Ch 7 - Risk Management

Other Mitigation 2 Strategies

1.) mentoring - involves mentoring new project managers and team members. - see term 2.) cross-training - see term

Project Risk Analysis and Management (PRAM)

1.) A generic methodology that can be applied to multiple project environments and encompasses the key components of project risk management 2.) ultimate benefit of models such as PRAM is that they present a systematic alternative to ad hoc approaches to risk assessment, and hence can help organizations that may not have a clearly developed, comprehensive process for risk management and are instead locked into one or two aspects (e.g., risk identification or analysis of probability and consequences) 3.) PRAM model offers a step-by-step approach to creating a comprehensive and logically sequence method for analyzing and addressing project risk

Risk Breakdown Structure (RBS)

1.) A hierarchical depiction of the identified project risks arranged by risk category and subcategory that identifies the various areas and causes of potential risks. 2.) defined as "a source-oriented grouping of project risks that organizes and defines the total risk exposure of the project 3.) similar approach as the Work Breakdown Structure (WBS) 4.) goal is to create a hierarchical representation of the project's risks, starting at the higher, general level and breaking the risks down to more specific risks at lower levels

Risk Mitigation Strategies

1.) A risk response strategy whereby the project team acts to reduce the probability of occurrence or impact of a risk. 2.) a process whereby the organization takes concrete actions against risks, such as implementing controls and developing a disaster recovery plan 3.) Reducing the impact of a risk event by reducing the probability of its occurrence - Ex. develop a bonus or other incentive program to reward personnel who remain on the project as a useful response (risk mitigation) for the potential loss of key personnel during the project

Accept Risk

1.) Accept the likelihood and impact of the risk

Contingency Reserve

1.) An amount of money or time set aside and dedicated to the project to be used to cover unforeseen costs or time that was not identified as part of the planning process. 2.) several forms: financial and managerial contingency are among the most common methods used to mitigate project risks 3.) defined as the specific provision for unforeseen elements of cost within the defined project scope 4.) the goal of creating contingency funds is to ensure against unforeseen risks, the key to their effective use lies in proactive planning to establish reasonable triggers for their release

Risk Factor Identification methods

1.) Brainstorming meetings - see term - qualitative idea 2.) Expert opinion - see term - quantifiable method 3.) Past history - best source of information on future risks is history - past history may not prepare the company for new risks - experience is no guarantee of future events 4.) Multiple (or team based) assessments - single-case sources risks itself because of the potential bias in any one person's viewpoint - encourages a more comprehensive set of potential project risks identification - a collaborative approach can help persuade half-convinced or uncommitted members of the team to support

Managerial Contingency

1.) Budget safety measures that address higher-level risks. 2.) is an additional safety buffer applied at the project level 3.) another way this is used is to offset potentially disastrous "acts of God". which are natural disasters" that by definition are unforeseeable and highly disruptive

consequence of failure formula

1.) Cf = consequence of failure - Cc = consequence of failure COST category - Cs = consequence of failure SCHEDULE category - Cr = consequence of failure Reliability category - Cp = consequence of failure PERFORMANCE category 2.) Cf = (Cc + Cs + Cr + Cp)/4

sample risk management report form contains

1.) Customer: Project Name: 2.) Budget Number: Project Team 3.) Date of Most Recent Evaluation: 4.) Risk Description: 5.) Risk Assessment: Risk Factor: 6.) Discussion: 7.) Risk Reduction Plan: Owner 8.) Expected Outcome:

Qualitative

1.) Data in the form of recorded descriptions rather than numerical measurements. 2.) relating to, measuring, or measured by the quality of something rather than its quantity. 3.) Data in the form of words

Quantitative

1.) Data that is in numbers 2.) numbers 3.) relating to, measuring, or measured by the quantity of something rather than its quality.

