Project Risk Management
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Agenda
Project Risk Management
• Introduction to general risk • Definition of risk and related topics • Personal approach to risk • Types of risks • Risk factors • Risk in a project environment • Risk management processes
ENG M 680 Lecture 1
Introduction to Risk and Risk Management By Sami Fahmy, Ph.D, P. Eng, PMP 1
Course Objective
2
Risk
• Learn how to manage risk more effectively • Become familiar with risk and related definitions • Identify and understand techniques for determining risk source • Identifying causes and effects of the risks • Develop a frame of work that will help you make decisions • Learn more about your own willingness to take risks
A course of action or inaction taken under conditions of uncertainty which exposes the risk taker to possible loss, or gain to reach a desired outcome An undesirable situation or circumstance that is likely to cause a harm or a loss 3
4
Risk is all around us • To live is to risk dying • To laugh is to risk appearing the fool • To hope is to risk despair • To love is to risk not being loved in return
RISK is Everywhere
5
6
1
Let us think about risk
Can
Can
We
We
Elimina te
Avoid
One who risks nothing Does nothing
Risk?
Has nothing
Risk?
and is nothing 7
8
Why People take Risks
3 Types of Personal Risk
• • • • •
• Physical risk • Emotional risk • Financial risk
Profit Rewards Excitement Benefits Stupidity
9
What is the biggest risk you have ever taken?
10
Risk Guiding Principles • Learning and personal growth requires taking risks • Take only these risks, where you can handle the loss • Adjust risks that are too much to gamble with • Accept that the price of risk is an occasional failure
• What was your greatest fear? • How did you feel? • Were you discouraged or encouraged by others? • What is the worst that could happen? • What is the best that could happen?
11
12
2
Hazard is
Risk tolerance
• An situation or condition that is likely to cause a harm or a loss under certain circumstance (Dangerous condition) • Hazard is a prerequisite to risk • Hazard is a condition not an event
• The amount of risk that is acceptable to the individual, organization or client • It may be different from the individuals working in that organization
13
Issues, Problems, and Risks
14
Crisis
• Issues : any thing that requires the project manager attention
• An unplanned event or possible situation which triggers a real or perceived or possible threat to safety, health or to the environment or to to an organizational reputation
• Problem: A thing or an event that has gone wrong and require action to correct • Risk : Potential problem or event that may occur and if it occurs will cause harm 15
16
Understanding Risk • Risk happens as a result of a cause
Understanding Risk
• If it happens ( Probability) • it will result in (an impact or effect) • Examples 17
18
3
Uncertainty, Opportunity, Risk
Risk Spectrum
Start of project
Complete Information
NO Information
Completion of the Project Favorable Opportunity
Unknown Unknown
Known Unknown
Total Uncertainty
Unknown Or Uncertainty
Known Known
Unfavorable Risk
Total Certainty 19
Risk and Uncertainty
20
Certainty
Risk • The outcome can be described within established confidence limits Uncertainty • Uncommon state of nature characterized by absence of any information related to the desired outcome Complete absence of information Nothing is known about the outcome • You can not assign probabilities to uncertainty
• All information for making the right decision is available • The outcome is predictable with reasonable certainty
21
22
Risk Factors ( Aspects) Risk event • What might happen to the determent of the project (The unwanted change) Risk probability • How likely the event is to occur? Risk Impact • Extend of loss that will happen or amount at stake • What is the cost? • What are the possible gains? 23
Risk is function of (Event, Probability, Impact)
Risk Event Status RES = Risk Probability x Amount at Stake
24
4
Types of Risk (Source)
Types of risk
• Internal risk • • • • • •
Source Amount of information available Personal Insurability Ability to control the risk Constraints
• External risk • Technical risk • Unforeseeable risk
25
Types of Risk (Information)
26
Types of risk (Insurability)
Known/known risks • Everything about the situation is known
• Business risk Chance for a profit or a loss Not insurable
Known/Unknown risks • Identified, assessed and quantified risks Develop a contingency plan to cover
• Pure risk Only a chance for loss, no chance for profit (Direct property loss / indirect property loss)
Unknown/Unknown risks • Not identified, impossible to predict 27
Know the Difference
Risk and Decision Making
Internal risk
External Risk
The project team can influence or control
Beyond the control of or the influence of the project team
• Staff assignment • Cost estimates • Inability to get parts
• • •
28
Market shift Government action Senior Management actions
29
• Risk should only be taken when the potential benefits and the chances of winning exceed the remedial cost of an unsuccessful decision and the chance of loosing by a satisfactory margin
30
5
Individual Exercise I-1
Risk Taking Tips
Think of one risk you have successfully taken or about to take. Answer the following questions: • The risk I am about to take is: • Was that situation a risk or uncertain situation? And why • How did you approach that risk? • What exactly was risky about the situation? What could go wrong? • Did you think about reducing the risk? • What are the chances of that happening? • Did you think about the consequences of this risk? • Did you ask yourself, what is the worst that could happen? • If you do not take that risk, what would you lose? • Why should I take the risk If I take the risk what will I gain? What can be done if the desired results are not achieved? • Can I break down the risk into small risks so you do not risk as much? • Is the potential reward worth the risk? 31
• Never risk more than you can afford to lose. • Reduce the amount of risk as much as you can. • Practice makes perfect. • Try new ways of doing things. • Keep track of the risks you take. • Failure is temporary. and pursue same with them until all work is satisfactorily completed.
