Project Risk Management Project Risk Management

Project Risk Management Project Risk Management

Project Risk Management
Project Risk Management
Lecture / colloquium
doc. Ing. Michal Korecký, Ph. D.
ŠKODA TRANSPORTATION a.s.
What is Risk & Risk Management
2.
Risk in Project Management
Project Management – the Basics
Project Example
3.
Risk Management Process
1.
Project Risk Identification and Analysis
Project Risk Response and Management
3.
4.
Project Risk Management - Own Project
2h
3h
2h
3h
4h
8h
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
1
Project Risk Management
Project Risk Management
Lecture / colloquium
Doc. Ing. Michal Korecký, Ph. D.
ŠKODA TRANSPORTATION a.s.
For better orientation in the Lecture
Theory, examples and summary of lecture units
are combined
Example – green layer under text
Summary – grey layer under text
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
2
Project Risk Management
WHAT IS RISK
What can you imagine under the word „risk“?
but also:
Hazard
Threat
Gambling
Failure
Stock market
Loss of money
Fire in House
Theft
Cheaper buy
Health Hazard
negative consequences - loss
Move to new flat
Business
gain or loss
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
3
Project Risk Management
WHAT IS RISK
Wikipedia:
origin of word risk in Greek rizikon meaning root (Homer
/ approx. 800 B.C.: Odysseus tried to save himself from
Charybdee at the cliffs of Scylla by grapping the roots of
a wild fig tree), later used in Latin for cliff
16th century in Europe: rischio or riezgo both derived
from the Arabic word "‫"رزق‬, "rizk„ = 'to seek prosperity'
In English language since 17th century
Generally percieved as something negative
It´s true for risks in health, safety, environment
In human activities – we risk to gain
In life
In business
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
4
Project Risk Management
Types of Risk
1. Pure risk
Only negative consequences
Fire in flat
Car accident, Plane crash
Job-related disease
Environmental hazards
2. Speculative / Business risk
Positive (wished) or negative (unwished) consequences
bet in lottery, bet between friends
Investment at stock market
Lease of kiosk for selling refreshments
Building new production plant
Contract with sales agent
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
5
Project Risk Management
Risk Consequences = Impacts
Downside risk –
threat
Business risk –
opportunity or
threat
0
No impact
-
Negative impact
0
Neutral impact
-
Negative impact
+
Positive impact
or
or
or
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
6
Project Risk Management
Risk Consequences = Impacts: Examples
risk
A Car accident or car theft
possible impact
0
-
0
-
0
-
0
-
+
0
-
+
B Loss of cash CZK 1000
C Death by plane travel
D Stock value fluctuation
E Success in job (fulfilling of
tasks, boss´s satisfaction)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
Risk Consequences = Impacts
WHAT IS IMPACTED?
Our objectives / goals are impacted
A Car accident or car theft
B Loss of cash CZK 1000
Health, keeping
schedule, wealth
Wealth, well-being
C Death by plane travel
Long Life, Family life
D Stock value fluctuation
Profit, source of
money for pension
High salary, bonuses,
promotion
E Success in job (fulfilling of
tasks, boss´s satisfaction)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
Risk Consequences = Impacts
HOW TO RESPOND?
risk
A Car accident
or car theft
objectives
response
Health, keeping Insurance, safe car,
schedule, wealth GPS monitoring
B Loss of cash
CZK 1000
Wealth, wellbeing
C Death by
plane travel
D Stock value
fluctuation
E Success in
job
Be careful, have on
little cash, use credit
card
Long Life, Family Avoid using plane, life
life
insurance
Profit, money for Diversification of
pension
portfolio, adviser
High salary,
Training, qualification
promotion
improvement
9
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
Project Risk Management
Example of Risk – Choice of Route by Car Drive
Route 1 = the shortest -> information of traffic-jam
Choice: Diversion on route 2 or route 3 or keeping No 1?
3 (time 3)
3a
start
1 (time 1)
destination
2 (time 2)
Importance of uncertainty about the real traffic
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
10
Project Risk Management
Example of Risk – Stock Price
Stock
price
1
Purchase
price
2
4
3
time
Importance of uncertainty about future stock price
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
11
Project Risk Management
Uncertainty as a Source of Risk
Example „CHOICE OF ROUTE“
Knowledge of actual traffic situation (certainty) -> right
choice of route
Uncertainty -> possibility of right or wrong choice
Reducing uncertainty -> decision
Risk management
Traffic news -> choice of route
3 (time 3)
3a
start
1 (time 1)
destination
2 (time 2)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
12
Project Risk Management
Uncertainty as a Source of Risk
Example „STOCK PRICE“
Knowledge of future stock price (certainty) -> right choice
of stock and the moment to buy / sell
Uncertainty -> possibility of profit or loss at stock
exchange
Reducing uncertainty -> decision
Economic information, stock portfolio
Risk management
Stock
price
1
Purchase
price
2
4
3
time
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
13
Project Risk Management
Example of Risk – Crossing a street
The goal – „to be at the very important meeting on time“
Multiple risk – decision tree
1. Choice of the way
of crossing the street
Running
cross the
street
2. The result of
crossing the street
success
5%
injury
Use of
crossing
success
injury
yes
4. Meeting:
on time
90%
10%
10%
no
no
70%
yes
30%
almost 0%
90%
95%
almost 100%
3. Catching
the bus
no
no
90%
10%
yes
no
no
no
yes
no
no
no
77%
23%
63%
37%
Uncertainty: Choice at branching 1. + different
probability of outcomes at each branching 2. – 4.
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
Risk Management
Example „CROSSING THE STREET“
1. Choice of the way
of crossing the street
1.
2.
2. The result of
crossing the street
3. Catching
the bus
4. Meeting:
on time
INTUITIVE RISK MANAGEMENT:
What are the risks?
(Risk identification)
Missing the meeting (4.), missing the bus (3.), injury (2.)
Assesment of consequences
(Risk assesment)
magnitude of impact (negative impact) on goals:
VERY HIGH: loss of contracts for the company, loss of job
„I have to be at the meeting on time with 100% probability“ the
probability of missing the meeting should be close to 0%
Risk alternatives: see the decision tree
Probability of negative impact: decision tree: 23% or 37%
„Too high“ -> it is necessary to lower the risk
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
15
Project Risk Management
Risk Management
Example „CROSSING THE STREET“
1. Choice of the way
of crossing the street
3.
2. The result of
crossing the street
4. Meeting:
on time
INTUITIVE RISK MANAGEMENT:
How to reduce the risk
(Risk response analysis)
Wake up earlier
(risk prevention)
Going by a car
(risk prevention)
Higher cost than by the bus
Possibility of car crash
4.
3. Catching
the bus
(cost of risk prevention)
(secondary risk)
Going by taxi (….)
Decision:
(Risk response plan)
Wake up earlier, use crossing (risk prevention)
If no bus comes -> calling taxi (contingency plan)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
16
Project Risk Management
Risk Management
Example „CROSSING THE STREET“
1. Choice of the way
of crossing the street
5.
2. The result of
crossing the street
INTUITIVE RISK MANAGEMENT:
Action
Waking up – „in time?“
Coming to bus stop – „in time?“
Bus is not coming – wait 5 min.
