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MANAGING MANAGING PROJECT PROJECT

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In a project life cycle, several questions will arise:• What can go wrong?• What are the probabilities for mistakes

happening?• What are the consequences?• When and how can it be stopped or mitigated?• To what extent can it be tolerated or accepted?• How is it measured, reduced, and managed?

RISKS AND OPPORTUNITIESRISKS AND OPPORTUNITIES

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• Risk is defined as the probability an injury, breakage, loss or other negative outcomes. In the context of project management, it is the probability of not getting results as planned.

• Opportunity is defined as the possibility to achieve advancement or progress. In project management, it is the possibility of increasing project results.

In project management, risk and opportunity can each be divided into 2 categories:

Opportunity

1. Strategic

2. Tactical

Risk

1. Operational

2. Product

Definitions:

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A risk occurs with emergence of 2 factors:

• An unknown OUTCOME

• A negative or uneasy IMPACT

RISK = PROBABILITY x IMPACT

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LOW RISK

MEDIUM RISK

HIGH RISK

IMPACT

PR

OB

AB

ILIT

Y

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PROJECT OPPORTUNITIES

PROJECT CYCLE PHASES

STRATEGIC OPPORTUNITIES

TACTICAL OPPORTUNITIES

NEW MARKET

NEW PRODUCT

NEW APPROACH

RE-ORGANISATION

SHORTEN THE SCHEDULE

COST REDUCTION

PROCESS IMPROVEMENT

REMOVAL OFUNECESSARY ACTIVITIES

STRENGTH OF P&P

PROJECT OPPORTUNITY CATEGORIES

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PROJECTRISK

OPERATIONALRISK

PRODUCT RISK

PROJECT LIFE CYCLE PHASE

EXTERNALRISK

INTERNALRISK

FAILURERISK

DANGEROUSRISK

PAYMENT

POLITICAL SUPPORT

TECHNOLOGY SHARING

PERFORMANCE

PLANNING

RESOURCE

TOOLS

SKILLS

SUB-CONTRACTOR PERFORMANCE

MODE OF FAILURE

TEST FAILURE

INVENTORY EXPIRY DATE

OUT OF STOCK

PROCESS SENSITIVITY

RADIATION

EXPLOSIVES

POTENTIAL ENERGY

HIGH VOLTAGE

TOXIC

PROJECT RISK CATEGORIES

This leads to project cancellation/liquidation This leads to injury

and project failure

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Risk management involves risk reducing techniques like:• Identifying the potential risks• Evaluating the probabilities of occurring and the

impact/consequence if it does occur.• Making a decision to ‘do nothing’ OR take ‘preventative’

action OR take contingency action.

Risk ManagementThis is a systematic process to identify, analyse, and take action towards a project risk, which includes the maximisation of the probabilities of positive outcomes while at the same time the minimisation of the probabilities of negative outcomes in the project life.

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1. Identifying risks

2. Assess risks (qualitative and qualitative analysis)

3. Risks plan response

4. Risk control and investigation/ monitoring

MAIN PROCESSES OF RISK MANAGEMENT

Identify Risks

Can jeopardize accomplishing the project objective

Brainstorm sources of risks

Establish categories for risks and evaluate

Use historical information

Progressively elaborate and identify new risks as more information becomes available

Assess Risks

Determine the likelihood the risk event will occur

Evaluate degree of impact on the project objective

Prioritize – Likelihood of occurrence and degree of impact

– Position relative to the critical path

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Risk Evaluation/Analysis

• Identify risk – Use the ‘cause and effect’ diagram (fishbone).

• Evaluate risk probability and impact (consequences) – Two (2) ways:(i) Qualitative analysis(ii) Quantitative analysis

Difficulty in calculating the probability of a risk happening, usually done from experience or research. The ‘decision tree’ can be used.

• Identifying the relations/ties of one risk to another using the ‘influence’ diagram.

