1040 Hillson 2 Risks
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Risk management : best practice & future developments Presented by Dr David Hillson FAPM FIRM PMP
Director [email protected]
Risk Doctor & Partners www.risk-doctor.com © 2004 David Hillson/Risk Doctor Limited, Slide 1
What is “best practice”? z
“Routine activities that lead to excellence”
z
Not “what everyone does”… … but “what everyone should do”
z
Accepted by leading professionals
z
Implemented by leading practitioners
z
Widely accessible
z
Scaleable, easily tailored or modified © 2004 David Hillson/Risk Doctor Limited, Slide 2
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 1 1
Various approaches Vision Strategy Programme Project
Tasks
Corporate governance/PD6668
MoR (OGC) 2002 RAMP (ICE) 2002 BS6079-3:2000 IRM/AIRMIC/ALARM:2002 AS/NZS 4360:2004 PRAM (APM) 2004 PMBoK (PMI) 2004 © 2004 David Hillson/Risk Doctor Limited, Slide 3
Elements of best practice
z
Definition of “risk”
z
Components of process
© 2004 David Hillson/Risk Doctor Limited, Slide 4
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 2 2
Where does risk come from? All projects contain risk, arising from interactions between • objectives ... • what must happen • uncertainty ... • what might happen TIME
UNCERTAINTY
UNCERTAINTY
UNCERTAINTY
COST
QUALITY / PERFORMANCE © 2004 David Hillson/Risk Doctor Limited, Slide 5
What is a risk? “An uncertain event or set of circumstances that, should it occur, will have an effect on achievement of one or more of the project’s objectives”
(APM PRAM Guide)
Risk connects uncertainty with objectives “The combination of the probability of an event and its consequences” (IRM/AIRMIC/ALARM RM Standard) © 2004 David Hillson/Risk Doctor Limited, Slide 6
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 3 3
Two dimensions of risk Risk has two dimensions : 1. uncertainty 2. effect on objectives
“probability” “impact”
Risk connects uncertainty with objectives © 2004 David Hillson/Risk Doctor Limited, Slide 7
Two dimensions of risk z
Uncertainty estimated as “probability”
z
“Impact” assessed against objectives z But what kind of impact? z Could be either positive or negative z Uncertainty that helps as well as uncertainty that harms z Opportunities as well as threats
© 2004 David Hillson/Risk Doctor Limited, Slide 8
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 4 4
Two-dimensional definitions z
APM PRAM Guide (second edition) : z
z
“Uncertainty can affect achievement of project objectives either positively or negatively. The term ‘risk event’ is therefore used to cover both uncertainties that could hinder the project (threats) as well as uncertainties that could help the project (opportunities).”
PMI® PMBoK® Third Edition : z
“An uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective.” © 2004 David Hillson/Risk Doctor Limited, Slide 9
Two levels of risk z
APM PRAM Guide (second edition) z
“risk event … an individual uncertainty which can be identified, assessed & managed … defined as ‘An uncertain event or set of circumstances that, should it occur, will have an effect on achievement of one or more of the project’s objectives’.”
z
“project risk … the joint effect of risk events & other sources of uncertainty … defined as ‘The exposure of stakeholders to the consequences of variations in outcome’.” © 2004 David Hillson/Risk Doctor Limited, Slide 10
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 5 5
Best-practice process INITIATE
Why bother?
ASSESS
What can we do? What will we do?
PLAN RESPONSES
How are we getting on?
Are they significant?
PROCESS
IDENTIFY
MANAGE
What are the risks?
IMPLEMENT RESPONSES
Do it !!!
© 2004 David Hillson/Risk Doctor Limited, Slide 11
Risk assessment z
z
Qualitative assessment
z
Quantitative assessment
z
What is the risk?
z
modelling uncertainty
z
Why might it occur?
z
simulate combined effect of risks
z
How likely is it? (Probability)
z
predicting outcomes
z
How bad/good might it be? (Impacts)
z
range, min/max, expected
z
Does it matter?
z
testing scenarios
z
What can we do?
z
setting confidence limits
z
When should we act?
z
identifying criticalities
z
Who is responsible?