… etc
Meeting - on time
3. Catching
the bus
4. Meeting:
on time
(Risk management)
(risk monitoring)
(risk monitoring)
(risk trigger)
Risk response was ok
Remember: it pays to wake up earlier
(lessons learned)
(documentation)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
17
Project Risk Management
Risk Attitude - Willingness to Risk
1. Safe play (avoiding risky behaviour / business)
Lower possibilities of loss
BUT: lower possible gain / profit
in business – a lot of business can´t be realized
2. Risk seekers (tendency to risky behaviour / business)
Higher possibility of gain / profit (when managing risks
successfully)
BUT: risk exposure can be higher than possible profit
(total collapse) -> it´s necessary to cancle proposed
action / business
3. Balanced attitude (1. or 2. are not correct)
Necessity of excellence in:
Risk Analysis
Risk Management
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
18
Project Risk Management
Risk Attitude
Example „CROSSING THE STREET“
1. Safe play (avoiding risky behaviour / business)
Never running cross the street
3. Balanced
Waking up 30 minutes earlier
Ask colleague to be prepared to substitute in case of
being late
Order taxi in advance
2. Risk seekers (tendency to risky behaviour / business)
Not necessary to wake up earlier
Running cross the street is not too dangerous
In case of problems - calling a taxi
3. Balanced
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
19
Project Risk Management
Risk Definition – ISO/IEC Guide 73:2002
ISO/IEC Guide 73:2002 (first edition). Risk management –
Vocabulary – Guidelines for use in standards:
Risk = combination of the probability of an event and its
consequence
NOTE 1 The term risk is generally used only when there
is at least the possibility of negative consequences
NOTE 2 In some situations, risk arises from the possibility
of deviation from expected outcome or event
NOTE 3 See ISO/IEC Guide for issues related to safety
event
probability
consequence
negative
should be possible
deviation from
expected outcome
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
20
Project Risk Management
Risk Definition – more general
Office of Government Commerce, UK. Management of
Risk: Guide for Practitioners
Risk = an uncertain event or set of events which, should
it occur, will have an effect on the achievement of
objectives. A risk consist of a combination of the probability
of perceived threat or opportunity occurring and the
magnitude of its impact on objectives
Threat
Opportunity
an uncertain event that could have a negative
impact on objectives or benefits
an uncertain event that could have a favourable
impact on objectives or benefits
uncertain event
probability
effect on
achievement
of objectives
Negative:
Threat
Favourable:
Opportunity
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
21
Project Risk Management
Recent Risk Definition – ISO, ČSN
ISO 31000:2009 Risk management - Principles and
Guidelines. (ISO Guide 73 Risk management – Vocabulary)
Risk = effect of uncertainty on objectives
NOTE 1: An effect is a deviation from the expected - positive and/or
negative
NOTE 2: Objectives can have different aspects (such as financial, health
and safety, and environmental goals) and can apply at different levels
(such as strategic, organization-wide, project, product and process)
NOTE 3: Risk is often characterized by reference to potential events and
consequences or a combination of these
NOTE 4: Risk is often expressed in terms of a combination of the
consequences of an event (including changes in circumstances) and the
associated likelihood of occurrence.
In Czech: ČSN ISO 31000. Management rizik - Principy a
směrnice (October 2010, bi-lingual Czech - English), TNI 01
0350 Management rizik – Slovník (Pokyn 73)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
22
Project Risk Management
RISK (general meaning) - SUMMARY
Risk = an uncertain event or set of events which can
have an effect on the achievement of objectives
Threat
– risk with negative effect
Opportunity – risk with positive / favourable effect
Risk attitude should be balanced – mind danger of:
Total risk avoidance (=> no business today)
Risky behaviour with poor risk management
(=> no business in the future)
Risk management – intuitive & logical procedure:
4. Prepare response plan
1. Identify risks
2. Assess risks
5. Manage the risks
3. Analyze possible
6. Document the results,
responses
learn
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
23
Project Risk Management
Break (10 minutes + 20 minutes preparation)
Prepare your examples of
Risks
Probabilities & Consequences (Impacts)
Responses
for short recap after the break
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
24
Project Risk Management
PROJECT MANAGEMENT
Definition of a Project:
„A temporary endeavor undertaken to create a unique
product, service, or result“
A Guide to the Project Management Body of Knowledge, 4th
edition. Project Management Institute, 2008.
American National Standard ANSI/PMI 99-001-2008
„A unique process, limited by time, cost and resources
realized to create defined outputs (project goals
fulfillment) in required quality and according to valid
standards and agreed requirements“
National Competence Baseline of Project Management. Společnost
pro projektové řízení, o.s., Brno 2010; based on IPMA Competence
Baseline of Project Management (International Project
Management Association, 2006)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
25
Project Risk Management
Project Examples
Mega-projects
Standard projects
Landing on the Moon (APOLLO 11)
Airbus A380 high capacity aircraft development
Boeing 787 Dreamliner development
Building nuclear power plant Olkiluoto, Finland
Development and testing of a new drug / software
Development and production start of a face-lifted car
Supplying modified trams (minor changes)
Building a transport system, power-plant, highway, house, …
Company restructuring / Quality assurance system certification
Micro-projects
Moving to another living place
Painting a fence
Preparation for an exam
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
26
Project Risk Management
PROJECT MANAGEMENT
Definition of a Project Management:
„The application of knowledge, skills, tools, and techniques
to project activities to meet the project requirements“
A Guide to the Project Management Body of Knowledge, 4th edition.
Project Management Institute, 2008.
American National Standard ANSI/PMI 99-001-2008
„The application of knowledge, skills, tools, and techniques
to project activities to meet the project requirements. It
includes planning, organizing, monitoring and transfer of
messages about all project aspects and motivation of all
stakeholders with the goal to meet project objectives.“
National Competence Baseline of Project Management. Společnost
pro projektové řízení, o.s., Brno 2010; based on IPMA (International
Project Management Association, 2006)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
27
Project Risk Management
Micro-project management: Painting a Fence
1.
2.
Idea - The fence is looking bad, it should be painted
Feasibility
3.
Concept
4.
6.
Project
Colour, quality, do-it-myself, one weekend
Plan
5.
Can I do it myself? How much could it cost? What time can it take?
Risks? Weather. -> It´s feasible to do it myself
Pre-project
Activities: A1. buy colour, brush, sand paper A2. grind planks
A3. paint 1st layer A4. dry A5. paint 2nd layer
Resources: myself + material
Cost: my time, material
Schedule: A1: week September 21-25 A2–A5 weekend October 3-4
Risks: rain, frost, colour stains on cloths -> prepare risk responses
Implementation - Just do it according to plan, respond to risks
Termination – Presenting the result (wife / friends) + lessons learned
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
28
Project Risk Management
Project Management Phases
2 pre-project phases
4 basic project phases
GATE:
Prepare
Feasibility
study?
GATE:
Prepare
concept?
the Importance of GATES
GATE:
Prepare
plan?
Idea Feasibility Concept
GATE:
Start
Execution?
Plan
Execution
PLANNING
Pre-project
GATE:
Prepared for
Acceptance?
Termination
REALIZATION
Project
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
29
Project Risk Management
Project and Product Lifecycle
Product Lifecycle overlaps Project Lifecycle
More projects for the product:
Upgrade, full service contract, moving to other place, …
PROJECT 1:
Idea
Feasibility Concept
Plan
Execution
Termination
Preproject
phase
Project lifecycle
PRODUCT
Product
Disposal
Deliverable
of a project
PRODUCT Operation
PROJECT 2
…
PROJECT n
Product lifecycle
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
30
Project Risk Management
Project Tripple Constraint
Time
Time necessary for project
completion
Cost necessary for project
completion
Deliverable: product, service
PROJECT
or result delivered by the
project
Deliverable
Cost
Change in 1 constraint => change in one or both other ones
Changes in project requirements OR shortfalls compensation:
Shorter time OR delay
=> higher cost or / and
Lower cost OR cost overrun => worse result or / and
Better result OR problems
=> higher cost or / and
worse result
longer time
longer time
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
31
Project Risk Management
Basic Project Documents and Data
Idea
Feasibility
Concept
Feasibility study
Definition of
deliverables,
milestones,
budget
Project
charter
Project
team
Project
scope
Plan
WBS
Execution
Plan
Activities
Schedule
Cost
Approval
Handover
Change
Execution
of Plan
Quality
Resources
Termination
in all areas
Purchase
Risk
Communication
Baseline
Contract
closure
Final
deliverable:
product,
service,
result
Lessons
learned
Project status reporting
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
32
Project Risk Management
Standard Project Example: Building Production Plant
Idea
Vehicle manufacturer
needs to increase production capacity
has low capacity of painting boxes +
environmental requirements
is buying details for welding
learns about investment incentives
Idea
Building a new plant for
Manufacturing details for weldments
Welding the vehicle bodies
Painting the welded vehicle bodies
Chance to use tax reduction by
investment incentives
33
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
Project Risk Management
Standard Project Example: Building Production Plant
sklad
zámečník
sklad
dokončení
bočnice
podsestavy
sestavení
dokončení
ohraňovací lisy
zadní
modul
y
rám
střechy
rám
spodní
spodek
Offices, catering, dressing & shower rooms, toilets
Approvals – building, production, environmental requirements
odebírání
dílů
bočnice
broušení
rovnání
lakovna
zakládání
dílů
sklad
obráběcí
centrum
sklad
rám čela
vstup nakupovaných dílů
lasery - plechy
kontrola
řezání a vrtání profilů
expedice
podsestavy
Feasibility
Feasibility study
Production outlook: number of vehicles / year
Production requirements
Other requirements
střecha
spojení
prototypová
dilna
STAVBA +
rám spodku SVAŘOVÁNÍ +
OBRÁBĚNÍ
kontrola
svařování robot /
automat
výstup
Number of employees
Investment model, cost of investment (estimation)
Milestones for plant building + production start
12/05
02/06
08/06
04/07
08/07
Feasibility study approval
Project concept
Building permission
Building construction
Technology installation
1.9.2007 Test operation
1.1.2008 Production
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
34
Project Risk Management
Standard Project Example: Building Production Plant
Feasibility
Feasibility study
Production outlook: number of vehicles / year
Production requirements
Other requirements
Number of employees
Investment model, cost of investment (estimation)
Milestones for plant building + production start
sklad
sklad
obráběcí
centrum
dokončení
dokončení
sestavení
sklad
zámečník
ohraňovací lisy
bočnice
podsestavy
zadní
modul
y
prototypová
dilna
STAVBA +
rám spodku SVAŘOVÁNÍ +
OBRÁBĚNÍ
bočnice
broušení
rovnání
odebírání
dílů
spojení
rám čela
rám
střechy
rám
spodní
podsestavy
střecha
spodek
sklad
řezání a vrtání profilů
lasery - plechy
kontrola
kontrola
svařování robot /
automat
zakládání
dílů
lakovna
vstup nakupovaných dílů
expedice
výstup
Business plan, production cost, investment effectiveness
Scenarios, risk analysis, sensitivity analysis, …
Project approval,
START OF PROJECT
35
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
Project Risk Management
DEPP
DEOP
DCOC
DOOL3
DEVP
DERS
DOOL2
DOOL1
sklad
HSZM
HPBO
zadní
moduly
HSC1
HSST
HSCE
rám čela
HSR1
HSS2
HSB2
HSB4
HXRO
HSB
1
rám spodní
HPSR
rám spodní
Duxx
Duxx
prototyp.dilna
STROJE
HSR3
HXBR
HXTK
prototypová
dilna
STAVBA +
SVAŘOVÁNÍ
HLP1-P2
HRSR
HXLA
HUDE
HSR2
HSSR
HSBO
HSB3
HPST
bočnice
HSB5
HDST
HDSP
HSSH
spojení horní
rám střechy
p.otočný
HDGE
odebírání dílů
HSC
3
HXSB
bočnice - podsestavy
HSS3
HDHS
HDHS
Equipment / technology + comparison of
supplier´s offers
Layout – more detailed study
• Space for production, storage,
manipulation in building
• Production flow, production
procedures (rough estimation)
• Space outside the building
Energy requirements (electricity, gas,
water, …..)
