RISK MANAGEMENT

MGMT 6084 PROJECT MANAGEMENT

MODULE
SEVEN

Prof. Mohamed Soliman

Project Management by Nick Youngson CC BY-SA 3.0 Alpha Stock Images

The following content was prepared by Prof Robert Brookes and reproduced
from Larson, Gray (2018) Project Management: The Managerial Process.
WHAT ARE WE GOING TO DO TODAY?

 Learn about risks! You will be able to:

 Identify risks
 Assess risks
 Develop responses to risks
 Create a contingency plan tailored to your risk profile
 Control risk response
 Throughout the lecture we will work alongside one of the case studies.
PROJECT MANAGEMENT

You are here!

WHAT’S RISK?
MANAGING RISK – CHERNOBYL CASE

While you watch the

video – think about:

1. Why didn’t they call a

https://youtu.be/tFo_0eEt1IY project manager when
the reactor started to
have problems?

2. What was the plan to

respond to a
catastrophic failure like
this?
CHERNOBYL RISKS

Individual Risks

• Designed without a formal

containment vessel, which
caused a chain reaction
with other reactors.
• The control area was very Collective
close to the reactor and Risk
was not protected.
• The monitoring and safety
systems could be manually
overridden, and even
switched off.
RISK MANAGEMENT PROCESS

Risk Management

A proactive attempt to recognize and

manage internal events and external
threats that affect the likelihood of a
project’s success.

What can go wrong (risk event).

How to minimize the risk event’s

impact (consequences).

What can be done before an

event occurs (anticipation).

What to do when an event occurs

(contingency plans).
THE RISK MANAGEMENT PROCESS

 A proactive rather than reactive

approach.

 Reduces surprises and negative

consequences.

 Provides better control over the

future.

 Improves chances of reaching project

performance objectives within budget
and on time.
 IDENTIFYING RISKS (1)

The risk
breakdown
structure
(RBS) helps us
to identify
possible risks.
 CASE – IDENTIFY 5 RISKS

 Read the case study ‘Alaska Fly-Fishing Expedition’ (7.1, pg 233) and identify five
potential risks.
 You have 15 minutes!

Source: Wikimedia Commons

Source: Wikimedia Commons

RISK ASSESSMENT (2)

 Probability of an event
 Easier to quantify (but is it reasonable?)
 Select a % value from 0-100.
 Impact of an event
 Severity of impact is dependent on project
priorities
 Because of stakeholder involvement, may
be easier to use a qualitative scale (low –
medium – high) and then convert to a
numeric scale. Source: publicdomainpictures.net

 Again, watch for bias!

 PERT Analysis
PERT (READ THE BOOK)
RISK ASSESSMENT (2)

The Failure Mode and Effects Analysis (FMEA)

 Adds in ‘detection difficulty’.
 Converts to a five point scale for ease of use.
This is not a perfect
approach – remember
the main variables are
Therefore, our risk equation becomes: still Impact and
Probability. Each risk still
needs judgement – don’t
Risk Value = Impact x Probability x Detection difficulty rely only on the number.

e.g.:

30 = 5 x 3 x 2
RISK ASSESSMENT – IMPACT SCALE
RISK ASSESSMENT – THE RISK FUNCTION

Failure Mode and Effects Analysis (FMEA)

Impact × Probability × Detection = Risk Value
RISK ASSESSMENT – RISK SEVERITY MATRIX

Failure Mode and Effects Analysis

5
(FMEA)
Major Impact × Probability × Detection =
Risk
4 Risk Value
Likelihood

3
Moderate
Risk
Red zone (major risk)
2
Yellow zone (moderate risk)
Minor
Green zone (minor risk)
Risk
1

1 2 3 4 5

Impact
CASE – BUILD RISK ASSESSMENT

Risk Level of Risk?