a brainstorming meeting

1.) Meetings for developing a list of ideas or creative solutions to an issue confronting the operation 2.) bringing the members of the project team, top management, and even clients together for a brainstorming meeting can generate a good list of potential risk factors 3.) is a qualitative idea-creation technique, not one focused on decision making 4.) to be effective, it must be free of judgements, criticism of others; viewpoints, and pressure to confirm 5.) brainstorming environment needs to be made safe for the risk-averse

Workarounds

1.) Per PMBOK: A response to a threat that has occurred, for which a prior response had not been planned or was not effective. 2.) see them as methods (responses) for achieving an outcome when the original approach is not working due to unforeseen errors or problems with the system or process in use 3.) are a response to project risk by recognizing an unforeseen threat and creatively manufacturing a viable solution to the problem

probability of failure formula

1.) Pf = probability of failure - Pm = probability of failure maturity category - Pc = probability of failure Complexity category - Pd = probability of failure dependency category 2.) Pf = (Pm + Pc + Pd)/3

Share Risk

1.) Split the financial resources with someone else to replace or repair to cover the costs 2.) getting other parties to help pay for losses. **usually involves some sort of agreement or relationship** (ex. corporation) 3.) risk may be allocated proportionately among multiple members of the project

change management report system answers

1.) What? - identify clearly the source of risk that has been uncovered 2.) Who? - assign a project team member direct responsibility for following this issue and maintaining ownership regarding its resolution 3.) When? - establish a clear time frame, including milestones if necessary, that will determine when the expected mitigation is to occur - if it is impossible to identify a completion date in advance, then identify reasonable process goals en route to the final risk reduction point 4.) Why? - pinpoint the most likely reasons for the risk; that is, identify its cause to ensure that efforts toward its minimization will correspond appropriately with the reason the risk emerged 5.) How? - create a detailed plan for how the risk is to be abated - What steps has the project team member charted as a method for closing the project risk window? - Do they seem reasonable or far-fetched? - Too expensive in terms of money or time? - the strategy for risk abatement should preferably be developed as a collaborative effort among team members, including those with technical and administrative expertise, to ensure that the steps taken to solve the problem are technically logical and managerially possible

Change Management

1.) a part of risk mitigation strategies also requires a useful documentation system that all partners in the project can access 2.) any strategy aimed at minimizing a project risk factor, along with the member of the project team responsible for any action, must be clearly identified 3.) to be effective, the report must offer a comprehensive analysis of the problem, the plan for its minimization, a target date, and the expected outcome once the mitigation strategy has been implemented

common types of risk in projects

1.) absenteeism 2.) resignation 3.) staff being pulled away by management 4.) additional staff/skills not available 5.) training not as effective as desired 6.) initial specifications poor or incomplete 7.) work or change orders multiplying due to various problems 8.) enhancements taking longer than expected

risk mitigation 4 strategies

1.) accept risk - see term 2.) minimize risk - see term 3.) share risk - see term 4.) transfer risk - see term

Project Risk

1.) an UNCERTAIN EVENT or CONDITION that, if it occurs, has a POSITIVE or NEGATIVE effect on one or more PROJECT OBJECTIVES 2.) is important because, unlike in the past when project risk was automatically assumed to lead to negative consequences, it is now recognized as the source of either opportunities or threats - as a result, whereas in the past leading project management researchers assumed that project risk was "an estimate of the probability of loss from a large population of unwanted circumstances" 3.) risk in modern sense argues that the uncertainty that exists in any project can result in either positive or negative outcomes

risk impact matrix reasons to use

1.) better equipped to recognize the sorts of risks to which the project is subject and the "criticality" of each of those risks in terms of their potential impact on project performance 2.) the types of risks are most relevant to project planning are those that the team classifies as having high likelihood of occurring (probability) and high potential for harming the project (impact) 3.) require detailed contingency planning to adequately protect the project's development cycle

Risk and opportunity:

1.) both decrease throughout the project life cycle 2.) are opposite of the same coin - opportunity emerges from favorable project uncertainties - negative consequences from unfavorable events 3.) early on in the life of a project, both RISK and OPPORTUNITY are HIGH due to the basic uncertainty early in a project's life cycle 4.) the severity of negative consequences (the "amour at stake") is minimal early in the project's life - few resources have yet been committed to the project 5.) the periods of greatest worry at which point uncertainty is still relatively high and the amount at stake is rapidly increasing are the: - execute stage - finish stages

formula of contingency expected cost

1.) calculating contingency expected cost: (task estimated cost)(task contingency multiplier) = expected cost

consequences of failure (Cf)

1.) concerned with the issues that will highlight the EFFECTS of project failure 2.) requires us to critically evaluate the results of the project's success or failure along with several key dimensions

PRAM 9 phases of Risk Assessment

1.) define - make sure the project is well-defined, including all deliverables, statement of work, and project scope 2.) focus - begin to plan the risk management process as a project in its own right, as well as determining the best methods for addressing project risk given the unique nature of the project being undertaken 3.) identify - assess the specific sources of the risk at the outset of the project, including the need to fashion appropriate responses 4.) structure - review and define the way we have classified risks for he project, determine if there are commonalities across the various risks we have uncovered (suggesting common causes of the risks that can be addressed at a higher level), and create a prioritization scheme for addressing these risks 5.) clarify ownership of risks distinguish between risks that the project organization is willing to handle and those that the clients are expected to accept, as well as allocate responsibility for managing risks and responses 6.) estimate - develop a reasonable estimate of the impacts on the project of both the identified risks and their proposed solutions - What are the likely scenarios and their relative potential costs? 7.) evaluate - critically evaluate the results of the estimated phase to determine the most likely plan for mitigating potential risks - begin to prioritize risks and the project team's responses 8.) plan - produce a project risk management plan that proactively offers risk mitigation strategies for the project as needed 9.) manage - monitor actual progress with the project and associated risk management plans, responding to any variances in these plans and an eye toward developing them for the future

PRAM reasons to use this approach

1.) each of the 9 phases in the PRAM approach is based on a specific purpose and requires the completion of a comprehensive set of targets (deliverables) 2.) completing PRAM gives the project team a temp[late for getting the most out of risk management and helps them sharpen their efforts in the most productive manner 3.) creates a document for merging risk management with overall project planning, linking them in a collaborative sense 4.) following PRAM method it creates phase specific project deliverables that can be identified, allowing the project team to create comprehensive project risk management documentation while addressing specific steps along the way 5.) these deliverables are important because they indicate to project managers exactly the types of information they should be collecting at different phases of the project and the materials they should make available to relevant stakeholders

fixed-price contract

1.) establish a firm, fixed price for the project upfront. should the project's budget begin to slip, the project organization must bear the full cost of these overruns 2.) alternatively, if our goal is to ensure project functionality (quality and performance), the concept of liquidated damages offers a way to transfer risk through contracts

minimize risk

1.) even if judged acceptable by the principles, the decision should be implemented so as minimize all of the risks and avoid any unnecessary risks

Executive Risk

1.) execution risk is a broad category that seeks to assess any UNIQUE circumstances or uncertainties that could have a negative impact on the execution of the plan 2.) what are the specific unknowns related to the execution of the project plan?