Offices, catering, dressing rooms, shower
rooms, toilets
Approvals – building, production
sklad
EVND - vstup nakupovaných dílů
DLLA (2)
DEZP
HSC
2
EVEX
EVEX
sklad
HSS1
Production plant and auxiliary
requirements
EVAU
vstupní sklad materiálu
DLLA (1)
EVAU
Concept
EVEX
Standard Project Example: Building Production Plant
zakládání dílů
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
HL01
HL02
EV - výstup
36
Project Risk Management
Construction
Technology
a) for Contract
Building
Construction
Connections
Technology
Roads
b) for Realization
Parking
DEPP
DEOP
DEVP
DERS
D OOL3
D OOL2
sklad
zad ní
modu ly
HSCE
rám čel a
HSC
3
HSS3
HSS1
HSST
HSC
2
HSZM
HPBO
bočn ice - podse sta vy
HSC1
rá m střechy
HSR1
H SS2
HSSH
Duxx
spo jen í horn í
Duxx
prototyp. dilna
STROJE
p.otočný
rám spod ní
HSB2
HSB4
HXRO
HPSR
rám spod ní
HSR3
HXLA
HXBR
prototypová
di lna
STAVBA +
SVAŘOVÁNÍ
H XTK
HLP1-P2
HRSR
odebírán í dílů
HUDE
HSR2
HSSR
HSBO
HSB3
HPST
bočn ice
HSB5
HDST
HSB
1
HDGE
HL01
HL02
EV - výstup
zaklá dání dílů
Commissioning
Production
Verification
Welding shop
Paintshop
…
Other equip.
Construction
sklad
HDHS
D OOL1
Documentation
HDHS
Production plant and auxiliary requirements
Investment model turnkey, general contractor
Rough Project Work Breakdown Structure
Building production plant
HXSB
HDSP
DLLA (2)
DEZP
DCOC
EVAU
EVAU
DLLA (1)
sklad
EVND - vs tup nakupovaných dílů
vstupní sklad ma teriálu
EVEX
EVEX
Concept
EVEX
Standard Project Example: Building Production Plant
Test operation
Operation
Final Approval
Ventilation
…
Technology
37
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
Project Risk Management
Standard Project Example: Building Production Plant
Concept
Rough schedule for building the plant + production start
I.
Documentation
Construction
Technology
General supplier Selection
Construction
Building
Connections
Roads
Parking
Technology
Production
Welding shop
Paintshop
…
Other equipment
Ventilation
…
Commissioning
Verification
Test operation
Operation
Final Approval
II.
III.
IV.
I.
II.
Phase 2
Building up
III.
IV.
I.
…
Phase 3
Testing
Phase 1
Contractual
Documentation
And
Contractor
Selection
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
…
38
Project Risk Management
Construction
a) for Contract
Building
Construction
Connections
Technology
Roads
b) for Realization
Parking
Construction
Technology
Technology
Production
Commissioning
Verification
Welding shop
Test operation
Paintshop
…
Other equip.
Final Approval
Ventilation
…
Operation
II.
III.
IV.
I.
DEPP
DEOP
DEVP
DERS
D OOL3
D OOL2
sklad
zad ní
modu ly
HSCE
rám čel a
HSC
3
HSS1
HSST
HSC1
HSC
2
HSS3
HDHS
HDHS
D OOL1
Documentation
I.
Documentation
Construction
Technology
General supplier Selection
Construction
Building
Connections
Roads
Parking
Technology
Production
Welding shop
Paintshop
…
Other equipment
Ventilation
…
Commissioning
Verification
Test operation
Operation
Final Approval
HSZM
HPBO
bočn ice - podse sta vy
rá m střechy
HSR1
H SS2
HSSH
Duxx
spo jen í horn í
Duxx
prototyp. dilna
STROJE
p.otočný
HSB2
HXRO
HSR3
HXBR
HSB3
HXLA
III.
Phase 2
Building up
IV.
prototypová
di lna
STAVBA +
SVAŘOVÁNÍ
H XTK
HLP1-P2
HL01
HL02
EV - výstup
zaklá dání dílů
2008
I.
HUDE
HSR2
HSSR
HSBO
2007
II.
rám spod ní
HPSR
rám spod ní
HSB4
HSB
1
HPST
HDST
bočn ice
HRSR
odebírán í dílů
2006
Building production plant
sklad
HDGE
HSB5
Production plant and auxiliary requirements
Investment model turnkey, general contractor
Rough Project WBS
HXSB
HDSP
DLLA (2)
DEZP
DCOC
EVAU
EVAU
DLLA (1)
sklad
EVND - vs tup nakupovaných dílů
vstupní sklad ma teriálu
EVEX
EVEX
Concept
EVEX
Standard Project Example: Building Production Plant
…
…
Phase 3
Testing
Phase 1
Contractual
Documentation
And
Contractor
Selection
…
Rough Schedule for building the plant + production start
Project Manager nomination
Investment cost, production cost, business plan, risk
analysis
Project approval – working in phases
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
39
Project Risk Management
Standard Project Example: Building Production Plant
Plan
Phase 1
Documentation
WBS
Activities
Schedule
……..
Phase 2
Building up
etc …
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
40
Project Risk Management
Standard Project Example: Building Production Plant
Plan
WBS
Activities
Schedule
……..
Execution
Termination
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
41
Project Risk Management
Leave off
the Project Example …
and
… continue with
Project risk management
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISKS - Examples
Airbus A380 high capacity aircraft
New product development and deliveries
Delays in deliveries up to 19 to 24 months
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISKS - Examples
Boeing 787 Dreamliner
New product development
Delay more then one year (original deadline May 2008)
October 2009: „completion expected 2010“
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISKS - Examples
Nuclear power plant 3rd generation Olkiluoto in Finland
Investor: TVO, Finland
Supplier: Areva (France), subcontractor Siemens (GER)
Original turn-key contract with Areva: EUR 3,2 Bln
Original start of operation:
May 2009
Recent estimate of increase to:
EUR 5,3 Bln
September 2009:
„We can´t estimate the final bill“
Areva offers similar plant to Canada for
Estimated completion 2012
EUR 7,35 Bln
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT
Definition of a Project Risk:
„uncertain event or condition, which, if it happens, has
positive or negative effect on project objectives“
A Guide to the Project Management Body of Knowledge, 4th edition.