z
determining options
Record/analyse in Risk Register
z
Model in software © 2004 David Hillson/Risk Doctor Limited, Slide 12
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 6 6
Qualitative techniques
z z
PROBABILITY
1. Probability/Impact matrix define terms HI/MED/LO prioritise risks R/Y/G
2. Risk categorisation (RBS) z
HI MED LO
common sources “hot-spots” of exposure
VLO VLO
LO
Management Risk
Technical Risk
Performance
Safety
Reliability
Resources
Information
MED
HI
VHI
IMPACT
Project Risk
Commercial Risk
Contractual
Communication
Organisational
© 2004 David Hillson/Risk Doctor Limited, Slide 13
The “mirror” double P-I Matrix Use two matrixes : rotate opportunity half THE ATTENTION ARROW
VHI HI
HI
MED
MED
LO
LO
PROBABILITY
VHI
PROBABILITY
z
VHI
VLO
VLO VLO
LO
MED
HI
VHI
NEGATIVE IMPACT (Threats)
VHI
HI
MED
LO
VLO
POSITIVE IMPACT (Opportunities) © 2004 David Hillson/Risk Doctor Limited, Slide 14
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 7 7
Risk response planning z
Using risk information to make decisions
z
Based on : z z z z z
z
type & nature of risk manageability impact severity resource availability cost-effectiveness
Identify : z z z
best owner for response appropriate response effective management action © 2004 David Hillson/Risk Doctor Limited, Slide 15
Threats & opportunities
THREAT GENERIC STRATEGY OPPORTUNITY ELIMINATE UNCERTAINTY Exploit Avoid Transfer
ALLOCATE OWNERSHIP
Share
Mitigate
MODIFY EXPOSURE
Enhance
Accept
INCLUDE IN BASELINE
Accept
© 2004 David Hillson/Risk Doctor Limited, Slide 16
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 8 8
Benefits Do it because it works (for you) z
Hard benefits
z
Soft benefits
z
credible plans
z
improved communication
z
increased chance of success
z
common understanding
z
better contingency
z
develops risk awareness
z
metrics for future projects
z
focuses attention
z
comparison of alternatives
z
facilitates risk-taking
z
identifies best risk owner
z
demonstrates professionalism
© 2004 David Hillson/Risk Doctor Limited, Slide 17
Vision for the future z
Risk management is not static z
z
still developing and moving forward
Three areas for development z
integration
z
increased depth & breadth
z
behavioural aspects © 2004 David Hillson/Risk Doctor Limited, Slide 18
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 9 9
Integration z
Integral to management of projects z z z
z
culture process tools
Integral to corporate culture z
Enterprise risk management z
z
across the business, top to bottom
TRM : z z
a way of thinking attitudes lead to actions © 2004 David Hillson/Risk Doctor Limited, Slide 19
Increased depth & breadth z
Depth of risk analysis z
better tools & techniques z z z
z
use of AI, IKBS, expert systems z z
z
user-friendly functionality integration knowledge management learning from experience
draw on other disciplines z z z z
value management system dynamics safety and hazard analysis scenario planning © 2004 David Hillson/Risk Doctor Limited, Slide 20
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 10 10
Increased depth & breadth
z
Breadth of application z
not just threats to project time & cost z risk as opportunity z z
z
programme/portfolio risk assessment z
z
other objectives : performance, quality … soft objectives : environment, HF, reputation …
inter-project issues
business risk assessment z z
business drivers, investment appraisal corporate governance, holistic risk © 2004 David Hillson/Risk Doctor Limited, Slide 21
Behavioural aspects z
Risk is not managed by robots z
z
Awareness Ö understanding Ö modification z
z
Human psychology is major influence
“Know thyself ”
Aim for “risk maturity” z
Appropriate choice of attitude & approach to meet specific needs of situation
© 2004 David Hillson/Risk Doctor Limited, Slide 22
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 11 11
Risk attitudes z
Range : z z z z
z
Why does it matter? z z
z
Risk-averse Risk-neutral Risk-tolerant Risk-seeking Attitudes create heuristics Heuristics influence judgement
Need to identify & manage risk attitudes z z
Personal and corporate Develop emotional literacy © 2004 David Hillson/Risk Doctor Limited, Slide 23
Where are we going? z
Project risk management has a future z
z
Develop or die z
z
not just a passing fad pioneers or settlers
Do it - because it works!
