Quality Control Tools- Graphs

Graphs

• Graphs are the visual representation of data, which are used to show comparison of visual representation of data collected .

• Some of the types of graphs are Bar charts, Line charts, and so on.

Rupees

Rupees in Thousnands

Line Graph Bar graph


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Histograms

● Histograms provide a simple, graphical view

of accumulated data, including its dispersion

and central tendency.

Pareto chart

● It is one of the special forms of bar chart which is intended to determine the most important factors

in a situation.

● It is based on the idea that a few

causes produce majority of variations.

In most of the cases 20% of causes

account for 80% of variations.

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Unit-9 Tools for Managing Risk Seven Quality Control Tools-

Histograms, Pareto Chart


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Cause and effect diagram

● It is used to associate multiple possible

causes with a single effect.

Scatter diagram

● It is a graphical tool that shows the relationship

between two variables.

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Seven Quality Control Tools- Causeand Effect Diagram, Scatter Diagram


Seven Quality Control Tools- Control Chart

Control Chart

• It monitors a process according to tolerance limits.

• It determines whether or not a process is operating consistently or if a

special case has occurred to change the process variance.


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Probability Techniques


• Risk is defined in two dimensions-uncertainty and the effect on objectives.

• The terms “probability” and “impact” are used to describe these two dimensions.

• Two-dimensional definition of risk in the realm of project risk

management is “An uncertain event or condition that, if it occurs,

has a positive or a negative impact on a project objective”.

• If a risk event has probability equal to zero, then we say the risk event does not exist.

• If a risk event has probability of one, then we say the event is no longer a risk.


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Risk Event Probability


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Flow Charts are useful tools for communicating how

processes work and for clearly documenting how a

job is done.

A flow chart is drawn to:

• Build a step-by-step picture of the process

for analysis, discussion or communication.

• Define and analyse processes.

• Define, standardise or find areas for

improvement in a process.

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Flow charts



The Fishbone diagram is also known as, Cause and effect diagram ,

Root cause analysis or Ishikawa diagram.

The Fishbone diagram is used:

• To analyse and find the root cause of a complicated problem.

• If the traditional way of approaching the problem is time consuming.

• If the problem is very complicated and the project team cannot identify the root cause.

Fishbone diagram

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PERT/CPM for Project Scheduling and Management

PERT/CPM are useful in planning costs and scheduling manpower andmachine time.

The techniques follow six common steps, they are:

• Defining the Project and all significant activities or tasks in the project.

• Developing relationships among the activities. The "Network"

connecting all the activities is drawn.

• Assigning time and/or cost estimates to each activity.

• Computing the longest time path through the network. This is called the

critical path.


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PERT/CPM Network

• Each activity in a PERT/CPM Network is represented by an arrow.

• Each activity is preceded and succeeded by an event, represented as a circle and is numbered.

• Following is an example PERT/CPM Network.

PERT/CPM Network


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Project Insurance

• Effective risk management requires alternative plans and policies for

reducing or controlling exposure to risks.

• The most dependable tool used in risk management is insurance.

• Insurance cover policy is normally utilised by the companies in the

process of establishing project for the manufacturing or production

activity of the organisation.

• Risk is insured against loss, damage, liability or expense for movement

of goods.


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Summary


● Risk management tools help in managing project risks

appropriately and give an edge over competitors.

● The Quality control tools help you to develop the quality of the

products and services as well as manage risks.

● Flow Charts are useful tools for communicating how processes

work, and for clearly documenting how a job is done.

● The Fishbone diagram is used to analyse and find the root

cause of a complicated problem.

● CPM/PERT are useful in planning costs, scheduling manpower

and machine time.

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Check Your Learning

1. Define Flow Charts.

Ans. Flow Charts are useful tools for communicating how processes

work, and for clearly documenting how a job is done.

2. What is a Check sheet?

Ans. Check sheet is a pre-designed format for data collection. It

encourages collection of data in an organised manner and then

groups it into categories.

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Activity

Draw a flow chart depicting the process of activities involved in

booking a railway ticket.

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Documents

Tools for Managing Risk