Session 09 1187 2020

OPMT 1187
Project Risk Management

Copyright BCIT School of Business 2020
Session # 9 Agenda
• Project Risk Management
• Contingency Planning
• Change Control
Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Learning Outcomes
By the end of this session students will be able to
• Identify the elements of risk
• Perform risk assessments
• Develop risk contingency plans
• Control effective changes within a project scope

Project Risk
Uncertain or chance events that could occur during a project. Would have a
negative impact upon the project.
Threatens project’s ability to meet its objectives – customer satisfaction,

quality, time or cost
Contains two components:
Probability – likelihood of occurring

Consequence – what is the level of impact if it occurs

Risk Planning Considerations
Project size – Budget, scope of work, resources required
Project complexity – Technical issues, amount of potential “unknowns” and

their impacts
Project importance – Strategic or tactical
Project Management Methodology to Be Used – Traditional or Agile

approaches

Risk Management
A proactive approach – planning ny Project Manager and SME’s
Reduces surprises and negative consequences – team is prepared to take action when
necessary
Provides better control (awareness) over the future of the project
Improves chances of reaching project performance objectives within budget and on

time

Risk Management - Defined
The Proactive attempt to recognize and manage internal events & 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)

Where Can Risks Originate?
Change in customer requirements
Design errors or omissions (E&O)
Project team miscommunication
Unskilled team-members
Scope Creep
Site conditions
Weather
Political changes
Economic changes
Discuss risks in planning a vacation to Hawaii

Risk Elements
Probability
Risk Event
Impact
Refer to Lessons Learned – past projects
Consult with key stakeholder

Internal or External Risks
Internal Risks:
• Can be better controlled by project team or the firm
• Can be easier to plan (prepare) for
• Not seen by the project customer
External Risks:
• Highly visible to the customer and the public
• May be beyond ability to influence or fully control
• May impact the firm’s goodwill/reputation

Risk Tolerance of Your Firm
Low Tolerance
Cautious, strong central management, analytical, slow to act until all possible
options reviewed, requires multiple approvals/sign-offs, become highly
defensive is a risk occurs
High Tolerance
Acceptance that risk will occur, proactive preplanning, quick to act since
contingencies in place, assigned authority to managers to be decisive

Risk Tolerance of Your Customer
Low Tolerance
Your firm must engage in lengthy comprehensive planning to eliminate all
chances of risk – may result in a longer “padded” schedule – more costly for
the client
High Tolerance
Customer more acceptable that risks/delays will happen.
Willing to work with PM to jointly resolve
Discuss: Should your firm take on high-risk project customers?

Risk Management Process
Plan Risk
Mgt.
Identify
Monitor & Risks
Control
Risks
Qualitative
Plan Risk Risk
Response Analysis
Quantitative Risk planning

Must do Qualitative but Risk Analysis
continues through-out
Quantitative is optional the project as new risks
– why? are identified
Plan Risk Management
Adhering to firm’s level of risk tolerance
Following company polices on managing risks
Involving others: SME’s, Sponsor, stakeholders, perhaps Customer
Using any company templates, forms
Follow PMI best practices regarding risk

Identify Risks
Brainstorm as many
risks as possible
Add to list as project

progresses and new
risks discovered

Risk Analysis
According to PMI you always do Qualitative but Quantitative optional is

optional. Why?
Base risk assessment upon available, time, resources to determine
individual WBS work activity estimates
A well experienced Project Manager doing similar types of work over a
long period of time
Firm lacks software tools and specialized talent to undertake qualitative
analysis

Qualitative Risk Analysis
Can be performed relatively quickly and cost effectively
Can be done by Sponsor during Project Charter to define high-level risks
Refined in detail by Project Manager under Risk Management Planning
Can be done during Project Planning by senior management, key

stakeholders, project team, external or internal experts

Quantitative Risk Analysis
Identify where risk

falls under –
Likelihood and
Consequence
(impact)
Develop
contingency plans
for all Red risks

Risk Impact Probability Total
Machine failure 20 10 200
Flu epidemic 25 30 750
Supplier bankruptcy 70 20 1400
IT server failure 50 10 500
Funding cancelled 30 30 900
Assign number ranking Impact and Probability
Multiply together to get overall totals
Develop contingency plans for highest totals

