Essential Leadership Education Handling Project Uncertainty and Risk
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Essential Leadership Education Handling Project Uncertainty and Risk Develop Effective Leaders that Understand Analysis of Project Variables Using @Risk for Excel and Project Palisade Risk Conference November 10, 2011 Las Vegas, Nevada Keith D. Hornbacher, MBA, Affiliated Faculty Organizational Dynamics Graduate Programs, School of Arts and Sciences University of Pennsylvania Email: keithh@sas.upenn.edu Phone: +1.952.891.3579 Founder - Hornbacher Associates Background Institutional context University of Pennsylvania is located in Philadelphia – Recognized as America’s first university – Founder Benjamin Franklin,1740 ~ 1751 – Students (Fall 2010), Total ~ 25,000 – 14.3% of applicants for class 2014 were offered admission – Student to faculty ratio is 6:1 – Schools • Undergraduate (4) • Graduate (12) – Private university (not part of state system) Source: http://www.upenn.edu Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Organizational Dynamics School of Arts and Sciences Graduate degrees MSOD and MPhil Six areas of concentration – graduate studies in – Coaching – Global – Leadership/management – Practitioner of Development and Change – Sustainable Development – Projects, Programs, and Portfolios Source: http://www.organizationaldynamics.upenn.edu Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Organizational Dynamics School of Arts and Sciences Projects, Programs, and Portfolios (P3) in 6th year – Limit of 20 per course (enables interactive dialogue) – Core Courses • • • • Organizational Project Management Program Leadership Managing Project Portfolios Managing Project Risk, Uncertainty, and the Unexpected (DYNM-605) – Teams of students – project selected is used throughout semester – Introduced Palisade tools Fall 2011: Decision Tools Suite and @Risk for Project – Various tools are discussed at Penn for context • Electives, Practicum, and Capstone – Leads to certificate, P3 Leadership Professional (PLP) Source: http://www.organizationaldynamics.upenn.edu Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 DYNM-605 student demographics include Mid to senior level career professionals (domestic and foreign) seeking graduate degrees – – – – – – – – Pharmaceuticals Aerospace/defense Public utilities Healthcare Financial institutions (banks, insurance, investment firms) High tech Other Penn graduate programs Governmental bodies (local, state, federal) http://www.organizationaldynamics.upenn.edu/dynm-605-11c Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Our intent today Three key points in dialogue – Characteristics of organizations whose teams manage project – – risk effectively and those that do not Roles played by @Risk for Excel and Project in Penn’s project uncertainty/risk leadership education – valid tools are means to an end in broader context Steps necessary for organizational leaders to be effective in handling project variables Questions welcome throughout Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Risk ~ definition for our purposes Project Risk . . . is an uncertain event or condition that, if it occurs, has a positive or negative effect on at least one project objective, . . . (4 edition, 2008) . . . such as time, cost, scope, or quality . . . th . . . and is defined by two attributes, likelihood of occurrence and impact if it occurs . . . (3 edition, 2004) rd PMBOK® Guide, Project Management Institute (PMI) Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Organizational and Personal Traits Organizations have risk cultures Range from large bureaucratic to small innovative Compliance ~~~ Creativity Some so risk averse they invent names for risk Some seek highly volatile situations A few are deviant, some criminally so Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Deviance . . . Doing it right in the trenches – insufficient Efficient processes – not enough Best in class methods can be thwarted Organizations have risk cultures Criminal organizational behaviors are beyond scope of project risk management course – Subjects discussed in other Dynamics courses – Changing organizational risk cultures is complex Influences of biases and heuristics are discussed – Motivational and cognitive bias – Availability, Representativeness, Anchoring and Adjustment, Confirmation Trap See Tversky and Kahneman, “Judgment Under Uncertainty - Heuristics and Biases”, Science, 1974. Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Effective way to describe risk culture Project risk management maturity matrix Collaborative effort among three volunteer organizations – Association for Project Management (APM), United Kingdom – International Council on Systems Engineering (INCOSE) – Project Management Institute (PMI) Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Project Risk Management Maturity Matrix* Observable characteristics • • • • • Definition Culture Process Experience Application Levels of maturity 1. Ad Hoc 2. Initial 3. Repeatable 4. Managed *Source: Collaboration Group (INCOSE, PMI, APM) – See pages at end of this presentation Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Spectrum of personal risk attitudes High Neutral Low Zero Zero Discomfort Level Response to Uncertainty Extreme Low Tolerant High Extreme Averse Paranoid D. of Hornbacher, Associates keithh@sas.upenn.edu ph +1.952.891.3579 Adapted from Fig 5.,Keith p243 EffectiveHornbacher Opportunity Management for Projects, Dr. David Hillson, Taylor & Francis, 2004. Response to Uncertainty Comfort Level Seeking Gambler How would you describe your risk attitude? Please draw the following line on a piece of paper, label it And place a dot on the line for your attitude. 9 9 9 What evidence is there? Do you understand what led you to that conclusion? How would your team members describe their attitudes? Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Processes of Project Risk Management Plan risk management Identify risks Perform qualitative risk analysis Perform quantitative risk analysis Plan risk responses Monitor and control risks Practice Standard for Risk Management, Project Management Institute, 2009. Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 DYNM-605 Current course alignment 1) 17 Sep Introduction to Course Conduct, Communications; Managing Project Risk, Uncertainty, and the Unexpected; Risk Attitudes, Organizational Cultures 2) 01 Oct Survey of Project Risk Across Private/Public Sectors, Industries; Definition and Planning 3) 15 Oct Identification of Risks; Root Cause Projection, Risk Breakdown Structures and Registers 4) 29 Oct Prioritization, Assessment: Qualitative Analysis 5) 12 Nov Planning Responses [Distribute case study for final paper] 6) 19 Nov Monitoring, Control, Review, Organizational Learning Thanksgiving Holiday 24 November 7) 03 Dec Introduction to Risk Management Maturity (RMM); Challenges Facing Virtual Project Teams; Organizational Dynamics of Project Risk Cultures; ISO 31000:2009 8) 10 Dec Prioritization (advanced), Intro to Quant Cost/Schedule Risk Analysis, Uncertainty in Estimates; Unexpected Events; Course Discussion and Wrap-up Case Study: Final paper due before class Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Consecutive Weeks Deployment of @Risk for Excel and Project 1) 17 Sep Introduction to Course Conduct, Communications; Managing Project Risk, Uncertainty, Distributed ToolsCultures Suite and @Risk for Project and the Unexpected; Risk Attitudes,Decision Organizational 2) 01 Oct Survey of Project Risk Across Private/Public Sectors, Industries; Definition and Planning 3) 15 Oct Identification of Risks; Root Cause Projection, Risk Breakdown Structures and Registers 4) 5) 6) 7) 8) Parallel working sessions with 29 Oct Prioritization, Assessment: Qualitative Analysis group formed to exercise 12 Nov Planning Responses [Distribute case study for final paper] Palisade tools. Small groups 19 Nov Monitoring, Control, Review, Organizational Learning and virtual 03 Dec Introduction to Risk Management Maturity (RMM); Challenges Facing Virtual Projectcommunications. Teams; Organizational Dynamics of Project Risk Cultures; ISO 31000:2009 10 Dec Prioritization (advanced), Intro to Quant Cost/Schedule Risk Analysis, Uncertainty in Estimates; Unexpected Events; Course Discussion and Wrap-up Case Study: Final paper due before class Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Deployment factors Students qualifications and interests are key – Advanced experience and capabilities • • • • Licensed by Palisade for course software – – Decision Tools Suite @Risk for Project Distributed early in course to more than half of students – Some hold PhDs Others are experienced Not all have aptitude Optional for students to use quantitative methods, tools Clearly stipulated optional nature of tools use Tutorials and practicum – groups formed using virtual communications Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Observations to date Motivation and interest factors dominate Application to real project(s) at work possible Keyboard skills quickly learned Tutorials through Palisade on line increase students skills Support from help desk superb Individual study by some being proposed for next term Intensive 5 day summer course may be