Project Management Institute, 2008.
American National Standard ANSI/PMI 99-001-2008
the same wording
National Competence Baseline of Project Management. Společnost
pro projektové řízení, o.s., Brno 2010; based on IPMA Competence
Baseline of Project Management (International Project Management
Association, 2006)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK DEFINITION
Certainty should
be in the budget
Risk activates effects
on project objectives
–> risk ≠ effect
„ uncertain event or condition,
which, if it happens,
has positive or negative effect
It doesn´t
need to
happen
on project objectives“
Risk doesn´t mean
only negative effect
Time, cost,
deliverables
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
BASIC MODEL OF PROJECT RISK
CAUSE
Certainties
about project
and its
environment
RISK
Uncertainty, which,
if it happens, can
influence project
objectives
EFFECT
Possible effect
of risk on project
objectives
Project risk example:
Painting a fence / Risk of bad weather
Painting the fence is
planned on October
There can be
rain or frost
Deterioration of painting
quality, need to repair
and/or repeat it
… the model is often more complex - more risks in structure
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
How to define project risk correctly
cause
risk
effect
Because the team will
not work at the same
location,
the communication
can take longer time
and project
milestones can be
missed
… the cause of risk is not correct, the work in different locations is
quite common, the cause is in something else:
Correct definition:
cause
risk
Because project
manager could be
inexperienced in work
with virtual teams,
the necessary time
for communication
need not be
allocated
effect
and project milestones
can be missed
ALWAYS LOOK FOR THE BASIC CAUSES!
… then the right risk handling can be found
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
Other risk examples - Threats
cause
risk
Because
It can be necessary to
make besides FEM
the new standard is
calculation also the
under discussion and
impact test of a
it becomes effective
locomotive towards
before homologation of
concrete wall or
a new locomotive,
cistern wagon
cause
As a result of unclear
SW functionality
definition
risk
it can be necessary
to rework substantial
part of the code
effect
and this could
increase project cost
and influence
schedule
effect
and it could delay the
project by about one
month
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
Other risk examples - Opportunities
cause
risk
effect
Because we can double
the purchased material
volume from our supplier
after winnig the project,
we could negotiate
10% discount of
purchase price
and this could save
CZK 1 million and
increase project GM
by 2%
cause
Because the customer
requires to change the
vehicle design in
comparison with his
original requirements,
risk
we could make use
of synergies with
other project and
close change order
with higher GM
effect
and increase the
profit of the project by
CZK 1 million
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
RISK MANAGEMENT PROCESS
Remember INTUITIVE RISK MANAGEMENT:
1.
What are the risks?
Assesment of consequences
How to reduce the risk
Decision:
Action
2.
3.
4.
5.
Identification
Assessment
(Risk identification)
(Risk assessment)
(Risk response analysis)
(Risk response plan)
(Risk management)
Response
analysis
Response
plan
Management
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PROCESS
PMI
Risk management planning
Risk Identification
Qualitative risk analysis
Quantitative risk analysis
Risk response planning
Response
analysis
IPMA
Identification
Response
plan
Risk monitoring and control
Identify, assess risks and opportunities
Management
Assessment
Develop risk and opp. response plan
Update project plans
Assess the probability of attaining time
and cost objectives
Continuously identify new risks,
reassess risks and plan responses,
modify project plan
Control the risk and opp. response plan
Document lessons learned, update tools
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
Risk Management Process – ISO 31000:2009
(General risk management process)
5.3 Establishing the context
5.4 Risk assessment
5.4.2 Risk identification
5.2
Communication
and
consultation
5.4.3 Risk analysis
5.6 Monitoring
and review
5.4.4 Risk evaluation
5.5 Risk treatment
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
Project Risk Management Process – PMI + IPMA
1.
2.
3.
4.
5.
Risk management planning
Risk Identification
Qualitative risk analysis
Quantitative risk analysis
Risk response planning
Update project plans
Reassess project schedule and budget
Here: 7 phases
Variations of
process phases
are possible
Activities in the
process can be
in phases or
sub-phases
6. Risk monitoring and control
Identify new risks
Reassess risks and plan responses
Modify project plan
Control the risk response plan
7. Documentation
Document lessons learned, update risk management tools
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
Project Risk Management Process – Recommended
.1.
Risk management planning
2. Risk identification
3. Qualitative risk analysis
4. Quantitative risk analysis
5. Risk response planning
Scenarios assessment, secondary risks
Reassessing plans, schedule, budget & reserves
6. Risk monitoring and control
Control and manage risks
Identify, analyze and reassess risks,
plans, schedule, budget
7. Documentation, lessons learned
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
Project Risk Management Process – Recommended
2. Risk identification
5.4.2
3. Qualitative risk analysis
5.4.3
4. Quantitative risk analysis
5.4.4
5. Risk response planning
5.5
6. Risk monitoring and control
5.6
7. Documentation, lessons
5.7
learned
5.3 Establishing the context
5.4 Risk assessment
5.4.2 Risk identification
5.4.3 Risk analysis
5.4.4 Risk evaluation
5.5 Risk treatment
5.6 Monitoring and review
5.3
5.2 Communication and consultation
Comparison with ISO 31000:2009
.
1. Risk management planning
(5.7 Recording the risk
management process)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
.1.
Risk management planning
2. Risk identification
3. Qualitative risk analysis
4. Quantitative risk analysis
5. Risk response planning
Scenarios assessment, secondary risks
Reassessing plans, schedule, budget & reserves
6. Risk monitoring and control
Control and manage risks
Identify, analyze and reassess risks,
plans, schedule, budget
7. Documentation, lessons learnt
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Objectives:
Define how to manage project risks:
Procedures
Degree of detail
Timing, frequency
Cost
Persons
Stakeholders
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Gather all the relevant and available information
concerning the project
WBS
Documents prepared Feasibility study
Activities
for the project
Definition of
Not all of these information
are at disposal in the
beginning of the project
deliverables,
milestones,
budget
Project
charter
Project
team
Project
scope
Schedule
Cost
Quality
Resources
Purchase
Risk
Communication
Baseline
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Gather all the relevant and available information
concerning the project
WBS
Documents prepared Feasibility study
Activities
for the project
Definition of
deliverables,
Schedule
Other project
milestones,
background information
Cost
budget
(Minutes of meeting,
Quality
Project
correspondence….)
charter Resources
Historical records from similar
Purchase
Project
projects, lessons learned
team
Risk
Company processes, guidelines,
Project Communication
risk thresholds, culture
scope
Baseline
Stakeholders – customer, …
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
1. Risk management planning
To explore all important facts about project – use
method 6W (Chapman, Ward)
who
Project parties involved
iniciators later players other
why
motives
profit
other
iniciators later players players
what
design
whichway
activity plans
wherewithal
resources
when
timetable
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Gather all the relevant and available information
concerning the project
Explore facts: „6W method“
If information gaps are found, try to fill them
Missing information is an important source of risk
Record first risks if found (not to forget)
Choose the appropriate scope for risk analysis and
management
Less or more detailed based on the riskiness of the project
Asses timing and frequency of risk analysis and management
Assess cost of risk management
Define participants in risk management, their roles and
responsibilities, including stakeholders
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Major steps - summary
1. Gather all relevant / available information on the project
2. Explore facts: „6W method“– fill the gaps (missing info)
3. Choose the appropriate scope for risk management
less or more detailed
timing + budget + persons involved
OUTPUTS:
Data on project
Risk management methodologies, risk categories,
reporting, communication, risk tolerances and thresholds…
Timing + budget for risk management)
Roles and responsibilities
…(perhaps first risk list)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Example: Painting the fence
1. Gather all relevant / available information:
Concept
Colour (mahagon), quality (high), do-it-myself, one weekend
Plan
Activities:
A1. buy colour, brush, sand paper A2. grind planks
A3. paint 1st layer
A4. dry
A5. paint 2nd layer
Resources: myself + material Cost: my time, material CZK 1000
SEPTEMBER
OCTOBER
Schedule:
19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4 5 6 7 8 9 10
Project plan and risk analysis
A1 buy colour, brush, sand paper
A2 grind planks
A3 paint first layer
A4 dry 24 hours
A5 paint second layer
11
*
1 DAY AUTO-TRIP PLANNED
Risks: rain, frost, colour stains on cloths -> prepare risk responses
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Example: Painting the fence
2. Explore facts: „6W method“
–> fill the gaps (missing info)
who
Project parties involved
iniciators later players other
Who – myself, my wife
initiators - my wife -> don´t forget to let her agree the colour
(add to plan)
later players – myself
others – family members –> could cousin help?