risk identification classification clusters

1.) financial risk - refers to the financial exposure a firm opens itself to developing a project - see term 2.) technical risk - when new projects contain unique technical elements or unproven technology, they are being developed under significant technical risk - see term 3.) commercial risk - is an uncertainty that companies may willingly accept, given that it is virtually impossible to accurately predict customer acceptance of a new product or service venture - see term 4.) execution risk - execution risk is a broad category that seeks to assess any UNIQUE circumstances or uncertainties that could have a negative impact on the execution of the plan - see term 5.) contractual or legal risk - is common with projects in which strict terms and conditions are drawn up in advance - many forms of contracted terms (e.g., cost-plus terms, fixed cost, liquidated damages) result in a significant degree of project risk - see term

budget reserves & Project managers

1.) important that open channels of COMMUNICATION be maintained between top management and the project manager regarding the availability and use of CONTINGENCY RESERVE funds 2.) Project managers MUST be fully AWARE of the guidelines for requesting additional funding and how an extra project budget is to be disbursed 3.) Problems arise if either group uses contingency reserves as a political tool or method for maintaining control; will create distrust and secrecy

probability of failure (Pf)

1.) interested in identifying any factors that can significantly affect the probability that the new project can be successfully completed 2.) this category requires us to focus on the potential CAUSES of failure

cross-training

1.) involves cross-training project team personnel so that they can fill in for each other in the case of unforeseen circumstances 2.) cross-training requires that members of the project team learn not only their own duties but also the roles that other team members are expected to perform

Mentoring

1.) involves mentoring new project managers and team members 2.) goal of mentoring is to help ease new project personnel into their duties by giving them a formal contact who can help clarify problems, suggest solutions, and monitor them as they develop project skills

Commercial Risk

1.) is an uncertainty that companies may willingly accept, given that it is virtually impossible to accurately predict customer acceptance of a new product or service venture 2.) for projects that have been developed for a definite commercial intent (profitability), a constant unknown is their degree of commercial success once they have been introduced into the marketplace

contractual or legal risk

1.) is common with projects in which strict terms and conditions are drawn up in advance 2.) many forms of contracted terms (e.g., cost-plus terms, fixed cost, liquidated damages) result in a significant degree of project risk 3.) companies naturally seek to limit their legal exposure through legal protection, but it is sometimes impossible to pass along contractual risk to other parties

risk management strategy goal

1.) is to minimize the company's exposure to this unpleasant combination of uncertainty and potential for negative consequences

task contingency

1.) most COMMON contingency 2.) is used to offset budget cutbacks, schedule overruns, or other unforeseen circumstances accruing to individual tasks or project work packages 3.) these budget reserves can be a valuable form of risk management because they provide the project team with a buttress in the face of task completion difficulties 4.) becomes extremely important as a method for offsetting the project team's inability to make an accurate budget estimate 5.) calculating contingency expected cost: (task estimated cost)(task contingency multiplier) = expected cost 6.) involves the risk associated with the development of individual work packages or even tasks

control and documentation

1.) once project risk analysis has been completed, it is important to begin developing a reporting and documentation system for cataloging and future reference 2.) control and documentation methods help managers classify and codify the various risks the firm faces, its responses to these risks, and the outcome of its response strategies

Risk Identification 2 main methods

1.) qualitative (see term) - opinions - possibility 2.) quantitative (see term) - measurable - facts

expert opinion

1.) recommendations of individuals who have expertise in a particular area that are sometimes the basis of a group's decision-making process 2.) Ideas, testimony, conclusions or judgments of witnesses or recognized authorities 3.) 2 alternative ways for assessing risks: quantifiable method (referred to as Delphi approach, which collects and consolidates the judgements of isolated anonymous respondents-wisdom of the set of experts); the simpler more intuitive method (for using expert judgements is based on the principle the "experience counts")

financial risk

1.) refers to the financial exposure a firm opens itself to developing a project 2.) risk associated with a monetary outlay; includes the initial cost of the purchase, as well as the costs of using the item or service

Risk Impact Matrix

1.) reflects all identified project risks, each prioritized according to the probability of its occurrence, along with the potential consequences for the project, the project team, or the sponsoring organization should the worst come to pass 2.) probability combined with consequences provides a sense of overall risk impact 3.) with such a prioritization scheme, the project team is better able to focus their attention where their energy can do the most good 4.) alternative from high-low classification is 3 levels: high, medium, and low. This matrix refined by classifying risk impact as either serious, moderate, or minor; a more complex matrix is to develop a sense of priority in addressing the various risks 5.) quantitative method

