risk lecturette 240710

8/13/2019 Risk Lecturette 240710

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RISK

The Essentials


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Essential Questions

WHAT

WHY

WHEN HOW

WHERE

WHO

I keep six w ise serving men.

(They taught m e all I knew).

There names are What & Why & When,

and How & Where & Who

(Rudyard Kip l ing 1902)


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WHAT

If it can go wrongit will (Murphys Law) Identification of what can go wrong, the consequences &

the likelihood. Effect of uncertainty on objectives

Perception Planning for contingencies Risk Context Risk management is a structured approach to identifying,

assessing and controlling risks that emerge during the

course of the policy, programme or project lifecycle. Itspurpose is to support better decision-making throughunderstanding the risks inherent in a proposal and theirlikely impact.


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bhopal


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Context

REQUIREMENTS SUBCONTRACTORS PROJECT DEPENDENCIES ESTIMATING

TECHNOLGY SUPPLIERS RESOURCES PLANNING

COMPLEXITY REGULATIONS FUNDING CONTROLING

INTERFACES MARKET PRIORITIES COMMUNICATION

PERFORMANCE CUSTOMER CONTRACTS

RELIABILITY WEATHER PROCUREMENT

QUALITY

PROJECT

MANAGEMENT

PROJECT

TECHNICAL EXTERNAL ORGANISATIONAL


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People & Perception

Attitude

Behaviour

Consequences


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Risk Horseshoe

Neutral

Reasonable Behavoiur

Extreme Behaviour

Risk Taker Risk Averse

Increasing Potential

Profitability

Increasing Potential

Liability

Fair' apportionment of risk


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Balance


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WHY

Objective view of a Project / Undertaking so that whatcan go wrong is incorporated into the Plan together with

Actions that may be taken, by who & when Risk Management facilitates decision making and allows

decisions to be made based on degree of uncertainty. Planning Contingencies (Cost & Time) Ascertain Degree of Exposure Communication / Responsibility / Allocation Optimism Bias

Effective risk management helps the achievement ofwider aims, such as: effective change management; theefficient use of resources; better project management;minimising waste and fraud; and supporting innovation.


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WHEN

Planning- Risk Management Process adopted

Execution

- Risk may or may not be realised Monitoring & Control- Realising a risk/hazard is materialising and

taking action as required

Close Out- Learning & updating knowledge CONTINOUSNOT A Tick-in-the-box


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HOW

Codes

ANZ STANDARD 4360:2004; BS31100:2008;

National/Govt / State Codes In house

Tailored to individual business

PMI Generic to suit most projects


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Approaches


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Flow Chart


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RISK MONITORING & CONTROL

"FINAL" PLAN

TIME & COST RESERVES

RISK RESPONSE PLAN

ADDITIONAL

'NON-CRITICAL'

RISK PLANNING

IDENTIFY RISKS

SHORTLIST RISKS THROUGH RISK

ANALYSIS

NON-CRITICAL'

RISKS

PROBABILITY /

IMPACT

CHANGED VIA

PLANNING

RESIDUAL RISK

DETERMINED

ELIMINATE BY

CHANGING O/A

PLAN

After RCA 'Tricks of

the Trade'

CONTINGENCY

PLANNING

EXISTING POLICIES

/RULES + CHANGESFALLBACK PLANNING SECONDARY RISKS RISK OWNERS


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Risk Planning

Risk Identification

Qualitative Analysis Quantitative Analysis

Risk Response Plan

Risk Monitoring & Control

PLANNING

PMI PMBoKRisk Management Process


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Planning

Inputs

- Scope / Cost-Time estimates / Comms /Organisation Process / Enterprise Factors

Tools & Techniques

- Planning meetings & Analysis

Outputs- Risk Management Plan


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Planning

Strategic context - the environment withinwhich the project/organisation operates;

Organisational context - the organisationitself, its objectives, core activity andoperations; and

Risk management context - theparameters for dealing with risk


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Identification

Inputs

- Risk Management Plan / Activity $/Timeestimates / Other Plans/ SHolder Register /

Organisation Processes Tools & Techniques

- Review Documents / Information gathering /Checklists / Assumptions / Diagrams/ Expert

Judgement Outputs

- Risk Register


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Qualitative Assessment

Inputs

- Risk Register / risk plan / Scope /Organisation Process Assets

Tools & Techniques- Risk Probability & Impact Assessment /

Risk Categorization & Prioritization /

Expert Judgement Outputs

- Updated Risk Register


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Qualitative Analysis

Probability High (3) Almost certain - > 70%

Medium (2) Quiet Likely 30% - 70 %

Low (1) Possible 1% of Project value

Medium (2) 0.05 to 1% of Project value

Low (1) < 0.05% of Project value


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Evaluation

Risk = Consequences x Likelihood

Impact

L (1) M (2) H (3)

