Facilitating your process journey …

Improving your Risk Identification and Management Approach
by Henry Schneider Process and Product Quality Consulting, LLC June 25, 2008

Facilitating your process journey …

Agenda
 Why Should I Care About Risks?  What is a Risk?  Risk Management Principles  Risk Identification and Management Techniques  Summary

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Facilitating your process journey …

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What coulda/shoulda happened?

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When Risk Are Not Managed Well
It is easy to ignore risks when they are not being tracked Risks that are known to project staff are often not known or a surprise to management Every time a new problem manifests, a new management technique is tried
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Facilitating your process journey …

Why Should I Care?
 The project may dodge some of the “bullets,”

but not all of them
 No lessons learned captured for future

projects means making the same mistakes again and again
 Insanity - doing the same thing over and over again

and expecting different results
 Repeated project failures due to unforeseen

(but predictable) risks costs you business, if not the whole company
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Facilitating your process journey …

Risk and Organization Culture
 Innovative cultures assume that the potential value of

innovation carries some level of risk
 “Fail forward” attitude  acknowledge and learn from failures  risks are investment in success

 Non-innovative cultures don’t acknowledge failure as

an acceptable outcome
 “Don’t bring me problems, bring me solutions.”

 acknowledging risks is admitting the possibility of failure
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Facilitating your process journey …

Risk Defined
 Dictionary definitions of risk  hazard, danger, or peril  exposure to loss, injury, or destruction

 General definition  A risk is a problem waiting to happen  A risk is an event that could threaten the successful completion of the project
 Risk management is the process of identifying the

risks and handling those which are most threatening to the project, so that they don’t become problems
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Facilitating your process journey …

Risk Management Principles - 1
Risks must be assessed continuously and used for decision-making in all phases of the project Effective risk management considers all areas of the project: personnel, process, business, technology, etc.
Risks need to be clearly communicated by all team members The environment must allow people to identify risks without negative consequences to them
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Risk Management Principles - 2
Risks must be clearly stated before they can be managed

A project should not be judged solely on the number or nature of risks uncovered
Deal with important risks first Action items to address risks need to be integrated into the overall project plan or action item list
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Risk Source Categories and Consequences
Risk Source Categories
•Mission and goals •Decision drivers •Organization management •Customer / end user •Budget / cost •Schedule •Project characteristics •Development process •Development environment •Personnel and relationships •Operational environment •New technology
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Consequences
•Cost overruns •Schedule slips •Inadequate functionality •Canceled projects •Sudden personnel changes •Customer dissatisfaction •Loss of company image •Demoralized staff •Poor product performance •Legal proceedings

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Start by Reviewing Project Parameters
Project scope, milestones, and deliverables
• Are features agreed to? • Are commitments agreed to and documented?

Project vision
• Are objectives clear and understood? • Are customer and provider objectives known?

Roles and responsibilities
• Are roles and responsibilities clear to all involved? • Are all roles staffed? • Is sponsorship and accountability clear?

Use knowledge of specific project roles to identify risks

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Risk Identification Technique
Brainstorming  Review possible sources of risk and brainstorm specific risks they could create for your project  Review potential adverse outcomes for your project and brainstorm how they might arise Sources

Risks
Outcomes
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Risk Factor Table - Example
Risk Factor
Project fit

Low Risk Cue
Directly supports customer’s missions and goals

Medium Risk Cue
Indirectly impacts one or more goals

High Risk Cue
Does not support or relate to customer’s mission or goals
Project is a mismatch with prior products of this team

Customer perception Customer expects team to provide this product

Team is working on project that is not expected by customer Will change some aspect or have small affect on work flow

Work flow

Little or not change to work flow

Significantly changes work flow or method of organization

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Reviewing Factors

Select appropriate table of factors

Examine each risk factor and rate its relevance
• High - potentially high threat risk • Medium - may suggest a risk • Low - no apparent risk • N/A - factor is not applicable • NI - needs more information • TBD - needs to have project proceed further; revisit later

Use high rated factors to develop specific risk statements for the project

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Risk Factors Help You Focus
Risks to be managed – ten or so

