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    Chapter 7-Managing Risk

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    Joyce Ann Juyo
    The document discusses risk management for projects. It describes the risk management process, which includes identifying risks, assessing their likelihood and impact, developing responses, and monitoring risks over the course of the project. Contingency planning is also covered, with examples of developing contingency plans and budgets to mitigate risks. Project Evaluation Review Technique (PERT) is summarized as a method to statistically estimate project durations based on optimistic, pessimistic, and weighted activity time estimates.

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    Chapter 7-Managing Risk

    Uploaded by

    Joyce Ann Juyo
    258 views37 pages
    The document discusses risk management for projects. It describes the risk management process, which includes identifying risks, assessing their likelihood and impact, developing responses, and monitoring risks over the course of the project. Contingency planning is also covered, with examples of developing contingency plans and budgets to mitigate risks. Project Evaluation Review Technique (PERT) is summarized as a method to statistically estimate project durations based on optimistic, pessimistic, and weighted activity time estimates.

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    The document discusses risk management for projects. It describes the risk management process, which includes identifying risks, assessing their likelihood and impact, developing responses, and monitoring risks over the course of the project. Contingency planning is also covered, with examples of developing contingency plans and budgets to mitigate risks. Project Evaluation Review Technique (PERT) is summarized as a method to statistically estimate project durations based on optimistic, pessimistic, and weighted activity time estimates.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    258 views37 pages

    Chapter 7-Managing Risk

    Uploaded by

    Joyce Ann Juyo
    The document discusses risk management for projects. It describes the risk management process, which includes identifying risks, assessing their likelihood and impact, developing responses, and monitoring risks over the course of the project. Contingency planning is also covered, with examples of developing contingency plans and budgets to mitigate risks. Project Evaluation Review Technique (PERT) is summarized as a method to statistically estimate project durations based on optimistic, pessimistic, and weighted activity time estimates.

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    of 37

    Project Management

    MANAGING RISK

    Haery Sihombing & Nor Akramin


    Pensyarah Pelawat Fakulti Kejuruteraan Pembuatan Universiti Teknologi Malaysia Melaka

    Risk Management Process


    Risk
    Uncertain or chance events that planning can not overcome or control.

    Risk Management
    A proactive attempt to recognize and manage internal events and external threats that affect the likelihood of a projects success.
    What can go wrong (risk event). How to minimize the risk event s impact (consequences). What can be done before an event occurs (anticipation). What to do when an event occurs (contingency plans).

    The Risk Event Graph

    Risk Managements Benefits


    A proactive rather than reactive approach. Reduces surprises and negative consequences. Prepares the project manager to take advantage of appropriate risks. Provides better control over the future. Improves chances of reaching project performance objectives within budget and on time.

    The Risk Management Process

    Managing Risk
    Step 1: Risk Identification
    Generate a list of possible risks through brainstorming, problem identification and risk profiling.
    Macro risks first, then specific events

    Step 2: Risk assessment


    Scenario analysis Risk assessment matrix Failure Mode and Effects Analysis (FMEA) Probability analysis
    Decision trees, NPV, and PERT

    Semiquantitative scenario analysis

    Partial Risk Profile for Product Development Project

    Risk Assessment Form

    Risk Severity Matrix

    Risk Schedules

    Managing Risk (contd)


    Step 3: Risk Response Development
    Mitigating Risk
    Reducing the likelihood an adverse event will occur. Reducing impact of adverse event.

    Transferring Risk
    Paying a premium to pass the risk to another party.

    Avoiding Risk
    Changing the project plan to eliminate the risk or condition.

    Sharing Risk
    Allocating risk to different parties

    Retaining Risk
    Making a conscious decision to accept the risk.

    Contingency Planning
    Contingency Plan
    An alternative plan that will be used if a possible foreseen risk event actually occurs. A plan of actions that will reduce or mitigate the negative impact (consequences) of a risk event.

    Risks of Not Having a Contingency Plan


    Having no plan may slow managerial response. Decisions made under pressure can be potentially dangerous and costly.