H (3) M H H

Probability M (2) L M H

L (1) L L M


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Evaluation / Ranking

LIKELIHOOD CONSEQUENCE

Insignificant Minor Moderate Major Catastrophic

Almost Certain Significant Risk Significant Risk High Risk High Risk High Risk

Likely Moderate Risk Significant Risk Significant Risk High Risk High Risk

Moderate Low Risk Moderate Risk Significant Risk High Risk High Risk

Unlikely Low Risk Low Risk Moderate Risk Significant Risk High Risk

Rare Low Risk Low Risk Moderate Risk Significant Risk Significant Risk


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Quantitative Assessment

Inputs

- Risk Register / Risk Plan / Cost &Schedule Plans

Tools & Techniques

- Data gathering / Quantitative Analysis /Expert Judgement

Outputs

- Updated Risk Register


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Quantitative Analysis


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Quantitative Analysis

Cost Probability

Total cost Cumulative Frequency Line Graph

-

0.10

0.20

0.30

0.40

0.50

0.60

0.700.80

0.90

1.00

405 410 415 420 425 430 435 440 445

Total cost (value)

Probability

Total cost frequency distribution

-

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

0.20

40

7.3

3

40

9.6

8

412

.0

4

414

.39

41

6.

74

41

9.

10

42

1.4

5

423

.8

0

426

.1

6

428

.5

1

430

.86

43

3.

22

43

5.

57

43

7.9

2

440

.2

8

442

.6

3

444

.98

44

7.

34

44

9.6

9

45

2.0

4

Total Cost (value)

Probability


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Ignoring a risk does not make it go away.

You pay for your risk management if youdo it or notunfortunately it may cost you

more to cure than prevent. (An ounce ofprevention is worth more than a pound ofcure


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Decision TreeUse m echa nical method

+$80,000

+$80,000

0.500

Electronic success

+$150,000

0.500 Try elec tronic method +$150,000

Awa rde d co ntra c t

+$90,000 0.500

+$90,000 Elec tronic fa ilure Use mecha nica l method

+$30,000

+$30,000 +$30,000

0.700

Magnetic success

Prepare proposa l +$120,000

Try ma gnetic method +$120,000

+$20,000

+$84,000 0.300

M a gn et ic fa ilu re Use m e ch a nic a l m et ho d

$0

$0 $0

0.500

+$20,000 Not a ward ed contract

-$50,000

-$50,000

Don't prepare propo sal

$0

$0


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Response Planning

Inputs

- Risk Register & Risk Management Plan

Tools & Techniques- Strategies forve / +ve risks, Contingency

Responses

Outputs- Risk Register / Contract Decisions /

Update Documents / Project Mngmnt Plan


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Transfer - Share

Treat /ReduceAdaptMitigate (Enhance)

TerminateAbandon - Avoid Take - Accept (Exploit)


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Treatment


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Treatment

High

Low

DELEGATE

Expected Risks with

Procedures

IMPACT

PROBABILITY High

MONITOR

Routine Matters, Trivail

accepted risks

CONTROL

Hazards

ACTIVELY MANAGE

Preparation of scenarios &

plans


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Monitoring & Control

Inputs

- Risk Register / PM Plan / Work PerformanceInformation & Reports

Tools & Techniques- Risk re-assessment / Audits / Variance & Trend

analysis / Performance analysis, ReserveAnalysis / Status Meetings

Outputs- Update Risk Register / Change Requests /

Update Documents & Plans/ Org assets


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Realistic Reporting


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Close Out

Not in PMBoK

BUT part of Procurement close out


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WHERE

Internal

Within an organisation / project / technicalcapacity

External

Government, Legal, Environmental, SupplierOrganisations.


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WHO

Financial /Legislative Authority Commercial / Risk Capacity Legal relationships between parties Technical personnel to confirm compliance /

quality/ approach Estimators Contract Administrators Planning and Project Controls Project Managers to orchestrate Governance to ensure performance


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SUMMARYThe Essentials

Planning to ensure appropriate risks areidentified, evaluated and monitored.

Suppliers are selected to provide the requiredwork/services during project evolution

Administration to ensure and performance is asrequired and/or change is identified, capturedand controlled wrt impact on cost / time / quality /scope

Closure to finalise the buying/ selling processand ensure lessons are learnt and legal closureof deals.


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based on SCOPE, cause & consequences

based on likelihood/severity

Reviews

based on AVOIDANCE, ACCEPTANCE (Mitigation),

TRANSFER, INSURE

based on PROCEDURES/METHODS, REVIEWS

REPORTS, MODIFICATIONS & closure

"EFFECTIVE RISK MANAGEMENT IS SEQUENTIAL & CONTINUOUS"

IDENTIFICATION

ANALYSE / QUANTIFY

PLAN / TREAT

MONITOR,


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Impact / Consequence /Severity

CATASTROPHIC

MAJOR

MODERATE

MINOR

INSIGNIFICANT


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Likelihood / Frequency

RARE -No recorded incidents or little opportunity for occurrence

UNLIKELY -

MODERATE -

LIKELY -

ALMOST CERTAIN -


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If budget is set at 420 then it is only 30%probable that this figure will be met. If theorganisation wants 90% confidence then 430 is

required then a reserve of 10 is required (430420/420) which is a contingency of ~2.5%. Thecurve is flatter and wider for projects with greateruncertainty say on price of duration than a

definitive cost, in which case the line is vertical. Decision tree


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Flow


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Risk Outcomes


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But
http://www.nickleeson.com/books/back_from_the_brink.html


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