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Example: Painting the fence
2. Explore facts: „6W method“
–> fill the gaps (missing info)
why
motives
profit
other
iniciators later players players
Why - Motives
iniciators – my wife -> fence looks bad
later players – myself -> profit (or savings):
worsening during winter (rotting) -> do it surely this year, next
year it would be much more work
other players – cousin -> we helped him last time, he could help
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Example: Painting the fence
2. Explore facts: „6W method“
–> fill the gaps (missing info)
what
design
What – fence must look nice and be resistant
high quality paint which lasts long (not to paint it again very soon)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Example: Painting the fence
2. Explore facts: „6W method“
–> fill the gaps (missing info)
whichway
activity plans
wherewithal
resources
when
timetable
Whichway – activities are prepared
Wherewithall (Resources)
myself, cousin or my wife could perhaps help
material cost - not so important (doing it myself is much cheaper
then ordering)
When – preliminary schedule is prepared - do it this year (October
3-4) -> September 26 –> family trip, October 7-21 -> business trip
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Example: Painting the fence
2. Explore facts: „6W method“
–> fill the gaps (missing info)
Adjust plans:
new activity „Consult the colour tone with wife“
use high quality paint
mark business trip in schedule
SEPTEMBER
OCTOBER
19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4
Project plan and risk analysis
A0 consult the tone with wife
A1 buy colour, brush, sand paper
A2 grind planks
A3 paint first layer
A4 dry 24 hours
A5 paint second layer
5
6
7
8
NOVEMBER
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4
*
BUSINESS TRIP (NOT AVAILABLE FOR PAINTING)
1 DAY AUTO-TRIP PLANNED
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
1. Risk management planning
Example: Painting the fence
3. Choose the appropriate scope for risk management
„microproject“ –> identify risks, analyse impacts,
prepare responses, record triggers (terms) in mobile
phone not to forget
Budget, responsibilities –> only myself
Timing: Risk identification, analysis, response plan – by
September 20
First risks: weather, colour stains on clothes
OUTPUTS:
Project data – updated after 6W +
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
.1.
Risk management planning
2. Risk identification
3. Qualitative risk analysis
4. Quantitative risk analysis
5. Risk response planning
Scenarios assessment, secondary risks
Reassessing plans, schedule, budget & reserves
6. Risk monitoring and control
Control and manage risks
Identify, analyze and reassess risks,
plans, schedule, budget
7. Documentation, lessons learnt
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Objectives:
Find as many risks as possible
Find both risks and opportunities
Understand the risk:
• cause -> risk event -> effect
• risk relations
Prepare List of assumptions
Record risks into Risk register
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Principles of Risk identification
Leader = project (risk) manager, + team
Invite all stakeholders (also customers, suppliers, users)
Prefer personal contact
„Quantity = Quality“: identify as many risks as possible
The most important methods
Documentation reviews
Information gathering techniques: Brainstorming, Delphi,
Interviewing , SWOT Analysis, Root cause analysis
Checklist analysis
Assumptions analysis
Diagramming techniques
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Documentation reviews
Review all project documentation gathered in phase 1
(project scope and product parameters, plans, WBS,
schedules, budgets, contracts, assumptions, …):
Quality of documentation
Consistence between documents, especially project
requirements, assumptions and all plans
Indication of risks:
Low quality of documentation
Missing data
Inconsistencies in documentation
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Brainstorming – what is important
Invite right participants
address all stakeholders on the project
Choose right moderator
With knowledge on the project and risk analysis methodology
Structure the discussion
Use WBS, schedule, risk structure
„What are the risks related to task X?“
Aim at both threats and opportunities
Gather the longest list of risks in the shortest time
Do not evaluate or criticise generated ideas
Write down in cause – risk – effect format
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Delphi Technique
The form of written questions
Suitable particularly for questioning of experts, for solving
special problems
Experts participate anonymously
Responses are compiled and results sent back for review
Continue until consensus is reached
Suitable also for estimating time and cost
Interviewing
Invidual (small groups) meetings: project (or risk)
manager + project participants, stakeholders, experts
Structured and targeted questions
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
SWOT Analysis
Generally known method
Strength -> Opportunity
Weakness -> Threat
Suitable especially for identifying opportunities
Root cause identification
Looking for the essential / original cause of risk
CAUSE
„What is the cause of
RISK
EFFECT
?“
The most effective response addresses the root cause
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Checklist Analysis
Structured list of risks
Enables to group the risks in categories according to their
source, e.g.
External, internal, technical
Customer, suppliers, cultural differences, …
Serves as a prompt list for identification of risks in a project
not to forget risks that the company met before
Can be used as a structure for database of knowledge about
experience with risk management in realized projects
Risks that repeat in many projects
Successful risk management actions
Pitfalls in risk management
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
Project Risk Structure Example – Main Risk Groups
2. Risk identification
ID Name
C Commercial
F
Financial
T
Technical
G
Guarantee
and service
Purchasing
P
L
Legislative,
legal
M Managerial
Description
Strategy, market – product goals & market goals,
business terms, customer, target country
Financing, bonds & guarantees, cash flow, exchange
rate, inflation, production and other rates
Product
definition,
standards,
process
of
development, production, tests, putting into operation
Terms of the warranty and service, availability,
service response time, spare parts
Selection of suppliers, terms of purchase of subdeliveries and materials (time, cost, quality, service)
Regulation, custom duties, intellectual property
rights, agreements and contracts, damage claims
Schedule, organization and project team, project
management
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK STRUCTURE (example)
Level: 0 Aggregate risk
Structure top 2. Risk
1 Main groups
identification
7 groups
2 Subgroups
29 subgroups
3
Individual
risks
145
risks
PROJECT
4 Risk components
T2a Novelty, Development
RISKS
C Commercial
T1 Technical concept
T2b New technologies
F Financial
T2 Novelty, parameters
T2c Patent rights
G Guarantee
& Service
T3 Technical standarts
T2d Materials
L Legislative
M Management
T5 Technical capabilities
of project participants
P Purchase
T6 Tests, permits
T Technical
T7 Other: packing, …
T4 Product manufacture
T2e Parameters
…etc
T2e_2 Heating / Air-condition
up to -40oC (-40oF)
T2e_1 Brake function
up to -40oC (-40oF)
…etc
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Checklist Analysis
Structured list of risks
List of questions
List of product data
…
Function as Promptlist:
Check directly in the list
what applies to the project
Suitable to use as a
preparation for
brainstorming
C
C1
C1a
C1b
C1c
C1d
C1e
C1f
C2
C2a
C2b
C2c
C2d
C2e
C2f
C3
C3a
C3b
C3c
C3d
C3e
C3f
C4
C4a
Commercial
Strategy, market
Strategy of owner, management
Future product sales (market development, fullfilling project
objectives)
Obtaining next contract options
Entry of competing product on the market
Project timing, placing on market
Marketing support of the product
Customer, partners
Direct customer
Final customer
Unclear relations in contract
Customer can be taken over, join with other company
Personal chnge at the customer
Partner can have competing interests
Contract setting and changes, conditions of cooperation
and acceptance
Objectives perception and project definition by customer
Project setting and changes, appendices
Price indexation
Responsibilities for performance between project parties
Conditions and terms of acceptance by a customer
Conditions and reaction terms for customer cooperation
Political and economic development of a country
Dangerous country
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Assumption Analysis
Each project is based on various assumptions (or
hypothesis, scenarios)
Review what is supposed for the project as a fact
„Is it really the fact?“
„Will it be valid during the project realization?“
„Why is it valid?“
Indication of risks:
Inaccuracy in assumption
Incompletness
Inconsistencies of assumptions
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Diagramming techniques – only informative listing
Cause and effect diagram (Ishikawa, fishbone)
Looking for potential causes of a risk (defect, failure, …)
System or process flow charts
Representation of relations between system elements, processes
Influence diagrams
Representation of casual influencies
Event 1 Event 2
Event 3 ….
Event 4
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Risk register: basic information on identified risks
Filled in and updated during the whole project …
Risk ID, name
Cause, risk, effect
Risk owner and his position in company organization
Date of identification, date of validity
Risk status – identified, active, eliminated, closed
Qualitative and quantitative assessment of risk probability and effect
Proposed risk response
Risk reserve
ID Risk name
Cause
Risk
Effect
Risk owner
Department
….
