Managing%20Risks%20in%20Projects

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Managing Risks in Projects
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Risk Concepts

• The Likelihood that some Problematical Event will
  Occur
• The Impact of the Event if it does Occur
• Risk f (likelihood, impact)
• Project is considered Risky if at least One
  Factor is large

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Risk Identification

• Risk Tolerance is a Function of Experience
• PM
• Stakeholders
• Risk of Failure
• Schedule
• Budget
• Technical Goals
• Risk of Opportunity
• Rewards
• Savings
• Benefits

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Risk Identification (Continued)

• Ways to Identify Project Risk
• Chronology
• Type of Work
• High Risks
• Approach is New/Unusual
• Technology is New/Unusual
• Staff needs Training in New Tasks/Skills
• Process using New Equipment, Systems or Procedures

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Sources of Risk

• Any Factor of uncertain Probability which can
  affect the Outcome is of a Project is a
• Risk Source
• Risk Hazard

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Sources of Risk (Continued)

• Internal Risks
• Market Risk
• Ill Defined Market or Customer needs and
  Requirements
• Failure to Identify Changing Needs and
  Requirements
• Failure to identify Newly Introduced Products by
  Competitors
• Technical Risk
• Maturity
• Complexity
• Quality
• Concurrency, or Dependency

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Sources of Risk (Continued)

• External Risks,
• Market Conditions
• Competitors Actions
• Government Regulations
• Interest Rates
• Decisions by Sr. Mgmt or Customer
• Budgets
• Staffing
• Priorities

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Sources of Risk (Continued)

• External Risks (Continued)
• Customer Needs and Behavior
• Supplier Relations
• Weather
• Labour Troubles
• Material or Labor
• External Control by Customers or Subcontractors

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Risk Assessment

• Risk Likelihood
• Probability a Hazard or Risk Factor will
  Materialize
• Numerical Value between 1.0 (Certain) and 0
  (Impossible)
• Qualitative Rating
• High Greater than 50
• Medium 20 to 50
• Low 20 or Less
• Composite Likelihood Factor (CLF)
• Sum of Multiple, Independent Risk Sources

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Risk Assessment(Continued)

• Risk Impact
• What Happens if a Risk Hazard Materialized
• Specified in Terms of
• Time
• Cost
• Performance Measures
• Qualitative
• High
• Medium
• Low

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Risk Assessment(Continued)

• Risk Impact (Continued)
• Numerical Measure Between 0 and 1.0
• 0 not Serious
• 1.0 Catastrophic

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Risk Assessment(Continued)

• Risk Consequence
• Function or Likelihood and Impact
• Can be Expressed as Numerical rating between 0
  and 1.0
• Risk Consequence Rating (RCR)
• RCR CLF CIF - CLF(CIF)
• Can be Expressed as an Expected Value or the
  Average Outcome for large Tries
• Risk Consequence (Impact) x (Likelihood)

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Risk Assessment(Continued)

• PERT
• Incorporates Risk through the three Estimates for
  Each Project Activity
• a, Optimistic
• m, Most Likely
• b, Pessimistic
• Use a larger value of b to account for Greater
  Risk
• This Produces a larger Variance for Project
  Completion Time (Add buffer Time to Project)
• PERT Provides a Way for Measuring the
  Consequences of Risk on Project Completion Times

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Risk Assessment(Continued)

• Risk Priority
• PM must Define a Risk Tolerance Level
• Consider Risks at that Level and Higher
• Team Members Review all these Tasks and Make
  Recommendations
• In Complex Systems Joint Failures Can Occur

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Risk Response Planning How to Deal with the
Problem

• Transfer the Risk
• Avoid Risk
• Reduce Risk
• Contingency Planning
• Accept Risk (Do Nothing)

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Risk Likelihood, Risk Impact, and Expected Value
Consequences
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Avoid Risk

• Alter the Initial Project Concept
• Eliminate Risky Activities
• Minimize System Complexity
• Reduce End-Item Quality Requirements
• Change Contractors
• Incorporate Redundancies
• Change Safety Procedures
• Better to Reduce Risk to Acceptable Level Than
  Eliminate Payoff Opportunity

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Reduce RiskTechnical Performance

• Reduce System Complexity to a Minimum
• Reorganize Tasks
• End Item Design
• Decouple Activities
• Contains Failure to one Activity
• Use Design Margins
• A Management Reserve
• Design Value is Greater than Design Requirement

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Reduce RiskMeeting Schedules

• Create Master Project Schedule
• Schedule Risky Tasks Early to Allow Time to
  Recover
• Focus on Critical and Near-Critical Activities
• Path
• Risk
• Best People on Time-Critical Tasks

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Reduce RiskMeeting Schedules (Continued)

• Incentives for OT
• Compensated Salary
• Compensated Time
• Do High Risk Activities in the Project Network in
  Parallel
• Organize Project Early with Adequate Staff

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Reduce RiskMeeting Project Cost

• Identify and Monitor Cost Drivers
• Perform Design Alternative Reviews and
  Assessments
• Validate System Design and Performance
• Modeling
• Assessment

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Accept Risk (Do Nothing)

• Not All Risks are Severe or Fatal
• Cost Benefit Analysis
• Not for Risks which are Potentially Severe

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Risk Management is Project Management

• Another Tool for PM
• Supplements
• Requirements Definition
• Task Definition
• Scheduling
• Budgeting
• Configuration Management
• Change Control
• Performance Tracking and Control

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Expect the Unexpected

• Do All You Can
• Cannot Cover Every Contingency
• Bonapartes Principle came along before Murphys
  Laws, i.e., Something Surely Will Go Wrong Plan
  for It to Occur

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Risk Analysis Methods

• Expected Value
• Decision Trees
• Uncertainty and Payoff Tables
• Simulations