Risk Management

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Presentation Description

What are the real risk that projects face, in this presentation we explore the real risks in projects

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Presentation Transcript

Risk Management: 

Risk Management Finding the hidden risk

Agenda: 

Agenda 2 Traditional approach to risk management Risk Case Studies Real sources of risk

Historic Project Performance: 

3 Type of project No. of cases (N) Avg. cost overrun % Standard deviation Rail 58 44.7 38.4 Bridges & tunnels 33 33.8 62.4 Road 167 20.4 29.9 Historic Project Performance Prof. Dr. Bent Flyvbjerg , Aalborg University, Denmark

Key Observations, Overrun: 

4 9 out of 10 projects have cost overruns Overrun is found in 20 nations on 5 continents Overrun is constant for the past 70 years, estimates have not improved Key Observations, Overrun Why? Prof. Dr. Bent Flyvbjerg , Aalborg University, Denmark

Causes of Cost Underestimation and Benefit Overestimation: 

5 Technical problems: Inadequate data and models Optimism bias: The human mind has a cognitive bias, presenting the future in a positive light Strategic misrepresentation: Costs are underestimated and benefits overestimated to gain approval Causes of Cost Underestimation and Benefit Overestimation Prof. Dr. Bent Flyvbjerg , Aalborg University, Denmark

What is a risk?: 

What is a risk? “An uncertain event that may have an effect on the achievement of one or more of the project’s objectives”

Case Study Review: 

Consider the case studies in groups Orlyval Dartford second crossing Eden Project Wembley Stadium What (if anything) went wrong? What realistic recommendations would you make for future projects? Who should implement these recommendations? 7 Case Study Review

The Project Risk Analysis and Management Process: 

The Project Risk Analysis and Management Process Initiate Identify Assess Plan responses Implement responses Manage the process Risk Management Plan Risk Log PIG Update the plan Outputs Decisions

Cause - Risk - Effect: 

Cause - Risk - Effect Cause Root cause of the risk e.g. Inability to recruit sufficient skilled people Risk What could happen e.g May result in insufficient resources for a testing programme Effect Consequences for the project objectives e.g. Failure to deliver critical product on time

Risk Identification (part1): 

Risk Identification (part1) Brainstorming Check lists Prompt lists Assumptions analysis Root cause analysis Previous experience

Identification (part 2): 

Identification (part 2) Once a risk has been identified it must be recorded on a risk register which includes: Identification number Description Category Owner Potential Impact Probability Risk reduction actions Identify Risk Log

Qualitative Risk Assessment: 

Qualitative Risk Assessment Most common form of risk assessment is a probability impact grid Evaluate the risk against two axis probability and impact Five levels of assessment Calculate a severity score for each risk PROBABILITY IMPACT VHI 0.8 HI 0.4 MED 0.2 LO 0.1 VLO 0.05 VLO 0.1 LO 0.3 MED 0.5 HI 0.7 VHI 0.9 A B C D

Response Planning: 

Response Planning Once the specific responses have been decided upon they should be included within the project plan: Risks are integrated into the project plan They are included in the WBS , schedule, budget and contingency. Risk process needs to be live. Implement responses Update the plan

Responding to risks? What treatments?: 

Responding to risks? What treatments? 14 Avoid Reduce Transfer Accept Fallback Plan Reduce Probability Reduce Impact Before Risk Event After Risk Event Passive Active

Secondary Risk: 

Original Risk A Response Secondary Risk A1 Reduced Risk A Secondary Risk Beware of secondary risks : contingent on taking a response 15

Risk response owners: 

Risk response owners Best placed to manage risk effectively Project team Other department Customer/client/user Subcontractor Empowered Responsibility with authority Accountable 16

Strengths and Weakness of Traditional Approach: 

Procedural Detailed Structured approach Scientific? Priority on largest risks? Codified in standards Auditable Focus on identification and analysis, not action Many risk are already managed as part of day to day management action. Record keeping can become more important than action Can ignore critical risks. Strengths Weaknesses Strengths and Weakness of Traditional Approach

Slide 18: 

Risk Attitude Risky Shift Group Think Abilene Paradox Cautious Shift Optimism Bias Human Aspects of Risk

Business Risk Ecosystem: 

Business Risk Ecosystem 19 External Constraints Other projects Stakeholder Requirements Project Internal Constraints Project

Business Risk Ecosystem: 

Business Risk Ecosystem 20 Project Other projects Stakeholder Requirements Internal Constraints External Constraints Project

Nature of Uncertainty and Forecasting: 

Nature of Uncertainty and Forecasting 21 Know Unknown Unknown Known

Define Objectives: 

Define Objectives 22 A Pyramid

Project Objectives: 

Project Objectives 23 Threats/Opportunities RISK Stakeholders ( & environment) Objectives Harrison Head of Project Risk & Value Management, Network Rail

Mason and Mitroff Analysis: 

Mason and Mitroff Analysis 24 Ambiguity of objective Control over objectives High Low High Low Strategic Assumptions Surfacing and Testing

Case Study Analysis: 

Case Study Analysis Review the project objectives Identify the degree of influence over the project objectives Complete a Mason and Mintroff analysis 25 Ambiguity of objective Control over objectives High Low High Low

Benefits of Identifying Real Risks: 

Benefits of Identifying Real Risks Clarity about the project objectives. Understanding of the project from stakeholders viewpoints. Focuses of attention on the ‘important’ risks. Streamlines risk process. Builds on work done for similar projects. Increased chance of project success.

Parallel Project Training: 

Parallel Project Training on-line APM e-learning Public & in-house training Slides at http://blog.parallelprojecttraining.com/