Longer bars =
greater sensitivity
(potential higher
risk)

Earned Monetary Value (EMV)
EMV = Probability X Impact
Example:
Work Activity 24
Risk Probability: 30%

Cost Impact if Occurs: $10,000
EVM = $10,000 X .30 = $3000
Add $3000 Cost Contingency to Activity 24

“Monte Carlo” Simulation
Software program - Run thousands of possibilities and combinations of

project outcomes
Example: Which routes and times of the day should I considering taking to
drive home after work. What mode of transportation?
Options: No bridges, highways only, least amount of traffic lights, time of

day, transportation type,etc.
Discuss: Why would Military consider simulation planning?

Decision Tree
Produce Internally Success 50% Probability
Cost $100,000 $50,000 Impact
Fail 50% Probability

Minimal Impact
Success 50% Probability

$200,000 Impact
Box = Decision to be made
Fail 50% Probability
Circle = Decision Node Produce Externally Minimal impact
(Possible Outcome) Cost $ 50,000

Decision Tree
Calculate Probability Value to each decision node outcome
In House $50,000 x 50% = $25,000

External $200,000 x 50% = $100,000
Add Probability Valuer to costs of each Choice
In-house = $25,000 + $100,000 = $ 125,000

Out-source = $ 100,000 + $50,000 = $ 150,000
Compare results. Lowest cost = least risk
Perform work in-house

Managing Risks
Step 1: Risk Identification
Generate a list of possible risks through brainstorming, problem
identification and risk profiling
Step 2: Risk Assessment

Scenario analysis for event probability & impact
Risk assessment planning
Impact upon project schedule and budget

Risk Strategies
Escalate
Handing off the risk to a more appropriate stakeholder within
organization (not member of the project team)
Mitigate
Reducing the likelihood and/or impacts of a risk event will occur
Avoid
Removing part of the project scope to eliminate the risk
Transfer
Paying a premium to pass the risk to another party (Insurance).
Retain/Accept
Making a conscious decision to accept the risk. For lower risks

Managing Risks
Step 4: Risk Response Control
Risk control
Monitoring of triggering events
Initiating contingency plans when necessary
Watching for new risks
Establishing a Risk Management System
Monitoring, tracking and reporting risks
Repeating risk identification/assessment planning
Assigning & documenting responsibility for managing risk

Risk Tolerance of Your Firm
Contingency Planning
Creating alternative plans that will be used if a possible foreseen risk
event occurs
Residual risk – remaining low value risk from implementing a
contingency plan that did not fully eliminate risk
Risks of Not Having a Contingency Plan

May slow or paralyze Project Manager’s response/actions
Bad decisions made under pressure can be potentially dangerous and
costly

Risk Categories
Technical Risks
Backup strategies if chosen technology fails. (Computer data)
Assessing whether technical uncertainties can be resolved.
Schedule Risks
Use of all slack time may increase the risk of a late project finish or
change in critical path.
Compression of project schedules due to a shortened project duration

date. (Crashing the project)

Risk Categories
Costs Risks
Time/cost can be closely related: costs increase when problems take

longer to solve than expected
Price protection risks (inflation) may increase if the duration of a project

is increased
Resource Risks
Changes in the supply or quality of resources
If project is delayed can resource be kept on longer

Risk Planning
Contingency Funds
Monetary funds to cover project risks—identified and unknown.
Size of funds reflects overall risk of project
Linked to the identified risks of specific work packages.