Likelihood Impact Detection
Risk Event Rating (minor/ mod/
(1-5) (1-5) (1-5)
(L x I x D) major)

E
 RISK RESPONSE
Mitigate Avoid Transfer Accept
Reduce likelihood that Eliminate the risk or Pass the risk to When a risk cannot be
the event will occur. condition. another party. dealt with another
way.
• Identify the root cause • Switch a proven • Does not eliminate
of the event. approach in for an the risk. • Low probability
• Conduct testing. untested one. • Ensure the other events.
• Quality of equipment, • Use a known supplier party can absorb the • Use a budget reserve
training. instead of a new impact! This can (time or cost).
supplier. INCREASE risk. • Contingency planning
Reduce impact if the • Use a fixed price is important.
event does occur. contract.
• Insurance policies
• Have a ‘plan B’. (low probability / high
• Parallel development. impact).
• Delay ownership /
responsibility.

Not being aware of or consciously ignoring risk is not a good strategy!

 CONTINGENCY PLANNING
 What are the actions that will reduce or mitigate the negative impact of the risk event?
 First, decide how to deal with the risk (mitigate, avoid, transfer, accept).

Type of Risk How to deal with it…

Have a parallel solution in the case where the failure of an experimental solution would
be high impact.
Technical You need to be able to continually assess the ongoing feasibility of technical solutions.
Prototypes may help.
Test, test, test!
Reduce project duration by ‘crashing’. This is covered later in the course.
Keep on top of scheduling delays, so that there is still time to act before it gets critical.
Schedule Maximize use of concurrent planning, and make sure you have the best resources on
critical tasks.
Get the right level of detail (don’t use a simple +x% approach across all cost items).
Cost Have a contingency fund available to cover overruns.
Is the funding supply stable? Depends on the environment.
Funding
THE RISK RESPONSE MATRIX
CASE – BUILD RISK RESPONSE

Response
Risk Event Contingency Trigger Responsibility
(mitigate, etc)

E
 CONTINGENCY FUNDING

 Contingency funding must be part of your project plan.

 Remember the inherent bias in planning?
 Variables to help determine the % of funding allocated to contingencies:
 Is this a ‘new’ project?
 How certain are you of the time/cost estimates (bottom-up / top-down).
 Is there a reliance on new technical solutions?
 Is there a history of scope changes (Remember the Wasa!)?
 Normally contingency funding will be 1-10% of your project cost if the project has a
similar precedent. However the funding may be 20 – 60% in higher risk projects.
 You will want to build a contingency fund based on individual risks, not a general %.
CONTINGENCY FUNDING

Based on this reserve, would

you consider this a low risk
project or a high risk project?
 THE USE OF TIME BUFFERS

 Add time where needed:

 Activities with high risk potential.
 Merge activities.
 Sensitive non-critical activities.
 Activities where lack of resources
may cause a delay.

 There are different ways to add time

buffers:
 All at the end of the project.
 Add at certain milestones.
 Add for each activity.
RISK RESPONSE CONTROL

Risk register
 Simply combines the first three exercises
into a formal document (Risk – Assessment –
Response)
 Adds in a ‘status’.
 Risks need to be managed as closely as the
other components of the project. A risk
identified early will normally be much easier Source: maxpixel.net

and cheaper to fix!

 Effective scanning and communication of
risks depends on you as the project manager,
your project team, and the organizational
environment.
CHANGE CONTROL

Change Control Process

Main Sources of Change 1. Needs to be followed in a
disciplined way.
1. Scope changes –
additions or redesigns. 2. Make someone accountable
for this process.
2. A risk event has
occurred. 3. It needs to be fully
integrated with the project
3. Learning as the project planning (WBS etc.).
progresses can provide
improvement 4. Everyone likes the idea of
opportunities. change control, but no one
likes documentation!
RISK SUMMARY
SUMMARY

 Introduction to the risk management process:

 Identifying risks.
 Assessing risks.
 Creating a risk response plan – mitigate, avoid, transfer, accept.
 Contingency planning.
 The change control process.
THINGS TO DO BETWEEN NOW AND THE NEXT
CLASS…

 Split your team. One group will complete the case study questions for Case 7.2.
The other will complete the case study questions for Case 7.4.
 Then, you will get together and write a short (1/2 to 1 page) comparison – how
are the cases similar? How are they different?
 Watch videos on issues management.

 READ Chapter 8, Project Management 7E – Larson and Gray.