Risk Management 4 stage process

1.) risk IDENTIFICATION - the process of determining the specific risk factors that can reasonably be expected to affect your project - see term 2.) ANALYSIS of probability and consequences - the potential impact of these risk factors, determined by how likely they are to occur and the effect they would have on the project if they did occur - see term 3.) risk MITIGATION strategies - steps taken to minimize the potential impact of those risk factors deemed sufficiently threatening to the project - see term 4.) CONTROL and documentation - creating a knowledge base for future projects - see term

PRAM methodology key features

1.) risk management follow a LIFE CYCLE - risk management is integrated throughout the project's entire life cycle 2.) Risk management STRATEGY CHNAGES over the project life cycle - the PRAM approach tailors different strategies for different project life cycle stages 3.) SYNTHESIZED, COHERENT approach - PRAM recommends that all relevant risk management tools be applied as they are needed, rather than in a "pick-and choose" approach

contingency reserves usage

1.) task contingency - see term 2.) managerial contingency - see term - financial and managerial contingency most common 3.) task contingency - see term

risk 2 elements

1.) the likelihood that the event is going to occur 2.) the consequence, or effects, of its occurrence

Risk Identification

1.) the process of determining the specific risk factors that can reasonably be expected to affect your project

Project Risk Scoring

1.) use project team's consensus to determine the score for each PROBABILITY of FAILURE category - Maturity (Pm) - Complexity (Pc) - Dependency (Pd) 2.) calculate overall probability: Pf = (Pm + Pc + Pd)/3 3.) Use project team's consensus to determine the score for each CONSEQUENCE of FAILURE category: - Cost (Cc) - schedule (Cs) - Reliability (Cr) - Performance (Cp) 4.) calculate overall consequence of failure: Cf = (Cc + Cs + Cr + Cp)/4 5.) common rule of thumb assigns any project scoring below .30 as low risk; .70 as "medium risk"; project scoring over .70 as "high risk. 6.) rule of thumb: - low risk is RF<.30 - Medium risk is RF = .30 to .70 - High risk is RF > .70 7.) overall Risk Factor formula: - RF = Pf + Cf - (Pf)(Cf)

insurance

1.) useful means for risk mitigation, particularly in certain types of projects such as construction 2.) contractors acquire insurance to offset the risks from the project that are often covered under contractual terms 3.) one of the duties of project mangers is these settings is to ensure that all certificates of compliance are up to date; that is , all necessary insurance has been acquired and is valid for the life of the project to mitigate against potential risks

Risk Management Questions to consider

1.) what is likely to happen (the probability and impact)? 2.) What can be done to minimize the probability or impact of these events? 3.) What cues will signal the need for such action (i.e., what clues should I actively look for)? 4.) What are the likely outcomes of these problems and my anticipated reactions?

transfer risk

1.) when it is impossible to change the nature of the risk either through elimination or minimization, it may be possible to shift the risks bound up in the project to another party 2.) fixed-price contracts -see term 3.) liquidated damages -see term

Technical Risk

1.) when new projects contain unique technical elements or unproven technology, they are being developed under significant technical risk 2.) Technology availability and cost, complexity of the technical requirements, performance and reliability, quality, project requirements, costs, etc. 3.) the greater the level of technical risk, the greater the possibility of project underperformance in meeting specification requirements

Risk Management

1.) which recognizes the capacity of any project to run into trouble, is defined as the ART and SCIENCE of IDENTIFYING, ANALYZING, and RESPONDING to risk factors throughout the LIFE OF A PROJECT and in the best interests of its objectives 2.) anticipating, at the beginning of the project unexpected situations that may arise that are beyond the project manager's control

Project Event Risk Formula

Risk = (Probability of Event) x (Consequences of Event)