• Organise a list of priorities

• Action towards risk – avoid, reduce, move, accept, contigency.

The procedures and processes to identify, detail, quantify, and evaluate each risk and its respective significance.

The following title shows a qualitative approach in risk analysis.

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Enough information about...?

PROBLEM FIELD

OTHER PROBLEM

FIELD

Project & Scope Objective Statement

Identify Risk (cause and effect)

CAUSES

What, when, where, who,

why?

Dependencies & Relations/

TiesProbability Impact

Priority List

ACTION GENERATION

Choose Plan of Action:

Avoid, reduce, move, accept, contingency

Evaluate Secondary Risk

Impact Re-evaluation

Choose Starting Action

Is the outcome within the

allowed criteria?

OTHER PROBLEM

FIELD

REVIEW AGAIN

BASIC PROCESS OF BASIC PROCESS OF RISK ANALYSISRISK ANALYSIS

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CONSEQUENCELate Delivery

HARDWARE WORKER

FUNCTION FINANCE

Bought itemsreceived late

Poor welding

Items not according to specification

Item is not manufactured according to design

Main staff sick/on leave

Low worker productivity

External agency lags schedule

Procurement procedure not neat

Design needs to be re-engineered

Design specification may change

Design not according to standards

Import tax may increase

Fabricator may bankrupt

Cash flow not sufficient to pay bills

IDENTIFYING RISKS: ‘CAUSE AND EFFECT’ DIAGRAM FOR B-8 PROTON COMPONENT

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F1Design does not meet standards

F2Design

Specification may change

F3Design needs to be re-engineered

F4

H2Poor welding

H3Items do not

meet specifications

H4

Manufacture differs from design

P1Main staff

sick/on leave

P2Low worker productivity

P3External agency lags scheduling

M1Fabricator may

bankrupt

M2Cash flow not sufficient to

pay bills

M3Import tax may

increase

‘INFLUENCE’ CHART

H1

Procurement Procedure untidy

Bought items received late

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RATINGS FOR MAIN ORDER OF RISKS

PROBABILITY OF OCCURRING

IMPACT

R = 0-10% R = 1-5 DAYS

S = 11-20% S = 6-15 DAYS

T > 20% T > 15 DAYS

An illustration on how qualitative estimations can be quantified to show relative importance.

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B-8 Component: Consequences – Late Delivery

1.55R30TM3

M2

M1

P3

P2

P1

H4

H3

H2

H1

220T10RF4

120T5RF3

1.55R30TF2

210S20SUntidy procurement procedureF1

Consequences

Impact

Level %

Chances

Level % Function

This method shows main order but does not give a cut-off point on which action should be taken and

which should not. The cut-off point can be defined if required.

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Decision Tree MethodMechanical Approach

-120000 80000

0.5Success

0.5 Electrical Approach 0 150000Win Contract

2 -50000 90000 0.5250000 90000 Fail-Change to mechanical

-120000 30000

0.7Success

Prepare ProposalMagnetisc Approach 0 120000

-50,000 20000-80000 84000 0.3

Fail-Change to mechanical

-120000 0

1 0.520,000 No Contract

0 -50000

No Proposal

0 0

Risk Assessment Matrix

Plan Risk Responses

Set of actions – Prevent or reduce the likelihood of occurrence or the impact of a risk

– Implement if the risk event occurs

Establishes a trigger point for implementing an action

Assigns responsibility for implementation

Avoid, mitigate, or accept the risk

Include a contingency fund to cover implementation cost

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RESPONSE TOWARDS RISKS

Techniques/Categories of response towards risks are:

• Avoid – Change the project plan to remove the risk or situation, to protect the project from the impact to the said risk. This involves redefining the requirements, gathering more information, improving communications, or using an expert.

• Mitigate – through design, suitable materials choice, using certain procedures, training, and others.

• Move – Shift to a third party through a contract agreement, insurance, warranty, guarantee, performance bond, and others.