…
etc
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Major steps - summary
1. Prepare relevant information / data on project
2. Choose suitable identification techniques + participants
3. Identify risks, e.g. Checklist -> Brainstorming -> Interviews -> …..
If possible, record also ideas on quantification, responses
4. Make Risk register for identified risks + List of assumptions
5. Assess completeness and correctness
If necessary -> repeat 1. – 5.
6. Define risk owner
OUTPUTS:
Risk register, List of assumptions, Risk owners
Updates to project
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Example: Painting the fence
1. Relevant information / data on project –> at disposal
2. Choose suitable identification techniques + participants
Documentatin review + Brainstorming + Consulting in paintshop /
myself, shop assistant in paintshop + handbook on painting
Risk register
3. Identify risks - Threats:
R1 The weather – rain or frost can damage the paint (temperature
above +10)
R2 Paint quality – colour type must be defined
– two types are suitable in high quality, similar price
R3 Paint tone selection – wife needn´t like it -> risk response:
consult the colour tone with wife
R4 Colour stains on clothes, base wall -> risk response: working
clothes (at disposal), newspapers for covering
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Example: Painting the fence
1. Relevant information / data on project –> at disposal
2. Choose suitable identification techniques + participants
Documentatin review + Brainstorming + Consulting in paintshop /
myself, shop assistant in paintshop + handbook on painting
3. Identify risks - Opportunities:
Risk register
R5 October sale – price reduction of 20% is expected in October
but R1 - the weather after October sale can be bad
and R6 – the selected tone could be sold out –> secondary risk
R7 Free brush with colour purchase on weekends
but R1 -> buy as soon as possible
R8 Cousin can come and paint himself
but R9 Cousin is not very reliable –> secondary risk
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Example: Painting the fence
Risk structure for risk „Weather“
RISK
CAUSE
Painting the fence is
planned on October
EFFECT
There can be
rain or frost
Deterioration of painting
quality, need to repair
and/or repeat it
List of assumptions: „I am able to do it myself“
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Assumption Analysis
Each project is based on various assumptions (or
hypothesis, scenarios)
Review what is supposed for the project as a fact
„Is it really the fact?“
„Will it be valid during the project realization?“
„Why is it valid?“
Example (Painting the fence)
Indication of risks:
Assumption: „I can paint it myself“
Inaccuracy in assumption
Incompletness
Inconsistencies
of assumptions
confirmed by shop assistant
it is not possible in time of my
business trip
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
2. Risk identification
Example: Painting the fence
Assess completeness and correctness -> OK
If necessary -> repeat 1. – 5. -> OK
4. Define risk owner: myself for all risks
OUTPUTS:
Risk register -> OK
List of assumptions -> OK
Risk owners -> OK
Updates to project – no updates
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
.1.
Risk management planning
2. Risk identification
3. Qualitative risk analysis
4. Quantitative risk analysis
5. Risk response planning
Scenarios assessment, secondary risks
Reassessing plans, schedule, budget & reserves
6. Risk monitoring and control
Control and manage risks
Identify, analyze and reassess risks,
plans, schedule, budget
7. Documentation, lessons learned
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
3. Qualitative risk analysis
Objectives:
Asses the priorities and urgency of risks
Assess very quickly – rough estimates
Allow to reserve enough time to assessing and
responding to the most important and urgent risks and
opportunities
Allow quick feedback to project plans if necessary
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
3. Qualitative risk analysis
Estimate the importance of risk
Set the priorities for risk resolving
Risk = Probability * Impact
R = P * I
High 4
4
8
3
3
6
2
4
sk
Ri
Various scales:
P
2
P & I:
1; 2; 3
1; 2; 3; 4
Low 1
1; 2; 3; 4; 5
P: 0,1; 0,3; 0,5; 0,7; 0,9
(probability < 1)
I: 0,1; 0,2; 0,4; 0,8
(instead of impact i CZK – non-linear scale)
1
2
12
9h
wt
o
gr 6
3
16
12
8
4
1
2
3 4
I
Low
High
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PROJECT RISK MANAGEMENT PHASES
3. Qualitative risk analysis
When the using of scales is suitable?
1. When it is difficult to estimate the impact magnitude:
R&D projects
Projects in early stages of praparation
2. When the impact can not be fully calculated
Projects of restructuring
Changes in organization
3. When there is a lot of risks
But count on the necessity to calculate impact later
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
3. Qualitative risk analysis
The meaning of scales must be defined:
Probability:
.. To differenciate very low probability
0,05:
0,2:
0,4:
0,6:
0,8:
P <= 10% 1 out of 10 or 20
very low
10% < P <= 30% 1 out of 5
low
30% < P <= 50% rather no than yes
medium
50% < P <= 70% rather yes than no
high
70% < P <= 90% probably yes
very high
(95%) P> 90% (95%) -> include in budget
Impact:
0,1:
0,2:
0,4:
0,8:
negligible impact
slightly over budget
over budget 10%-20% or delayed 3 months
over budget
> 20% or delayed 6 months
very low
low
medium
very high
Scale doubles each step
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
3. Qualitative risk analysis
The risk levels can be defined for:
P * I:
Low
Med. High
Threats
Opportunities
Probability
0,8
0,08
0,16
0,32
0,64
0,64
0,32
0,16
0,08
0,4
0,04
0,08
0,16
0,32
0,32Op 0,16
0,08
0,04
0,2
0,02
0,16
0,12
0,08tun 0,04
0,02
th
ow
0,04
0,08
r
G
at 0,04
e
0,02
r
h
0,1
0,01
0,05
0,005
0,01
0,1
0,2
T
po
r
ity
0,08
0,06
0,04
G
0,02 r
0,02
0,04
0,06
0,04
0,01
0,4
0,8
0,8
0,4
0,2
ow0,01
th
0,005
0,1
Threat
Impact
Opportunity
Risks and Opportunities are ordered according to P * I
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
ac
D
D
of
e
bl
E
a
pt
ce
k
ris
Various boundaries
for risk acceptance
can be defined
Company strategic
decision
s
Car accident or car theft
Loss of cash CZK 100
Death by plane travel
Stock value fluctuation
Performance in the job
rie
da
A
B
C
D
E
prrobability
un
Bo
3. Qualitative risk analysis
Another possibility
of displaying P * I
very
high
matrix
B
very
low
negligible
A
C
impact
existence
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
3. Qualitative risk analysis
Major steps - summary
1. Assess Probability and impact level for each risk
2. Prepare Probability and Impact (P * I) matrix
3. Order risks according to P * I score
4. Group in categories according to P * I
5. Distinguish Threats and Opportunities
6. Divide risks according to urgency to solve
OUTPUTS:
Risk ranking and categories
List of risks for solving immediately
List of risk to be solved additionally
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
3. Qualitative risk analysis
Example: Painting the fence
1. Assess Probability, impact level for each risk
2. Prepare Probability and Impact (P * I) matrix
3. Order Threats according to P * I score
P
I
P*I priority group
R1 Weather
3
4
12
1
1
R2 Colour quality
1
4
4
5
3
R3 Colour tone
2
3
6
4
3
R4 Stains
3
1
3
6
3
R6 Tone sold out
2
4
8
3
2
R9 Cousin
3
3
9
2
2
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
3. Qualitative risk analysis
Example: Painting the fence
1. Assess Probability, impact level for each risk
2. Prepare Probability and Impact (P * I) matrix
3. Order Opportunities according to P * I score
R5 Sale
R7 Brush
R8 Help/cousin
P
I
P*I priority group
4
3
12
1
1
4
2
8
2
2
2
3
6
3
3
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
3. Qualitative risk analysis
Example: Painting the fence
4. Group in categories according to P * I
Risk 1 Weather is the most important, than second and third
group
5. Distinguish Threats and Opportunities
6 threats + 3 opportunities (+ a nice fence = the project goal)
6. Divide risks / opportunities according to urgency to solve
Because the project should be finished in a short time – all 9 risks
must be assessed quickly, but 1st: R1 Weather & R5 Sale
OUTPUTS:
Risk ranking and categories -> OK
List of risks for solving immediately - all
List of risk to be solved additionally - x
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
.1.