    Risk Response Matrix

    Risk and Contingency Planning


    Technical Risks
    Backup strategies if chosen technology fails. Assessing whether technical uncertainties can be resolved.

    Schedule Risks
    Use of slack increases the risk of a late project finish. Imposed duration dates (absolute project finish date) Compression of project schedules due to a shortened project duration date.

    Risk and Contingency Planning (contd)


    Costs Risks
    Time/cost dependency links: costs increase when problems take longer to solve than expected. Deciding to use the schedule to solve cash flow problems should be avoided. Price protection risks (a rise in input costs) increase if the duration of a project is increased.

    Funding Risks
    Changes in the supply of funds for the project can dramatically affect the likelihood of implementation or successful completion of a project.

    Contingency Funding and Time Buffers


    Contingency Funds
    Funds to cover project risksidentified and unknown.
    Size of funds reflects overall risk of a project

    Budget reserves
    Are linked to the identified risks of specific work packages.

    Management reserves
    Are large funds to be used to cover major unforeseen risks (e.g., change in project scope) of the total project.

    Time Buffers
    Amounts of time used to compensate for unplanned delays in the project schedule.

    Contingency Fund Estimate (000s)

    Managing Risk (contd)


    Step 4: Risk Response Control
    Risk control
    Execution of the risk response strategy Monitoring of triggering events Initiating contingency plans Watching for new risks

    Establishing a Change Management System


    Monitoring, tracking, and reporting risk Fostering an open organization environment Repeating risk identification/assessment exercises Assigning and documenting responsibility for managing risk

    Change Management Control


    Sources of Change
    Project scope changes Implementation of contingency plans Improvement changes

    Change Management Control


    The Change Control Process
    Identify proposed changes. List expected effects of proposed changes on schedule and budget. Review, evaluate, and approve or disapprove of changes formally. Negotiate and resolve conflicts of change, condition, and cost. Communicate changes to parties affected. Assign responsibility for implementing change. Adjust master schedule and budget. Track all changes that are to be implemented

    The Change Control Process

    Benefits of a Change Control System


    1. Inconsequential changes are discouraged by the formal process. 2. Costs of changes are maintained in a log. 3. Integrity of the WBS and performance measures is maintained. 4. Allocation and use of budget and management reserve funds are tracked. 5. Responsibility for implementation is clarified. 6. Effect of changes is visible to all parties involved. 7. Implementation of change is monitored. 8. Scope changes will be quickly reflected in baseline and performance measures.

    Change Request Form

    Change Request Log

    Key Terms
    Avoiding risk Budget reserve Change management system Contingency plan Management reserve Mitigating risk Risk Risk profile Risk severity matrix Scenario analysis Sharing risk Time Buffer Transferring risk

    Chapter 7 Appendix

    PERT and PERT Simulation

    PERTPROGRAM EVALUATION REVIEW PERT TECHNIQUE Assumes each activity duration has a range that statistically follows a beta distribution. PERT uses three time estimates for each activity: optimistic, pessimistic, and a weighted average to represent activity durations.
    Knowing the weighted average and variances for each activity allows the project planner to compute the probability of meeting different project durations.

    Activity and Project Frequency Distributions

    Activity Time Calculations


    The weighted average activity time is computed by the following formula:

    (1)

    Activity Time Calculations (contd)


    The variability in the activity time estimates is approximated by the following equations:
    The standard deviation for the activity:

    (2)

    The standard deviation for the project:

    (3)

    Note the standard deviation of the activity is squared in this equation; this is also called variance. This sum includes only activities on the critical path(s) or path being reviewed.

    Activity Times and Variances

    Probability of Completing the Project


    The equation below is used to compute the Z value found in statistical tables (Z = number of standard deviations from the mean), which, in turn, tells the probability of completing the project in the time specified.

    (7.4)

    Hypothetical Network

    Hypothetical Network (contd)

    Possible Project Duration

    Z Values

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