risk_mgmt unit 1
TRANSCRIPT
-
7/28/2019 Risk_Mgmt Unit 1
1/40
Risk Management
-
7/28/2019 Risk_Mgmt Unit 1
2/40
What is Risk??
The uncertainty that potential or known events mayimpact a project outcome.
The measure of the probability and severity ofadverse effects
The product of the probability of an event notoccurring and the consequence of not succeeding
-
7/28/2019 Risk_Mgmt Unit 1
3/40
What is a Risk?
PMIs (Program Management Institute)
definition allows for positive or negativeimpact
Rons Definition: a future event that has
some uncertainty of occurrence and has
some negative impact if it occurs.
-
7/28/2019 Risk_Mgmt Unit 1
4/40
What is Risk?? Two Parts:
1. Probability of Event Occurring
2. Consequences of Event Occurring (includinglevel of severity)
Consequences can be expressed in many units,so choose carefully (or choose several!)
Severity is subjective, so be careful
-
7/28/2019 Risk_Mgmt Unit 1
5/40
What is not a Risk?
A past or current problem
Not a future event
A certainty
Probability of occurrence = 1
An impossible event
Probability of occurrence = 0
A possible good thingNo negative consequence
-
7/28/2019 Risk_Mgmt Unit 1
6/40
Why Implement Risk Management??
Identify potential problem areas early
Prevent them from occurring
Develop a plan for dealing with the situations, ifthey occur
Reduces chances of costly changes or reduces
impact of unavoidable events: schedule delays,unexpected failures, etc.
Increases the likelihood of success!!
-
7/28/2019 Risk_Mgmt Unit 1
7/40
When Should Risk Management Be Implemented??
Planning begins before/at project startup
Preliminary identification and assessment start at the
earliest technical phase (Problem/need defn, OpsCon, Arch, etc)
Risks are tracked and managed throughout theproject/program life cycle
Plans for reporting should be established early toavoid confusion in responsibilities later
-
7/28/2019 Risk_Mgmt Unit 1
8/40
Risk Types
Three Most Recognized Types of Risk inGovernment and Commercial Practice
1. Technical
2. Cost
3. Schedule
-
7/28/2019 Risk_Mgmt Unit 1
9/40
Risk Types
1. Technical
The degree to which technology issufficiently mature and has been
demonstrated as capable of satisfyingprogram objectives.
Technical risk is frequently the driver in
development phase of a program.
-
7/28/2019 Risk_Mgmt Unit 1
10/40
Risk Types
2. Cost
Availability and sufficiency of funding forthe program.
Government appropriations and fundingcycles are also subject to political risks.
Commercial programs are subject tomarket risks.
-
7/28/2019 Risk_Mgmt Unit 1
11/40
Risk Types
3. Schedule
Adequacy of time allocated for the definedtasks.
Includes effects of changes due tounpredictable events such as: program andtechnical decisions, time-to-market
pressure, labor problems, weather andcustomer directed changes.
-
7/28/2019 Risk_Mgmt Unit 1
12/40
Risk Types
Others
Adequate staffing, resources
Professional/Enterprise reputation External
Political
Social
Regulatory/legislative
-
7/28/2019 Risk_Mgmt Unit 1
13/40
Sources of Risk
Property Risk
Liability Risk
Life Risk
Health Risk
Loss of income Risk
-
7/28/2019 Risk_Mgmt Unit 1
14/40
Risk Diversification and
Insurance Risk without pooling arrangement
Risk with pooling arrangement
Uncorrelated losses
Correlated losses
The role of insurance in risk diversification
-
7/28/2019 Risk_Mgmt Unit 1
15/40
Pooling Arrangements Pooling arrangement -- every participant
agrees to share losses equally, each payingthe average loss.
How does pooling arrange reduce risk?
Uncorrelated losses
Correlated losses
-
7/28/2019 Risk_Mgmt Unit 1
16/40
Effect of Risk Pooling of Uncorrelated Losses
do not change expected loss
reduce uncertainty (variance decreases, losses
become more predictable, maximum probable loss
declines)
distribution of costs becomes more symmetric (lessskewness)
-
7/28/2019 Risk_Mgmt Unit 1
17/40
Effect of Risk Pooling of Correlated Losses
Now allow correlation in losses
Result: uncertainty is not reduced as much
Intuition:
What happens to one person happens to others
One persons large loss does not tend to be offset by
others small losses
Therefore pooling does not reduce risk as much
-
7/28/2019 Risk_Mgmt Unit 1
18/40
Summary of Risk Pooling
Pooling reduces each participants risk
i.e., costs from loss exposure become more
predictable
Predictability increases with the number ofparticipants
Predictability decreases with correlation in
losses
-
7/28/2019 Risk_Mgmt Unit 1
19/40
Pooling Arrangements is Costly
Adding Participants
Distribution cost Underwriting cost
Verifying Losses
Collecting Assessments
-
7/28/2019 Risk_Mgmt Unit 1
20/40
Other Diversification Methods
stock market diversification
diversification across lines of business
within a firm
-
7/28/2019 Risk_Mgmt Unit 1
21/40
Risk Management as a Process Risk Management Definition:
The resources expended to understand, control andminimize the probability and consequence of an undesiredevent.
A diagnostic decision tool that enhances projectmanagement effectiveness and provides program/projectmanagers information to evaluate choices and keep the
program on track.