Risk management planning
2. Risk identification
3. Qualitative risk analysis
4. Quantitative risk analysis
5. Risk response planning
Scenarios assessment, secondary risks
Reassessing plans, schedule, budget & reserves
6. Risk monitoring and control
Control and manage risks
Identify, analyze and reassess risks,
plans, schedule, budget
7. Documentation, lessons learned
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
4. Quantitative risk analysis
Objectives:
Assign numerical values to risks
More exact calculation of risk impact into project
results – cost, incomes, profit
Assess alternatives of risk impacts
Numerical values for both probability and impact,
various approaches are possible
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
4. Quantitative risk analysis
Assign numerical values to risks
Start with risks defined in Qualitative analysis as:
High priority
Time
Urgent to solve
The impact can be assessed on:
Time / schedule
PROJECT
Cost / profit
Project deliverables, quality
Deliverable
Cost
If profit is the main goal
IMPACT = COST or PROFIT:
Delay -> penalty -> cost -> profit
Excessive weight -> penalty or lower price -> profit
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
4. Quantitative risk analysis
The ways of calculating the risk impact:
1. Expected value
Expected
value
=
Probability
*
Impact
For one possible outcome:
Example: Painting the fence:
„If the weather is bad on the weekend planned for painting, it is
necessary to postpone the painting one week. But I will be not
at home and I will have to pay for painting CZK 2000“
Probability: e.g. P = 30%
Impact:
delay 1 week – cost defined as I = CZK 2000
E = P * I = 30% * 2000 = CZK 600
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
4. Quantitative risk analysis
Expected value - for more possible outcomes:
Example – „Build a new plant or make reconstruction?“
Decision tree
Possible demand and
NPV
Choice
its probability
CZK Mil.
80
Strong 65%
New plant
65% * 80 + 35% * (-30)
65% * 70 + 35% * (10)
41,5
Weak
35%
-30
49
Strong
65%
70
Weak
35%
10
Reconstruction
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
4. Quantitative risk analysis
The ways of calculating the risk impact:
2. Most probable - Optimistic - Pessimistic Estimates
(Triangle probability distribution)
Probability density
Most probable value (M)
Expected value
E = (O + M + P) / 3
Optimistic
value
(O)
Pessimistic
value
(P)
Possible time or cost
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
4. Quantitative risk analysis
The ways of calculating the risk impact:
2. Most probable - Optimistic - Pessimistic Estimates
(Triangle probability distribution)
Example: Painting the fence – cost paid for work:
Most probable: the weather will be fine, cost = 0
Optimistic:
the weather will be fine, cost = 0
Pessimistic:
the weather will be bad, cost = CZK 2000
Expected:
E = (O + M + P) / 3 = CZK 667
(Compare with P*I:
E = P * I = 30% * 2000 = CZK 600)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
4. Quantitative risk analysis
The ways of calculating the risk impact:
3. Monte Carlo simulation – PRINCIPLE:
Probability distribution is defined for each risk
Simulation program is created according to the structure of risks
Results are obtained from simulation (random numbers are
generated for each risk according to its probability distribution)
The probability of project profit
can be read from the curve
Probability density
Cumulative probability
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
4. Quantitative risk analysis
The ways of calculating the risk impact:
4. Sensivity analysis
For assessing the influence of individual factors on project results
Example:
Influence of exchange
rate on the project profit
With stronger CZK rate
– project goes to loss
with weaker CZK rate
– the profit increases
8 000
7 000
sales - EUR
6 000
CZK / EUR
cost 1 - CZK
5 000
4 000
3 000
cost 2 - EUR
Project Profit
2 000
1 000
0
-1 000
25 26 27 28 29 30 31 32 33 34 35
CZK/EUR
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PROJECT RISK MANAGEMENT PHASES
4. Quantitative risk analysis
Major steps - summary
1. Choose suitable method for Quantitative analysis
2. Quantify the risk
Use historical data from similar projects – how the cost or hours
for solutions were impacted by similar risks
3. Perform sensitivity analysis or quantify risks for various
alternatives of outcomes
4. Change the risks priorities and urgency if necessary
OUTPUTS:
Updated risk register
Prioritized list of quantified risks
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
4. Quantitative risk analysis
Example – Painting the fence
1. Choose suitable method for Quantitative analysis
Quantitative analysis has no sense for this simple project
It will be better to start directly with risk responses
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
.1.
Risk management planning
2. Risk identification
3. Qualitative risk analysis
4. Quantitative risk analysis
5. Risk response planning
Scenarios assessment, secondary risks
Reassessing plans, schedule, budget & reserves
6. Risk monitoring and control
Control and manage risks
Identify, analyze and reassess risks,
plans, schedule, budget
7. Documentation, lessons learned
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PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Objectives:
Plan and act to prevent threats and ensure opportunities
to happen
Explore various scenarios of:
• Responses to risks
• Project development variants as a reaction to risk
responses and possible risk outcomes
Find secondary risks i.e. risks caused by proposed risk
responses
Precise quantitative analysis, project reserves
Prepare Risk response plan and let it approve by
management, including final project budget and
reserves
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Scenarios assessment
Scenarios for risk responding – risk response strategies
Scenarios for project alternatives – consistent reactions
of risks
not all possibilities of outcomes, but only the most important sets
Usually: Most probable, Optimistic and Pessimistic scenarios
Scenarios are important for:
R&D projects
Projects with high uncertainty
Scenarios are less important for:
Lower uncertainty – expected value or O, M, P values
Complex projects – scenarios not feasible -> simulation
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
5. Risk response planning
Strategy of reaction on risk
(based on IEC standard)
Accept
Need
Recovery strategy
?
no
yes
Plan recovery:
- Contingency plan
- Fallback plan
no
Avoid
/ Exploit
Pro-active
response?
yes
Assess
scenarios
Mitigate / Enhance: Transfer
/ Share
Probability Effects
Review
residual / secondary
risks
Risk monitoring
and control
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Risk responses
Pro-active:
act before the risk event occur
Avoid /Exploit
Mitigate / Enhance
Transfer / Share
Residual risks: remain after pro-active responses
Secondary risks: are caused by responses to other risks
Reactive (recovery) : act after the risk event occurs
Contingency plans
Fallback plans (if contingency plans are not effective)
Define Triggers = when to implement Contingency / fallback plans
• Must be measurable, linked to some event
Reactive responses are used for Residual risks (no pro-active
responses were prepared)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Risk effectivness
There is no sense to expend more money (including the
impacts from secondary risks) to respond to the risk than
the risk impact improvement
Risk impact
before
-
Risk impact
after
>1
Cost of risk response including
secondary risks impacts
Both numerator and denominator are cost (CZK)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Risk effectivness – example Painting a fence
R1 Weather – frost – risk impact: new painting is necessary
Risk impact before:
New material (colour)
CZK 2000
Brush and paint again (own work)
CZK 2000
Total
CZK 4000
Risk response – anti-freeze colour
CZK 5000
Risk impact after the response
CZK
0
Risk impact
before
-
Risk impact
after
Cost of risk response including
secondary risks impacts
4000
=
-
0
= 0,8 < 1 !
5000
. . . Uneffective response
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Project risk reserve calculation
Contingency reserves – for identified risks
After risk response plan is prepared
Can be calculated (quantitative analysis)
Expected value (simple), Monte Carlo simulation (complex)
Management reserves – for not identified risks
Can be only estimated (experience from other projects, e.g. 5% of
project costs)
Project
Project cost
Contingency Management
=
+
+
budget
calculation
reserve
reserve
Different attitudes
Project manager
for reserves control
– no standard,
company decision
Company management
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Major steps - summary
1. Asses possible risk responses / scenarios
2. Quantify risks + cost of risk responses + secondary risks
for different risk responses or scenarios
3. Choose the most effective risk responses + owners
4. Prepare the Strategic risk response plan + risk reserves
Ask for management approval of response plan and reserves
5. Change project plans / contracts if necessary
6. Prepare the detailed risk response plan
OUTPUTS:
Updated risk register (responses), project plans & budget
Approved Risk response plan and reserves
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Example – Painting the fence
1. Asses possible risk responses / scenarios (for R1 – R4)
R4 Colour stains on clothes, base wall
risk response: already prepared - working clothes (at
disposal), newspapers for covering: risk avoided
R3 Paint tone selection – wife doesn´t like it
risk response already prepared and added to project plan
(schedule): consult the colour tone with wife, in shop
Fallback plan (if the consulting in shop is not possible): take
photos and show at home
R2 Paint quality
Consult with shop assistant by buying + with wife because
two types of colour can have different tones
R1 The weather – rain or frost can damage the paint, temperature
should be above +10oC) -> more complicated
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Example – Painting the fence
Risk of bad weather – rain or frost or temperature under +10oC
Possible pro-active responses for probability reduction:
Avoid: postpone project for next summer (good weather)
But secondary risk -> rotting the wood during winter
Mitigate: prepare to take leave of work when weather is fine
and paint it
Transfer: order painting by some professional - he can do it
any time (not only during weekend). Ask for price +
availability (Result: CZK 2000, available)
Possible contingency responses for impact:
Mitigate – prepare some shelter against rain, but frost?