Risks rated High – dozens
Risks indicated by factor tables - hundreds

All risks - thousands

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Risk Probability
Probability is the likelihood that the risk will actually occur as a problem if we take no action Usually expressed as a percentage:
• greater than zero or less than 100% • use increments no smaller than 5%

Example:
• something slightly more likely than not - risk probability = 60% • something likely to happen 3/4 of the time - risk probability = 75%
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Establishing Measures of Loss
 Level of loss (scale of 1 to 10)  Rate damage to project objectives  High values indicate serious loss to the project

 Example:  Risk loss = 4 if project is considerably late, but has all functionality
 Impact of monetary loss useful, if possible  Long-term costs in operations and support  Long-term loss of market share or opportunity  Short-term cost in additional work  Example:  Risk loss = $120,000 to add person-year of work
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Risk Exposure
Components
• Risk probability • Risk impact (loss)

Risk exposure is the • Risk exposure = risk probability x risk impact total threat of the risk
Example: Focus on reducing risk exposure
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• Risk exposure = 75% x 4 = 3.0 • Risk exposure = 60% x $120,000 = $72,000

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Ranking Risks

Rank the risks at a given point in time Review the list regularly with the team

Rank in order of risk exposure (most to least dangerous)

Look for breaks in values in the list

Focus on actions for those at the top of the list

Add items as needed

Adjust exposure as appropriate

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Risk Mitigation Strategies
Risk reduction
• Apply money or effort for controllable risks • Use work-arounds for uncontrollable risks

Risk transfer Invest no more than needed
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• Insure the loss • Involve a third party • Tie a bonus to completion of the project • Involve domain specialists

• Some risks cannot be removed completely • Balance cost of handling against exposure

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Risk Contingency Plans
Devise contingency plans for
• high exposure risks, in case the mitigation strategy fails • any risk for which there is no possible mitigation action

Specify risk measures and trigger values
• measures of time, resources to handle risk • measures of risk impact • trigger values that tell it is time to use contingency approach

Agree with customer and management at project start how contingency plans will be funded and handled
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Contingency Triggers

For risks leading to schedule slips
• Latest date to allow you to use alternative platforms • Latest date to select another vendor

For risks requiring additional effort or time
• Latest date to locate the resources • Greatest amount of penalty or fine to incur

Limit for extra cost to the customer

Limit for learning time

Example Contingency Triggers
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Mitigation and Contingency - Example

Risk Statement

• If key subject matter experts are not available by the first of June, we will be unable to deliver the project per the plan. • Cross train project staff with key subject matter experts, so work can proceed and decisions made if key experts are unavailable.

Risk Mitigation
Contingency Plan
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• If by the first of April it is known that key experts will not be available, assign team members to learn the needed subject matter so the project can move forward without involving key experts.
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Communication is Essential!
Communicate risk information to all affected parties Encourage free flow of information about risk
• Place risk chart in a common location • Use email or other team collaboration method (e.g. Wiki page) to identify new risks, change status, and indicate completion • Encourage raising of new risks in weekly status reports, during inspections or reviews, and at major milestone reviews

Update Top Risks with team regularly

Review status of risks at key milestones
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What Would Be the Preferable Outcome?
What could have been delivered if risks had been managed

What was delivered because risks weren’t managed

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Summary
 Repeated project failures due to unforeseen (but

predictable) risks can cost you business  Risk management is the process of identifying the risks and handling those which are most threatening to the project, so that they don’t become problems  Risks can be easily managed using techniques such as:
     
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brainstorming risk factors risk exposure ranking mitigation communication
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Questions

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PPQC Services
Consulting
• • • • CMMI Software Engineering Systems Engineering Process Improvement

Appraising
• SCAMPI A, B, C • Gap Analysis

Training
• • • •
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CMMI/Process Improvement Action Planning Workshops Measurement and Analysis Process Area Specific Training
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Contact Information
Address: Henry Schneider President/Senior Principal Consultant Process and Product Quality Consulting, LLC 2111 Heather Green Houston, TX USA 77062
281-218-6682 henry@ppqc.net www.ppqc.net

Phone: E-mail: Web Site:

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