Just one of many tools in the PMs toolkit to run the project
-
7/28/2019 Risk_Mgmt Unit 1
22/40
PlanningIdentification
Assessment
Analysis
Closure
Risk Management Process Steps
Tracking, Management, Reporting
-
7/28/2019 Risk_Mgmt Unit 1
23/40
Planning
Should be established prior to or duringwork startup
Responsibility generally lies with themanager leader with input from all teammembers
Accommodate enterprise/organizationalneeds and interests
-
7/28/2019 Risk_Mgmt Unit 1
24/40
Planning
Assessment ApproachQualitative vs. Quantitative
Qualitative = assessment based on
experience
Quantitative = analysis based onmathematical formulas
Selection is dependent upon workresources, customer requirements,available tools, staffing experience
-
7/28/2019 Risk_Mgmt Unit 1
25/40
A loss exposure is a potential loss that may be associated with a
specific type of risk. We generate risk statement such that
consequences and response/action plans can be clearly defined
Meaningful title (one liner)
Understandable description of the risk (uncertainty and
consequence)
(optional) some suggestion of a priority or ranking of this risk
It can be done through:
Loss exposure checklist
Financial statement analysis
The flow chart
Identification
-
7/28/2019 Risk_Mgmt Unit 1
26/40
Criteria Application:
Qualitative assessment requiressimplistic values assigned for frequency
of occurrence and level of severity
Quantitative requires calculation ofprobability and severity factors for
mathematical analysis
Assessment/Analysis
-
7/28/2019 Risk_Mgmt Unit 1
27/40
Criteria Development
Simplified criteria
Severity of Consequence Low, Medium or High
Probability of Occurrence
Use number between 0 and 1
or L, M or H
Qualitative Assessment
-
7/28/2019 Risk_Mgmt Unit 1
28/40
Quantitative Risk Analysis
Two Approaches in Common Use
- Using simple combinations to make decisions
-Monte Carlo Simulation Programs
-
7/28/2019 Risk_Mgmt Unit 1
29/40
Risk Exposure analysis
Risk Exposure: RE = Prob (Loss) * Size(Loss)
Loss financial; reputation; future
prospects, For multiple sources of loss:
RE = Sum[Prob (Loss) * Size (Loss)]
all sources
-
7/28/2019 Risk_Mgmt Unit 1
30/40
Risk Prevention and Mitigation
Prevention vs. Mitigation:
Preventionanticipate and resolve theproblem before it occurs.
Mitigationassume risk can not beprevented and develop plan for reducingconsequence or reducing probability of
occurrence, or both
-
7/28/2019 Risk_Mgmt Unit 1
31/40
Risk Prevention and Mitigation
Prevention vs. Mitigation Examples:
Risk/consequence: Loss of key projectpersonnel resulting in product delivery
delaysPrevention: Salary/benefit increases, rewards formilestone successes
Mitigation: Promote remaining personnel with project
knowledge; hire new personnel with directly applicableexperience
-
7/28/2019 Risk_Mgmt Unit 1
32/40
Ensure that processes are ISO compliant ifappropriate (records, etc.)
Update Risk Management Plan as needed for
each closed itemMaintain archives/records to provideknowledge for future projects
Closure
-
7/28/2019 Risk_Mgmt Unit 1
33/40
Manage risks by providing detailed reportsat team level and summary reports atmanagement/customer levels
High impact or priority risks should receivevisibility at top levels (e.g. Top 5 or Top 10)
Summarized versions of risk worksheets
provide appropriate data for reports
Monitoring change in Risk status is just asimportant as final resolution
Tracking and Reporting
-
7/28/2019 Risk_Mgmt Unit 1
34/40
Exposure of physical assets
Property can be categorized as:
Real property: land, all structures permanently
attached to the land and whatever is growing onthe land.
Personal property: all property other than real
property.
-
7/28/2019 Risk_Mgmt Unit 1
35/40
Two parties to the contract
Insured
Insurer
All types of property are not insurable, it generally
cover loss to tangible property.
Coverage can not be purchased for loss ofgoodwill and loss of a copyright
Raw land is difficult to insure
-
7/28/2019 Risk_Mgmt Unit 1
36/40
Liability Exposure
One of the serious financial risk is loss
through legal liability for harm caused to
others. Insurance for liability loss is more complex
than property insurance as people other than
insured and insurer are involved.
-
7/28/2019 Risk_Mgmt Unit 1
37/40
Types of liability damages
Bodily injury: it includes payments for
medical bills, loss of income, rehabilitation
cost, loss of service, pain and sufferingdamages and punitive damages.
Property damage: there may be a loss from
actual damage to the property , as well asloss of use of the property. Loss of use may
include both loss of income and payment
for extra expense.
-
7/28/2019 Risk_Mgmt Unit 1
38/40
Personal injury: it results from libel(written,
printed or pictorial material that damages a
persons reputation), slander(spoken wordsthat are defamatory and/ or injurious to a
persons reputation), invasion of privacy,
false arrest and the like.
-
7/28/2019 Risk_Mgmt Unit 1
39/40
Legal expenses: Defense process can be
very costly, in some cases cost of defense
may be as great or greater than damageawards.
-
7/28/2019 Risk_Mgmt Unit 1
40/40
Types of liability exposure
Contractual Liability
Employeremployee liability
Property ownertenant liability
PrincipalAgent liability