more effective format for tools deployment Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Implementing Quantitative Project Risk Models Example Process Flow Visualizing risk assessment process Assess, Analyze Identified Risk Register List Prioritized ATTENTION ARROW Opportunities Threats Prob. Prob. VHI VHI HI HI MED MED LO LO VLO VLO VLO Risk Breakdown Structure (RBS) LO MED HI VHI VHI HI Impact MED LO Plan Responses Risk Register Updated VLO Impact Qualitative Trigger Parameters ? Quantitative RBS Risks Grouped DYNM 605 Managing Project Risk, Uncertainty, and the Unexpected © 2011 Keith Hornbacher – All rights reserved Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Environmental and Organizational Factors What can trigger and influence Quantitative Cost, Schedule, or Integrated Cost/Schedule Risk Analysis? Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 When is Qualitative Risk Analysis Not Enough? Plan Identify Qual_itative Learn Define Quant_itative Assessment Analysis Prioritization Respond Monitor Control Handle Keith D. Hornbacher, Hornbacher keithh@sas.upenn.edu ph +1.952.891.3579 DYNM 605 Managing Project Risk, Uncertainty, andAssociates the Unexpected © 2011 Keith Hornbacher – All rights reserved When triggering criteria are met Identified Assess, Analyze Qualitative Prioritized Trigger Parameters ? YES Quantitative Plan Responses Parameters defined in RMP met or exceeded Combined effects of risks on objectives important Complex interactions exist among risks Team, organization has or can obtain requisite expertise KeithProject D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 DYNM 605 Managing Risk, Uncertainty, and the Unexpected © 2011 Keith Hornbacher – All rights reserved Program/project external, internal influences Phase, size, complexity, urgency Maturity of organization’s risk management methods, policies, experience Organizational/environmental culture present during performance of quantitative risk analysis (voluntary/motivated, compliance/imposed . . .) Flexibility of performance (does a Data Item Description govern?) Sophistication of client team members and leaders Previous experience with methods identified by key team members (rightly or not) to be similar to quantitative risk analysts Existence of motivational bias Time available to deliver the required analysis - Excerpt from white paper, Keith D. Hornbacher, November 2010 Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Program/project, by phase Bid – No Bid (before decision to compete) – Program /project risk analysis, a risk analysis of several alternative plans – Identify, assess strategic, high level feasibilities and costs – a quantitative “Risk Model” Proposal (after decision is made to compete) – More elaborate risk model development ; Bid/No-Bid risk model (logic network) provides the proposal team with capture rationale and a point of departure for the proposed program development Detail added to substantiate approach and refine variables – Contract Award, Start-up – Refine schedule from “as-proposed “ benefits from previous work performed with the risk model – Base-lined (approved) schedule more or less aggressive than “as-proposed” – Evolves into Risk Model, a “program/project test bed” for assessing the base-lined integrated schedule Periodic Schedule Risk Analysis (SRA) – Assess current schedule risk often a Contract Data Item List (CDRL) deliverable. – Entry point of some organizations early on learning curve of quantitative risk analysis Post program evaluation (lessons learned) – Effective implementations start before program/project finish and continue with lessons learned D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu +1.952.891.3579 See also:Keith Integrated Cost-Schedule Risk Analysis, Dr. David T. ph Hulett, Gower, 2011. Integrated Cost/Schedule Risk Model Flow Team Update •Actual starts •Actual finishes •Remaining durations •New durations •New sequences •Actual costs Resources + Costs Valid CPM Sched Data Base Deterministic schedule and critical path analysis (conventional) Stakeholder Trust, Collaboration Single Critical Path • Estimates • Budgets (Single Values) •Remaining funds Schedule Bar Chart Team Update Uncertainty Data: Remaining duration . ranges, distributions • Decision points • Probabilistic paths • Conditional paths New Risk Items Resources, costs Risk Register Risk Factors Interpret Data • Confidence Levels • Handling Options • Progress Perform “Monte Carlo” Simulation Date/Duration, Analyze cases, workarounds; test sensitivity, compare contingency plans Resource/Cost Distributions Schedule Bar Chart (Reflect Uncertainties) Feed Back to Integrated