Management reserves
Special funds to be used to cover major unforeseen risks (example:

change in project scope)
Time Buffers
Adding safety days to compensate for unplanned delays in the project

schedule. (Critical Path activities)

Risk Opportunities (Good Risks)
Exploit - Eliminate uncertainty associated with the risk to ensure that it

definitely happens
Share - Allocate some or all of the ownership of a risk to another party who
is best able to capture the opportunity for the benefit of the project.
Enhance - Take action to increase the probability and/or the positive impact
of the risk
Accept - Willingness to take advantage of the risk if it occurs, but not taking
action to pursue it

P.M. Role in Risk Management
Expect that issues will arise that add risk to the project
Pre-plan as many what-if risk scenarios as possible
Discuss risks up front with Project Sponsor
Develop a risk management plan and share with project team
When risks occur be decisive

Remain calm under pressure – show outward control over the situation
Guide the team through the risk – implement your pre-planned risk
contingency strategy
Make the risk known to Project Sponsor

P.M. Role in Risk Management
Conduct post-completion review of risks encountered and their impact upon

project
If time permits, seek out Root Cause of the risk occurrence and eliminate
(usually the Project Manager is time-constrained and immediately moves onto
other task or project )
Remember from Quality slides – best outcome is to implement process

improvement to prevent risk re-occurrence in future projects

Other Risk Types
Variability Risk: Uncertainty regarding future risks - we accept there
is a range (higher/lower) that this risk may impact the project.
Example: unfavorable weather conditions during a project phase
Ambiguity Risk: Uncertainty regarding what may happen where there

is imperfect (incorrect) knowledge/information
Example: new technical solution. Research and development projects.

Change Control
Changes can often occur during a project:
During major renovation of a very old building we have to remove walls –

what do we find?
Customer wants a design change or additional work added once project

underway
New government regulations come into effect during a project

Change Control Process
1. Identify and submit proposed change – stakeholder
2. Identify potential impact(s) upon project – Project Manager
3. Submit change and impact to Change Control Committee – Project Manager
4. Assess change and make decision – Committee
5. If change not accepted – continue project as-is
6. If change accepted – re-plan remaining project work with included change
Discuss why Project Manager does not have authority to make change decision

Change Control Process
Discuss: Who
should be in
Change Committee?
request
Change
Control
Committee
PM Impact
analysis of
proposed
change
Not Accept Accept
Continue as-is Re-plan

remaining

Benefits of Change Control Process
 Inconsequential changes are discouraged by the formal process
 Identify who is submitting numerous changes and why. Ineffective
stakeholder management?
 Identify which deliverable receiving numerous changes and why.
Ineffective scope planning or incomplete WBS?
 Effect of changes is visible to all
 Implementation of change is monitored.
 Project Manager is not penalized to accept changes without any re-
planning of remaining project – add resources, budget and/or time

Images Acknowledgement:
Slide 15: anahiayala.com

Slide 21: Reasearchgate

Session 09 1187 2020

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OPMT 1187

Project Risk Management

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

• Identify the elements of risk

• Perform risk assessments

• Develop risk contingency plans

• Control effective changes within a project scope

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Threatens project’s ability to meet its objectives – customer satisfaction,

Contains two components:

Probability – likelihood of occurring

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Project complexity – Technical issues, amount of potential “unknowns” and

Project importance – Strategic or tactical

Project Management Methodology to Be Used – Traditional or Agile

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Provides better control (awareness) over the future of the project

Improves chances of reaching project performance objectives within budget and on

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

• What can go wrong (risk event)

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Discuss risks in planning a vacation to Hawaii

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Refer to Lessons Learned – past projects

Consult with key stakeholder

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Discuss: Should your firm take on high-risk project customers?

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Quantitative Risk planning

Adhering to firm’s level of risk tolerance

Following company polices on managing risks

Involving others: SME’s, Sponsor, stakeholders, perhaps Customer

Using any company templates, forms

Follow PMI best practices regarding risk

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Add to list as project

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

According to PMI you always do Qualitative but Quantitative optional is

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Can be done by Sponsor during Project Charter to define high-level risks

Refined in detail by Project Manager under Risk Management Planning

Can be done during Project Planning by senior management, key

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Identify where risk

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Assign number ranking Impact and Probability

Multiply together to get overall totals

Develop contingency plans for highest totals

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

EMV = Probability X Impact

Risk Probability: 30%

Add $3000 Cost Contingency to Activity 24

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Software program - Run thousands of possibilities and combinations of

Options: No bridges, highways only, least amount of traffic lights, time of

Discuss: Why would Military consider simulation planning?

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Fail 50% Probability

Success 50% Probability

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Calculate Probability Value to each decision node outcome