32
When Should you take Risk? • The potential benefits and chances of winning far exceed the remedial cost or the chances of losing • Factors that will affect your decision on taking risks
Risk and the Projects Environment
33
What is a Project
34
Class discussion
• It is a temporary undertaking to create a unique product or service.
70% to 90 % of the project’s problems and challenges are predictable and preventable
New technologies Increases specialization Complex contractual relation Increased political and social involvement Federal and provincial rules and regulations Globalization
35
36
6
What is Project Management
Common Sources of Risk • Change in the requirements • Design errors, omissions • Misunderstandings among project team • Poorly defined or understood roles • Insufficiently skilled staff • False assumptions • Subcontractor performance
• The application of knowledge, tools and techniques to project activities to ensure project success • Project management is risk management
37
38
Risk in Project Environment
How risky is your project ? • The project is very different from previous ones • The project scope is not well defined • Some of the technical data is lacking • Cost, schedule, and performance are not expressed in clear terms • The design did not consider the users
$
Unce
Am
rtaint y
and r isk
ake t st ta n ou
TIME Concept
Development
Execute
Finish
39
40
What is the Goal of Project Risk Management?
What is Risk Management? • It is the systematic process of identifying, analyzing and responding to project risks. It includes actions to maximizing the positive events and minimizing the negative ones.
To forecast the various sources of risk to a project, especially those with the most serious impact, and seek to reduce their Consequences or probabilities.
• The preparation for possible events in advance rather than responding as they happen. 41
42
7
Why Risk Management is important?
Risk Management Guidelines
• It offers significant improvement to the final project • Projects have better chances of success • It improves the project schedule and cost • Stakeholders and team members will better understand the nature of the project • It helps to define the strengths and the weaknesses of the project
• Applies to all projects • It should be done throughout the life cycle of the project • It is the responsibility of the Project Manager • It is the ultimate responsibility of the sponsor 43
44
Risk Management Processes
Goal of Risk Management
1. 2. 3. 4. 5. 6.
To forecast various sources of risk to a project especially those with the most serious impact and seek to reduce their consequences
Risk management planning Risk identification Qualitative risk analysis Quantitative risk analysis Risk response planning Risk monitoring and control
45
Risk Management Planning
46
Risk Identification
Deciding how to approach risk management for a particular project • How • What • Who • When • How much time • How much money
• What are the things that could go wrong? • What are the possible causes for things going wrong? • If it does go wrong, what could be the consequences be?
47
48
8
Qualitative Risk Analysis
Quantitative Risk Analysis
Performing analysis of risk and condition to prioritize the risk that have major impact on the project.