Project Teams (IPT) Likely Critical Paths, Contingency funds, schedule reserve Cost/Schedule Risk Analysis, Scatter plots (Target Vs Expected Values) Select Preferences • Action Plans • Decision Triggers • Contingencies Take Action • Performance+ • Track Metrics • Preserve History Organization Learns 9 Rational Choices 9 Standard Methods 9 Improved Process 9 Timely Deliveries DYNM 605 Managing Project Risk, Uncertainty, and the Unexpected © 2011 Keith Hornbacher – All rights reserved Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Credibility is essential Quality data from expert sources Qualified tools Experienced practitioners Cultural acceptance of uncertainty Appropriate level of analysis to fit needs Must use valid and reliable tools, methods – in trained and experienced hands! Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Quantitative Project Risk Analysis Defines and documents team’s knowledge of project variables (the gaps, too) Increases team trust levels Aggregates risks across project Calibrates ranges of outcomes Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Summing up organizational deployment of quantitative project risk analysis methods Main ideas – – – – – – – – – People remain the key; executive level commitment required Credibility is essential The “will” to learn while the process is underway Risks (factors) are now treated separately from uncertainties (estimating “error”) using risk registers Valid tools necessary but not sufficient – a means to end Technical specialists (SMEs) may need coaching to provide good data Integrated cost/schedule risk analysis maturing with sophisticated tools Risk models evolve as SMEs and analysts understand Test alternative response plans for contribution to success Constructive purpose: Improve probability of success, NOT present a report card Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Examples: Risk Management Plan and Risk Management Maturity Matrix Project Risk Management Plans Two examples: Table of Contents (See cited sources for further discussion.) Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Example 1: Practice Standard for Project Risk Management, Project Management Institute, 2009. – – – – – – – – – – – – – INTRODUCTION PROJECT DESCRIPTION RISK MANAGEMENT METHODOLOGY RISK MANAGEMENT ORGANIZATION ROLES, RESPONSIBILITIES, AND AUTHORITY STAKEHOLDER RISK TOLERANCE CRITERIA FOR SUCCESS RISK MANAGEMENT TOOLS AND GUIDELINES FOR USE THRESHOLDS AND CORRESPONDING DEFINITIONS TEMPLATES COMMUNICATIONS PLAN STRATEGY RISK BREAKDOWN STRUCTURE Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 See page 23. Example 2: Project Risk Analysis and Management Guide, 2nd ed. Association for Project Management (UK), 2004. 1. 2. INTRODUCTION PROJECT DESCRIPTION A brief description of what the project is for and its key parameters of success. 3. PURPOSE AND SCOPE OF RISK MANAGEMENT The aims and objectives of the risk management process being applied to the project in question. What is, and is not, included within the scope. 4. RISK MANAGEMENT ORGANISATION The specific responsibilities of people in the organization who will be involved in risk management work. Clarification of the roles/responsibilities between the organisation, its client, and its subcontractors. 5. RISK MANAGEMENT PROCESS A description of the risk management process adopted for the project. 6. KEY DELIVERABLES Annexes: A. INTRODUCTION TO RISK MANAGEMENT Explanations of risk management, including definitions of risk and categories of risk. B. TOOLS AND TECHNIQUES A description of this tools an techniques selected for use on this project. C. PROFORMA Copies of standard forms used in the risk management process – for example, summary sheet and risk register. Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 See page 50. Project Risk Management Maturity Matrix Source: Collaboration Group (INCOSE, PMI, APM) Keith D. Hornbacher, Hornbacher Associates keithh@sas.upenn.edu ph +1.952.891.3579 Organizational Risk Management Maturity Matrix Project Risk Management Definition Level 1 – Ad Hoc Level 2 – Initial Level 3 – Repeatable Level 4 - Managed Unaware of the need for management of uncertainties (risk). Experimenting with risk management through a small number of individuals. Management of uncertainty built into all organizational processes. Risk-aware culture No structured approach to dealing with uncertainty. No structured approach in place but considering Risk management implemented on most or all projects. Proactive approach to risk management in all aspects of the organization. Repetitive and reactive management Aware of potential benefits of managing