j d i !! © 2004 David Hillson/Risk Doctor Limited, Slide 24
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 12 12
More information from David Hillson [email protected]
www.risk-doctor.com © 2004 David Hillson/Risk Doctor Limited, Slide 25
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 13 13
Director [email protected]
Risk Doctor & Partners www.risk-doctor.com © 2004 David Hillson/Risk Doctor Limited, Slide 1
What is “best practice”? z
“Routine activities that lead to excellence”
z
Not “what everyone does”… … but “what everyone should do”
z
Accepted by leading professionals
z
Implemented by leading practitioners
z
Widely accessible
z
Scaleable, easily tailored or modified © 2004 David Hillson/Risk Doctor Limited, Slide 2
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 1 1
Various approaches Vision Strategy Programme Project
Tasks
Corporate governance/PD6668
MoR (OGC) 2002 RAMP (ICE) 2002 BS6079-3:2000 IRM/AIRMIC/ALARM:2002 AS/NZS 4360:2004 PRAM (APM) 2004 PMBoK (PMI) 2004 © 2004 David Hillson/Risk Doctor Limited, Slide 3
Elements of best practice
z
Definition of “risk”
z
Components of process
© 2004 David Hillson/Risk Doctor Limited, Slide 4
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 2 2
Where does risk come from? All projects contain risk, arising from interactions between • objectives ... • what must happen • uncertainty ... • what might happen TIME
UNCERTAINTY
UNCERTAINTY
UNCERTAINTY
COST
QUALITY / PERFORMANCE © 2004 David Hillson/Risk Doctor Limited, Slide 5
What is a risk? “An uncertain event or set of circumstances that, should it occur, will have an effect on achievement of one or more of the project’s objectives”
(APM PRAM Guide)
Risk connects uncertainty with objectives “The combination of the probability of an event and its consequences” (IRM/AIRMIC/ALARM RM Standard) © 2004 David Hillson/Risk Doctor Limited, Slide 6
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 3 3
Two dimensions of risk Risk has two dimensions : 1. uncertainty 2. effect on objectives
“probability” “impact”
Risk connects uncertainty with objectives © 2004 David Hillson/Risk Doctor Limited, Slide 7
Two dimensions of risk z
Uncertainty estimated as “probability”
z
“Impact” assessed against objectives z But what kind of impact? z Could be either positive or negative z Uncertainty that helps as well as uncertainty that harms z Opportunities as well as threats
© 2004 David Hillson/Risk Doctor Limited, Slide 8
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 4 4
Two-dimensional definitions z
APM PRAM Guide (second edition) : z
z
“Uncertainty can affect achievement of project objectives either positively or negatively. The term ‘risk event’ is therefore used to cover both uncertainties that could hinder the project (threats) as well as uncertainties that could help the project (opportunities).”
PMI® PMBoK® Third Edition : z
“An uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective.” © 2004 David Hillson/Risk Doctor Limited, Slide 9
Two levels of risk z
APM PRAM Guide (second edition) z
“risk event … an individual uncertainty which can be identified, assessed & managed … defined as ‘An uncertain event or set of circumstances that, should it occur, will have an effect on achievement of one or more of the project’s objectives’.”
z
“project risk … the joint effect of risk events & other sources of uncertainty … defined as ‘The exposure of stakeholders to the consequences of variations in outcome’.” © 2004 David Hillson/Risk Doctor Limited, Slide 10
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 5 5
Best-practice process INITIATE
Why bother?
ASSESS
What can we do? What will we do?
PLAN RESPONSES
How are we getting on?
Are they significant?
PROCESS
IDENTIFY
MANAGE
What are the risks?
IMPLEMENT RESPONSES
Do it !!!
© 2004 David Hillson/Risk Doctor Limited, Slide 11
Risk assessment z
z
Qualitative assessment
z
Quantitative assessment
z
What is the risk?
z
modelling uncertainty
z
Why might it occur?
z
simulate combined effect of risks
z
How likely is it? (Probability)
z
predicting outcomes
z
How bad/good might it be? (Impacts)
z
range, min/max, expected
z
Does it matter?
z
testing scenarios
z
What can we do?
z
setting confidence limits
z
When should we act?
z
identifying criticalities
z
Who is responsible?