•
Evaluating risks and risk interaction to assess the range of possible project outcomes
•
Measuring the probability and the consequence of risk and estimating its impact on the project objectives
49
Risk Response Development
50
Risk Monitoring and Control
Developing procedures and techniques to enhance opportunities and reduce threats to the project objectives
51
• Monitoring of residual risks and new risk that may come up during the project execution • Execute the risk reduction plan and • Evaluate the effectiveness of the risk responses developed during the project’ planning stage
52
9
Project Risk Management
• Introduction to general risk • Definition of risk and related topics • Personal approach to risk • Types of risks • Risk factors • Risk in a project environment • Risk management processes
ENG M 680 Lecture 1
Introduction to Risk and Risk Management By Sami Fahmy, Ph.D, P. Eng, PMP 1
Course Objective
2
Risk
• Learn how to manage risk more effectively • Become familiar with risk and related definitions • Identify and understand techniques for determining risk source • Identifying causes and effects of the risks • Develop a frame of work that will help you make decisions • Learn more about your own willingness to take risks
A course of action or inaction taken under conditions of uncertainty which exposes the risk taker to possible loss, or gain to reach a desired outcome An undesirable situation or circumstance that is likely to cause a harm or a loss 3
4
Risk is all around us • To live is to risk dying • To laugh is to risk appearing the fool • To hope is to risk despair • To love is to risk not being loved in return
RISK is Everywhere
5
6
1
Let us think about risk
Can
Can
We
We
Elimina te
Avoid
One who risks nothing Does nothing
Risk?
Has nothing
Risk?
and is nothing 7
8
Why People take Risks
3 Types of Personal Risk
• • • • •
• Physical risk • Emotional risk • Financial risk
Profit Rewards Excitement Benefits Stupidity
9
What is the biggest risk you have ever taken?
10
Risk Guiding Principles • Learning and personal growth requires taking risks • Take only these risks, where you can handle the loss • Adjust risks that are too much to gamble with • Accept that the price of risk is an occasional failure
• What was your greatest fear? • How did you feel? • Were you discouraged or encouraged by others? • What is the worst that could happen? • What is the best that could happen?
11
12
2
Hazard is
Risk tolerance
• An situation or condition that is likely to cause a harm or a loss under certain circumstance (Dangerous condition) • Hazard is a prerequisite to risk • Hazard is a condition not an event
• The amount of risk that is acceptable to the individual, organization or client • It may be different from the individuals working in that organization
13
Issues, Problems, and Risks
14
Crisis
• Issues : any thing that requires the project manager attention
• An unplanned event or possible situation which triggers a real or perceived or possible threat to safety, health or to the environment or to to an organizational reputation
• Problem: A thing or an event that has gone wrong and require action to correct • Risk : Potential problem or event that may occur and if it occurs will cause harm 15
16
Understanding Risk • Risk happens as a result of a cause
Understanding Risk
• If it happens ( Probability) • it will result in (an impact or effect) • Examples 17
18
3
Uncertainty, Opportunity, Risk
Risk Spectrum
Start of project
Complete Information
NO Information
Completion of the Project Favorable Opportunity
Unknown Unknown
Known Unknown
Total Uncertainty
Unknown Or Uncertainty
Known Known
Unfavorable Risk
Total Certainty 19
Risk and Uncertainty
20
Certainty
Risk • The outcome can be described within established confidence limits Uncertainty • Uncommon state of nature characterized by absence of any information related to the desired outcome Complete absence of information Nothing is known about the outcome • You can not assign probabilities to uncertainty
• All information for making the right decision is available • The outcome is predictable with reasonable certainty
21
22
Risk Factors ( Aspects) Risk event • What might happen to the determent of the project (The unwanted change) Risk probability • How likely the event is to occur? Risk Impact • Extend of loss that will happen or amount at stake • What is the cost? • What are the possible gains? 23
Risk is function of (Event, Probability, Impact)
Risk Event Status RES = Risk Probability x Amount at Stake
24
4
Types of Risk (Source)
Types of risk
• Internal risk • • • • • •
Source Amount of information available Personal Insurability Ability to control the risk Constraints
• External risk • Technical risk • Unforeseeable risk
25
Types of Risk (Information)
26
Types of risk (Insurability)
Known/known risks • Everything about the situation is known
• Business risk Chance for a profit or a loss Not insurable
Known/Unknown risks • Identified, assessed and quantified risks Develop a contingency plan to cover
• Pure risk Only a chance for loss, no chance for profit (Direct property loss / indirect property loss)
Unknown/Unknown risks • Not identified, impossible to predict 27
Know the Difference
Risk and Decision Making
Internal risk
External Risk
The project team can influence or control
Beyond the control of or the influence of the project team
• Staff assignment • Cost estimates • Inability to get parts
• • •
28
Market shift Government action Senior Management actions
29
• Risk should only be taken when the potential benefits and the chances of winning exceed the remedial cost of an unsuccessful decision and the chance of loosing by a satisfactory margin
30
5
Individual Exercise I-1
Risk Taking Tips
Think of one risk you have successfully taken or about to take. Answer the following questions: • The risk I am about to take is: • Was that situation a risk or uncertain situation? And why • How did you approach that risk? • What exactly was risky about the situation? What could go wrong? • Did you think about reducing the risk? • What are the chances of that happening? • Did you think about the consequences of this risk? • Did you ask yourself, what is the worst that could happen? • If you do not take that risk, what would you lose? • Why should I take the risk If I take the risk what will I gain? What can be done if the desired results are not achieved? • Can I break down the risk into small risks so you do not risk as much? • Is the potential reward worth the risk? 31
• Never risk more than you can afford to lose. • Reduce the amount of risk as much as you can. • Practice makes perfect. • Try new ways of doing things. • Keep track of the risks you take. • Failure is temporary. and pursue same with them until all work is satisfactorily completed.