risk, but processes. ineffective implementation. Culture Little or no attempt to learn from past projects or prepare for future projects. Recogized Need to Accumulate Historical Uncertainty Data Historical Lessons Captured, Use Limited to Some Projects No risk awareness. Risk process may be viewed as additional overhead with variable benefits. Accepted policy for risk management. Top-down commitment to risk management, with leadership by example. No upper management involvement. Upper management encourages, but does not require, use of Risk Management. Benefits recognized and expected; risk viewed as opportunity as well as threat Executive management uses risk information in decision-making. Resistant/reluctance to change. Risk management used only on selected projects. Executive Management requires risk reporting. Proactive risk management encouraged and rewarded. Dedicated resources are funded to perform risk management. Project managers' career path includes risk management training, experience. Tendency to continue with existing processes even in the face of project failures. Process Active use of risk information to Benefits understood at all organizational levels, although not always consistently improve organizational processes and gain competitive advantage. achieved. Organizational philosophy accepts idea Organizational philosophy encourages that people make mistakes. innovation. Shoot the messenger. “Bad news” risk information is tolerated. No formal process. No generic formal processes, although some specific formal methods may be in use. Generic processes applied to most projects. Risk-based organizational processes. No Risk Management Plan or documented process exists. Process effectiveness depends heavily on the skills of the project risk team and the availability of external support. Formal processes incorporated into quality system. Risk Management culture permeating the entire organization. None or sporadic attempts to apply Risk Management principles. All risk personnel located under project. Active allocation and management of risk budgets at all levels. Regular evaluation and refining of process. Adapted from Collaboration among INCOSE Risk Management Working Group,PMI RiskSIG, UK Association for Project Mgt, RiskSIG, April 2002 Organizational Risk Management Maturity Matrix Project Risk Management Level 1 – Ad Hoc Level 2 – Initial Attempts to apply Risk Management process only when required by customer. Level 3 – Repeatable Level 4 - Managed Limited need for external support. Routine risk metrics used with consistent feedback for improvement. Risk metrics collected. Key suppliers and customers participate in the Risk Management process. Key suppliers participate in Risk Management process. Direct formal communication channel to organization management. Process (Cont'd) Informal communication channel to organization management. No understanding of risk principles or language. Experience No understanding or experience in accomplishing risk procedures. Limited to individuals who may have had little or no formal training. In-house core of expertise, formally trained in basic risk management skills. All staff risk aware and capable of using basic risk skills. Development and use of specific processes and tools. Learning from experience as part of the process. Regular training for personnel to enhance skills. No structured application. Inconsistent application of resources. Routine and consistent application to all projects. Risk ideas applied to all activities. No dedicated resources. Qualitative risk analysis methodology used exclusively Dedicated project resources. Risk-based reporting and decisionmaking. No risk management tools in use. Integrated set of tools and methods. State-of-the-art tools and methods. No risk analysis performed. Both qualitative and quantitative risk analysis methodologies used. Both qualitative and quantitative risk analysis methodologies used with great stress on having valid and reliable historical data sources. Application Dedicated organizational resources. Adapted from Collaboration among INCOSE Risk Management Working Group,PMI RiskSIG, UK Association for Project Mgt, RiskSIG, April 2002 Essential Leadership Education Handling Project Uncertainty and Risk Develop Effective Leaders that Understand Analysis of Project Variables Using @Risk for Excel and Project Palisade Risk Conference November 10, 2011 Las Vegas, Nevada Keith D. Hornbacher, MBA, Affiliated Faculty Organizational Dynamics Graduate Programs, School of Arts and Sciences University of Pennsylvania Email: keithh@sas.upenn.edu Phone: +1.952.891.3579 Founder - Hornbacher Associates