SEPTEMBER
OCTOBER
19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4
Project plan and risk analysis
A0 consult the tone with wife
A1 buy colour, brush, sand paper
A2 grind planks
A3 paint first layer
A4 dry 24 hours
A5 paint second layer
5
6
7
8
NOVEMBER
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4
*
BUSINESS TRIP (NOT AVAILABLE FOR PAINTING)
1 DAY AUTO-TRIP PLANNED
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Example – Painting the fence
Risk of bad weather – rain or frost or temperature under +10oC
Contingency (reactive) plans (act after the risk event) happens
Because bad weather probability after business trip is high (95%):
If weather is bad on October 3-4 –> order the painting
Trigger for ordering (for any day between October 5-21, firm
will follow the weather) - weather report on September 25 –
September 30
If …..
… draft possible scenarios + quantify
2. Quantify risks + cost of risk responses + secondary risks
for different risk responses or scenarios
SEPTEMBER
OCTOBER
19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4
Project plan and risk analysis
A0 consult the tone with wife
A1 buy colour, brush, sand paper
A2 grind planks
A3 paint first layer
A4 dry 24 hours
A5 paint second layer
5
6
7
8
NOVEMBER
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4
*
BUSINESS TRIP (NOT AVAILABLE FOR PAINTING)
1 DAY AUTO-TRIP PLANNED
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Example – Painting the fence - Risk of bad weather
2. Scenarios + responses + quantification
Event tree:
weather
ok?
40%
yes
1
weather
no
60% ok?
New idea
September 26-27?
Postpone the trip
yes
2
no weather
80% ok?
2
1
SEPTEMBER
OCTOBER
19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4
Project plan and risk analysis
A0 consult the tone with wife
A1 buy colour, brush, sand paper
A2 grind planks
A3 paint first layer
A4 dry 24 hours
A5 paint second layer
20%, +CZK 2 000
5
6
7
8
paint
myself
paint by
order
40%
12%
5% paint
2%
yes
myself
3 95%
next
no
46%
year
3 +CZK 10 000
NOVEMBER
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4
*
BUSINESS TRIP (NOT AVAILABLE FOR PAINTING)
1 DAY AUTO-TRIP PLANNED
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Example – Painting the fence - Risk of bad weather
2. Scenarios + responses + quantification
40%
yes
40% weather
1
no
weather
ok?
no
weather
0
60% ok?
ok?
paint
yes
60% myself
60%
New idea:
September 26-27
Postpone the trip 0
2
5
6
?
*
yes
2
no weather
80% ok?
1
SEPTEMBER
OCTOBER
19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4
Project plan and risk analysis
A0 consult the tone with wife
A1 buy colour, brush, sand paper
A2 grind planks
A3 paint first layer
A4 dry 24 hours
A5 paint second layer
20%, +CZK 2 000
7
8
paint
myself
paint by
order
16%
5%
5% paint
1%
yes
myself
3 95%
next
no
18%
year
3 +CZK 10 000
NOVEMBER
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4
BUSINESS TRIP (NOT AVAILABLE FOR PAINTING)
1 DAY AUTO-TRIP PLANNED
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Example – Painting the fence - Risk of bad weather
2. Scenarios + responses + probability quantification
1st proposal
2nd proposal
October 3-4
September 26-27
4 600 = 10 000*46%
1 800 = 10 000*18%
0 = 0*42%
100 =
2000*5%
0
240 = 2000*12%
E = CZK 4 840
EXPECTED EFFECT
E = CZK 1 900
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Example – Painting the fence - Risk of bad weather
3. Choose the most effective risk responses + owners
pro-active response -> agree possible paint ordering October 5-21
Contingency plan
•
good weather on September 26-27 –> cancel trip and paint
Trigger T1 = weather report September 23-25 (material should
•
bad before and good on Oct 3-4 –> paint. T2 = Oct 2
•
bad on Oct 3-4 –> order painting (T2), if good sometimes between
Oct 5-21-> painting finished by order
bad on Oct 24-25 (T3)–> follow weather reports weekly (T4), if
unfavourable -> postpone on next year
have been bought, do not plan anything firm)
•
SEPTEMBER
OCTOBER
19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4
Project plan and risk analysis
A0 consult the tone with wife
A1 buy colour, brush, sand paper
A2 grind planks
A3 paint first layer
A4 dry 24 hours
A5 paint second layer
5
?
*
6
7
8
NOVEMBER
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4
BUSINESS TRIP (NOT AVAILABLE FOR PAINTING)
1 DAY AUTO-TRIP PLANNED
T1
T2
T3
T4
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
5. Risk response planning
Example – Painting the fence
3. Choose the most effective risk responses + owners
3 risks solved, responses for „bad weather“ prepared
Owner - myself
4. Prepare the Strategic risk response plan + risk reserves
Ask for management approval of response plan and reserves
Aproved by myself and my wife
5. Change project plans / contracts if necessary -> changed
6. Prepare the detailed risk response plan -> prepared
OUTPUTS:
Updated risk register (responses), project plans & budget
Approved Risk response plan and reserves
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
.1.
Risk management planning
2. Risk identification
3. Qualitative risk analysis
4. Quantitative risk analysis
5. Risk response planning
Scenarios assessment, secondary risks
Reassessing plans, schedule, budget & reserves
6. Risk monitoring and control
Control and manage risks
Identify, analyze and reassess risks,
plans, schedule, budget
7. Documentation, lessons learned
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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PROJECT RISK MANAGEMENT PHASES
6. Risk monitoring and control
Objectives:
Act to prevent threats and make opportunities happen
Monitor risks and implement risk response plans
React on unforeseen events
Identify, assess and manage new risks
Adjust project plans, manage project reserves
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
6. Risk monitoring and control
Major steps
1. Monitor risks and risk triggers + do actions using Risk
response plans (preventive, contingency / fallback)
2. React on unforeseen events (can signal more risks
3. Identify, assess and manage new risks
go throuh previous phases of risk management process
4. Measure project results, reassess project reserves, adjust
project plans
use project status report and meetings
consider continue / stop decision in case of unexpected risks
OUTPUTS:
Updated risk register (responses), project plans, budget,
reserves
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
6. Risk monitoring and control
Example – Painting the fence
1. Monitor risks and risk triggers + do actions using Risk
response plans (preventive, contingency / fallback)
Trigger: - September 23, Weather report:
• fine weather for weekend September 26-27, no rain, 25oC
• good weather in first decade of October, no rain, 20oC
- September 24, 25 Weather report: the same
DECISION: do not wait till October, make use of this weekend,
trip postponed
Weather was fine on weekend, my wife helped
The fence is nice
All are happy … it was good luck
(it was raining the next weekend)
… it was good risk management
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
.1.
Risk management planning
2. Risk identification
3. Qualitative risk analysis
4. Quantitative risk analysis
5. Risk response planning
Scenarios assessment, secondary risks
Reassessing plans, schedule, budget & reserves
6. Risk monitoring and control
Control and manage risks
Identify, analyze and reassess risks,
plans, schedule, budget
7. Documentation, lessons learned
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
7. Documentation, lessons learned
Objectives:
Preserve acquired knowledge and lessons learned for
future projets
Update risk management process / methodology if
necessary
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
7. Documentation, lessons learned
Major steps
1. Create report on project risk management lessons
learned (together with the Final project report) and record
the most important project risks
successfull and unsuccessful risk management
Recommendation for next projects – lessons learned
2. Include lessons learned into knowledge base
3. Archive all important risk analysis and management data
4. Update risk management process / methodology if
necessary – e.g. risk structure, risk thresholds, …
OUTPUTS:
Lessons learned report, knowledge base, data + records,
risk management methodology update
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
7. Documentation, lessons learnt
Example – Painting the fence
No reports will be created, but REMEMBER for future:
Do not wait with fence painting until September
Do not hesitate to make quick change when the conditions for
actions are optimal
Without risk management
I would have been solving it even today
(October 16)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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Project Risk Management
PROJECT RISK MANAGEMENT PHASES
7. Documentation, lessons learnt
Example – Painting the fence
No reports will be created, but REMEMBER for future:
Do not wait with fence painting until September
Do not hesitate to make quick change when the conditions for
actions are optimal
You
Without risk Thank
management
for
Your Attention
I would have been solving it even today
(October 16)
doc. Ing. Michal Korecký, Ph.D., Univerzita Palackého v Olomouci, Katedra aplikované ekonomie 11. – 12. 11. 2010
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