32
When Should you take Risk? • The potential benefits and chances of winning far exceed the remedial cost or the chances of losing • Factors that will affect your decision on taking risks
Risk and the Projects Environment
33
What is a Project
34
Class discussion
• It is a temporary undertaking to create a unique product or service.
70% to 90 % of the project’s problems and challenges are predictable and preventable
New technologies Increases specialization Complex contractual relation Increased political and social involvement Federal and provincial rules and regulations Globalization
35
36
6
What is Project Management
Common Sources of Risk • Change in the requirements • Design errors, omissions • Misunderstandings among project team • Poorly defined or understood roles • Insufficiently skilled staff • False assumptions • Subcontractor performance
• The application of knowledge, tools and techniques to project activities to ensure project success • Project management is risk management
37
38
Risk in Project Environment
How risky is your project ? • The project is very different from previous ones • The project scope is not well defined • Some of the technical data is lacking • Cost, schedule, and performance are not expressed in clear terms • The design did not consider the users
$
Unce
Am
rtaint y
and r isk
ake t st ta n ou
TIME Concept
Development
Execute
Finish
39
40
What is the Goal of Project Risk Management?
What is Risk Management? • It is the systematic process of identifying, analyzing and responding to project risks. It includes actions to maximizing the positive events and minimizing the negative ones.
To forecast the various sources of risk to a project, especially those with the most serious impact, and seek to reduce their Consequences or probabilities.
• The preparation for possible events in advance rather than responding as they happen. 41
42
7
Why Risk Management is important?
Risk Management Guidelines
• It offers significant improvement to the final project • Projects have better chances of success • It improves the project schedule and cost • Stakeholders and team members will better understand the nature of the project • It helps to define the strengths and the weaknesses of the project
• Applies to all projects • It should be done throughout the life cycle of the project • It is the responsibility of the Project Manager • It is the ultimate responsibility of the sponsor 43
44
Risk Management Processes
Goal of Risk Management
1. 2. 3. 4. 5. 6.
To forecast various sources of risk to a project especially those with the most serious impact and seek to reduce their consequences
Risk management planning Risk identification Qualitative risk analysis Quantitative risk analysis Risk response planning Risk monitoring and control
45
Risk Management Planning
46
Risk Identification
Deciding how to approach risk management for a particular project • How • What • Who • When • How much time • How much money
• What are the things that could go wrong? • What are the possible causes for things going wrong? • If it does go wrong, what could be the consequences be?
47
48
8
Qualitative Risk Analysis
Quantitative Risk Analysis
Performing analysis of risk and condition to prioritize the risk that have major impact on the project.
•
Evaluating risks and risk interaction to assess the range of possible project outcomes
•
Measuring the probability and the consequence of risk and estimating its impact on the project objectives
49
Risk Response Development
50
Risk Monitoring and Control
Developing procedures and techniques to enhance opportunities and reduce threats to the project objectives
51
• Monitoring of residual risks and new risk that may come up during the project execution • Execute the risk reduction plan and • Evaluate the effectiveness of the risk responses developed during the project’ planning stage
52
9
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