Project Management Risk Management Risk Management definitions RISK MANAGEMENT DEFINITIONS In the context of projects, risk is the chance that an undesirable event will occur and the consequences of all its possible outcomes. The objectives of project Risk Management are to increase the probability and impact of positive events, and decrease the probability and impact of events adverse to the project. Risk Management process Risk Management should use the project WBS as the basis of the analysis. STEP 1 Identify Risks -Take a practical approach to Identify Risks -Use the WBS as your starting point -Be thorough in your analysis (explore all reasonable possibilities, but don’t be absurd in your suggestions) -Continue until all risks are identified -If more detail is required, assign project team members to investigate STEP 2 : Perform Quantitative Risk Analysis Analyze the identified risks and determine which ones are most significant Typical analysis characteristics for a Risk Event – Probability of occurrence – Magnitude of impact – Ability to detect Risk analysis Follow this approach Gather the Experts – Use experienced project team members – Analyze the risks as a group Conduct Open Discussion – Discuss each identifyed risk – Assess each event in terms of Probability Impact Ability to detect Tabulate the Results – Calculate as core for each risk – Use a Risk Severity Matrix to show results Prioritize and Assign Risks – Ensure one project team member owns each risk – Most probable owner is Work Package owner Step 3 Risk response development Plan Risk Responses – 4 types – Risk Mitigation Reduce the likelihood of occurrence Reduce the impact Develop contingency plans – Transferring Risk Normally applies to high severity / low probability of occurrence risks Through contract terms Insurance – Sharing Risk Agree to spread risk across parties – Retaining Risk Not feasible to do anything else Project Manager must have a plan ready to execute if the risk occurs Contingency planning Technical Risks – Identify alternative solutions – Simulate alternative results – Increase Design Reviews and Testing Schedule Risk – Trade-off decisions (Remember the Triple Constraint) – Use of Slack Time in the schedule – Schedule buffers Funding Risks – Total Budget / Cost – Cash Flow – Contingency Funding Contingency funding -Budget reserves :identified for specific work packages Management reserve : covers unforeseen project risks (after budget reserves) Risk response control Monitor and Control Risks – Execute Mitigation Strategies These tasks MUST be added to the project schedule Monitor the mitigation execution just as you would any other activity – Monitor for Triggering Events Ensure one project team member owns each risk for monitoring activity Report status at regular project status meetings – Initiate Contingency Plans If a triggering event occurs, ensure contingency plan execution – Continuous Assessment of New Risks Hold additional risk identification reviews Every risk consists of: – An Event – A Level of Impact – A Probability of occurrence Risk Management is a continuous process of identification and assessment that should continue throughout the project – Present regularly to the project team and stakeholders – Continually assess the project for newly identified risks Risk Management is proactive, not reactive – Build risk mitigation strategy and plans up front – Include mitigation plans in the project schedule – Ensure proper levels of contingency in the schedule and the budget – Establish a Management Reserve for unforeseen risks A Waiver is a formalized procedure that, upon approval of the technical rationale behind the request, allows an exception to some internal rule.