z
determining options
Record/analyse in Risk Register
z
Model in software © 2004 David Hillson/Risk Doctor Limited, Slide 12
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 6 6
Qualitative techniques
z z
PROBABILITY
1. Probability/Impact matrix define terms HI/MED/LO prioritise risks R/Y/G
2. Risk categorisation (RBS) z
HI MED LO
common sources “hot-spots” of exposure
VLO VLO
LO
Management Risk
Technical Risk
Performance
Safety
Reliability
Resources
Information
MED
HI
VHI
IMPACT
Project Risk
Commercial Risk
Contractual
Communication
Organisational
© 2004 David Hillson/Risk Doctor Limited, Slide 13
The “mirror” double P-I Matrix Use two matrixes : rotate opportunity half THE ATTENTION ARROW
VHI HI
HI
MED
MED
LO
LO
PROBABILITY
VHI
PROBABILITY
z
VHI
VLO
VLO VLO
LO
MED
HI
VHI
NEGATIVE IMPACT (Threats)
VHI
HI
MED
LO
VLO
POSITIVE IMPACT (Opportunities) © 2004 David Hillson/Risk Doctor Limited, Slide 14
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 7 7
Risk response planning z
Using risk information to make decisions
z
Based on : z z z z z
z
type & nature of risk manageability impact severity resource availability cost-effectiveness
Identify : z z z
best owner for response appropriate response effective management action © 2004 David Hillson/Risk Doctor Limited, Slide 15
Threats & opportunities
THREAT GENERIC STRATEGY OPPORTUNITY ELIMINATE UNCERTAINTY Exploit Avoid Transfer
ALLOCATE OWNERSHIP
Share
Mitigate
MODIFY EXPOSURE
Enhance
Accept
INCLUDE IN BASELINE
Accept
© 2004 David Hillson/Risk Doctor Limited, Slide 16
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 8 8
Benefits Do it because it works (for you) z
Hard benefits
z
Soft benefits
z
credible plans
z
improved communication
z
increased chance of success
z
common understanding
z
better contingency
z
develops risk awareness
z
metrics for future projects
z
focuses attention
z
comparison of alternatives
z
facilitates risk-taking
z
identifies best risk owner
z
demonstrates professionalism
© 2004 David Hillson/Risk Doctor Limited, Slide 17
Vision for the future z
Risk management is not static z
z
still developing and moving forward
Three areas for development z
integration
z
increased depth & breadth
z
behavioural aspects © 2004 David Hillson/Risk Doctor Limited, Slide 18
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 9 9
Integration z
Integral to management of projects z z z
z
culture process tools
Integral to corporate culture z
Enterprise risk management z
z
across the business, top to bottom
TRM : z z
a way of thinking attitudes lead to actions © 2004 David Hillson/Risk Doctor Limited, Slide 19
Increased depth & breadth z
Depth of risk analysis z
better tools & techniques z z z
z
use of AI, IKBS, expert systems z z
z
user-friendly functionality integration knowledge management learning from experience
draw on other disciplines z z z z
value management system dynamics safety and hazard analysis scenario planning © 2004 David Hillson/Risk Doctor Limited, Slide 20
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 10 10
Increased depth & breadth
z
Breadth of application z
not just threats to project time & cost z risk as opportunity z z
z
programme/portfolio risk assessment z
z
other objectives : performance, quality … soft objectives : environment, HF, reputation …
inter-project issues
business risk assessment z z
business drivers, investment appraisal corporate governance, holistic risk © 2004 David Hillson/Risk Doctor Limited, Slide 21
Behavioural aspects z
Risk is not managed by robots z
z
Awareness Ö understanding Ö modification z
z
Human psychology is major influence
“Know thyself ”
Aim for “risk maturity” z
Appropriate choice of attitude & approach to meet specific needs of situation
© 2004 David Hillson/Risk Doctor Limited, Slide 22
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 11 11
Risk attitudes z
Range : z z z z
z
Why does it matter? z z
z
Risk-averse Risk-neutral Risk-tolerant Risk-seeking Attitudes create heuristics Heuristics influence judgement
Need to identify & manage risk attitudes z z
Personal and corporate Develop emotional literacy © 2004 David Hillson/Risk Doctor Limited, Slide 23
Where are we going? z
Project risk management has a future z
z
Develop or die z
z
not just a passing fad pioneers or settlers
Do it - because it works!
j d i !! © 2004 David Hillson/Risk Doctor Limited, Slide 24
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 12 12
More information from David Hillson [email protected]
www.risk-doctor.com © 2004 David Hillson/Risk Doctor Limited, Slide 25
Copyright © 2004 David Hillson/Risk Doctor Limited
Page 13 13
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