• Accept – examples include the readiness to accept losses, sales of assets, increased loans, or buying more internal insurance.

• Contingency Plan – used when the project is in operation like increased cost, time, before and after the event.

This is all the responses that are taken regarding the risk or combination of risks.

Managing Risks for Information Systems Development

Risks can be categorized into seven types – Technological risk

– Human risk

– Usability risk

– Project team risk

– Project risk

– Organizational risk

– Strategic and political risk

IS Example: Risk Assessment Matrix

Critical Success Factors

Identify risks and their potential impacts before the project starts.

Involve the project team or experts in assessing risks.

Assign high priority to managing risks that have a high likelihood of occurrence and a high potential impact on the project outcome.

Develop response plans for addressing high priority risks.

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RISK DECISION MATRIX EXAMPLE

Establish Contingency

Plans

Status Regularly

Establish Contingency

PlansAct

Immediately if Cost Effective

Unacceptable

Take Immediate Action

Acceptable,Do nothing

Status Regularly

Establish Contingency

Plans

Status Frequently

Establish Contingency

PlansAct

Immediately if Cost Effective

Acceptable,Do nothing

Status Occasionally

Establish Contingency

Plans

Status Regularly

Establish Contingency

PlansAct

Immediately if Cost Effective

High

Medium

Low

Low

Medium

High

PR

OB

AB

ILIT

Y O

F F

AIL

UR

E

UNWANTED CONSEQUENCES

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Choosing a Response

Choosing a suitable response involves the appraisal of its effect on the original risk. One of the approaches is evaluating the cost/benefit. A choice can be made as follows:

• Prepare the baseline

• Consider each response and estimate the operational cost including the respective effects towards the original probability ratings.

• Re-evaluate the risk impact with the assumption that it occurred and the response taken.

Strategy forming in Risk Management

In risk management, the assessment of risk methods need to be studied. This includes the method for documentation. In the larger projects, a staff member should be appointed to manage this.

A good way is to hold risk workshops so that all that are involved will understand and will be unified in overcoming the associated risks.

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Identifying Risks

Identifying and categorising risks can follow:• WBS

– hardware, function, resource (finance, human, material), responsibilities (identify the parties responsible for the risk, contract).

• The field of work most exposed to risks.– Scheduling, capital costs, economics, contract.

• Financer’s classifications in the project.– Pre-completion risks (sponsors, shareholders, contractors, technical,

environment), during completion (operation and maintenance, raw material supply, product marketing), finance (cost overrun, foreign exchange, interest rates, inflation), country (political & socio-culture), miscellaneous (force major, operational bond).

Risk decision effectiveness

• Information quality

• Quality of Method/Rules

• The process of acceptance

Currently, the perception of the public towards risks

influences the company’s risk strategy very much

Summary

• Risk is an uncertain event that, if it occurs, can jeopardize accomplishing the project objective.

• Risk management involves identifying, assessing, and responding to project risks in order to minimize the likelihood of occurrence and/or potential impact of adverse events on the accomplishment of the project objective.

• Risk identification includes determining which risks may adversely affect the project objective and estimating what the potential impacts of each risk might be if it occurs.

• Assessing each risk involves determining the likelihood that the risk event will occur and the degree of impact the event will have on the project objective, and then prioritizing the risks.

• A risk response plan is a defined set of actions to prevent or reduce the likelihood of occurrence or the impact of a risk, or to implement if the risk event occurs.

• Regularly review and evaluate all risks to determine if there are any changes to the likelihood of occurrence or the potential impact of any of the risks, or if any new risks have been identified.

Assignment/Exercise(individual)

1. Base on the Assignment 5 project, list and categorize three risks that could jeopardize the project.

2. Create a risk assessment matrix including a response plan for each of the risks.

3. What risks for the project have the highest priority? Does the priority for a risk change as the project progresses?

4. What changes are made to the risk assessment matrix as the changes occur?

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