Project Risk Management Processes

1. Apply RiskManagement TechniquesProject Risk Processes Part 2Certificate IV in Project Management 17871Qualification Code BSB41507Unit Code BSBPMG407A

2. Project Risk Management Processes PMBOK Project Risk Management Processes - 11.1 Plan Risk Management 11.2 Identify Risks 11.3 Perform Qualitative Risk Analysis 11.4 Perform Quantitative Risk Analysis 11.5 Plan Risk Responses 11.6 Monitor and Control Risks Related processes from Project Integration Management – 4.1 Develop Project Charter 4.2 Develop Project Management Plan 4.6 Close Project PMBOK 4th Edition

3. 11.4 Perform Quantitative Risk Analysis The process of numerically analysing the effect of identified risks on overall project objectives Typically only applied to risks with high priority due to potential to substantially impact the project’s objectives Enables a more rigorous approach to risk decision making in the presence of uncertainly Often omitted depending on the organisation’s risk appetite and maturity of the project and risk management processes Occurs during Planning Monitor Initiation Planning Execution Close Control Adapted from PMBOK 4th Edition

4. 11.4 Perform Quantitative Risk Analysis Inputs to Perform Quantitative Risk Analysis - Draft Risk Register Risk Management Plan Cost Management Plan Schedule Management Plan Organisational Process Assets - Risk management standards Risk management policies and procedures Risk categories and definitions Standard templates Lessons learned from previous projects Risk databases and checklists Monitor Initiation Planning Execution Close Control Adapted from PMBOK 4th Edition Adapted from PMBOK 4th Edition

5. 11.4 Perform Quantitative Risk Analysis • Tools and techniques for Quantitative Risk Analysis include - Expected Monetary Value Analysis Interviews Probability Distributions Decision Tree Diagrams Sensitivity Analysis Modelling & Simulation Expert Judgement

6. 11.4 Perform Quantitative Risk Analysis Interviews • Draw on experience of experts and historical data to quantify the probability and impacts of risks on project objectives. Often Three-point data is gathered on pessimistic, likely and optimistic outcomes. Probability Distributions – Advanced technique • Discrete distributions represent uncertain events such as risks. Requires high degree of statistical skill and statistical software. Sensitivity Analysis – Advanced technique • Helps to determine which risks have the most potential impact on project objectives. Prioritisation undertaken in Qualitative Analysis is often sufficient.

7. 11.4 Perform Quantitative Risk Analysis Modelling and Simulation – Advanced techniques • Uses a model to simulate the outcomes of the project, including the impact of uncertain events such as risks. Requires extensive data on past and similar projects, a high degree of statistical expertise and statistical software. Expected Monetary Value Analysis – Advanced technique • Extremely advanced technique. Rarely used except for Defence and Scientific projects such as space exploration. Specifically examines the impacts on cost of uncertain events. Decision Tree Diagrams • Can be use in conjunction with Modelling and Simulation and Expected Monetary Value Analysis, or can be prepared in a more informal manner. Enables analysis of different choices and paths.

8. 11.4 Perform Quantitative Risk Analysis Outputs of this process include – Risk Register Updates Probabilistic analysis of the project Probability of achieving cost and time objectives Prioritised list of quantified risks Trends in risk analysis results Monitor Initiation Planning Execution Close Control Adapted from PMBOK 4th Edition

9. 11.5 Plan Risk Responses The process of developing options and actions to reduce the threat and impacts of risks It includes the identification and assignment of one person to be the Risk Owner, as well as the selection of the best management or mitigation actions Planned risk responses must be appropriate to the significance of the risk and cost effective Can also be applied to the maximisation of the benefits from any identified possible opportunities (less common) Occurs during Planning Monitor Initiation Planning Execution Close Control Adapted from PMBOK 4th Edition

10. 11.5 Plan Risk Responses Inputs to Plan Risk Responses Risk Register Risk Management Plan Tools and techniques to Plan Risk Responses include - Negative Risks or Threats Positive Risks or Opportunities • Avoid • Transfer • Mitigate • Accept • Exploit • Share • Enhance • Accept Adapted from PMBOK 4th Edition Adapted from PMBOK 4th Edition

11. 11.5 Plan Risk Responses Avoid • Changing the Project Management Plan to eliminate the risk entirely Transfer • Shifting some or all of the ownership of a threat to third party and thus also transferring the negative impact. Mitigate • Undertaking risk responses that in some way reduce either the likelihood or impact of the risk. Accept • Passive acceptance requires no specific risk response action apart from standard risk monitoring and reporting procedures.

12. 11.5 Plan Risk Responses Activity: • I know we have 3 different designs we can select from in order to satisfy the customer’s requirements. However I am very reluctant to consider the second option because, if we are wrong there exists the chance of imminent damage to the project. • I know the design we selected has the option of getting us in trouble, but I’m not going to worry about or even develop a contingency plan until I am convinced that the risk is about to occur. • I know we can manufacture the project ourselves but there are risks. I would rather award a fixed-price contract to Alpha company and have them do the manufacturing instead. • I have set up a management reserve just in case there are escalations in the cost of the raw materials we must purchase. Kerzner and Saldaris, 2006.

13. 11.5 Plan Risk Responses Activity: • I know we have 3 different designs we can select from in order to satisfy the customer’s requirements. However I am very reluctant to consider the second option because, if we are wrong there exists the chance of imminent damage to the project.AVOID • I know the design we selected has the option of getting us in trouble, but I’m not going to worry about or even develop a contingency plan until I am convinced that the risk is about to occur.ACCEPT • I know we can manufacture the project ourselves but there are risks. I would rather award a fixed-price contract to Alpha company and have them do the manufacturing instead.TRANSFER • I have set up a management reserve just in case there are escalations in the cost of the raw materials we must purchase.MITIGATE Kerzner and Saldaris, 2006.

14. 11.5 Plan Risk Responses Outputs of this process include – Risk Register Updates Risk Owners Assigned Mitigation/Management Strategies defined and documented Residual Risk Ratings Risk Action Plans - for specific high priority risks Risk Related Contract Decisions Project Management Plan Updates Schedule management plan Cost management plan Quality management plan Procurement management plan Human resource management plan Work Breakdown Structure Schedule Baseline Cost Baseline Assumptions Log Updates Monitor Initiation Planning Execution Close Control Adapted from PMBOK 4th Edition

15. 11.6 Monitor and Control Risks The process of implementing risk response plans, tracking residual risks, identifying new risks, and evaluating risk management effectiveness Risk Action Plans are included in the project lifecycle and managed by this process Can include activities such as choosing alternative strategies, executing a contingency or fallback plan, and modifying the project management plan accordingly The Risk Owner reports periodically to the Project Manager on the effectiveness of the Risk Action Plans and responses Occurs throughout the project Monitor Initiation Planning Execution Close Control Adapted from PMBOK 4th Edition

16. 11.6 Monitor and Control Risks Inputs to Monitor and Control Risk Risk Register Risk Action Plans Project Management Plan Work Performance Information Deliverable status Schedule progress Costs incurred Performance Reports Monitor Initiation Planning Execution Close Control Adapted from PMBOK 4th Edition Adapted from PMBOK 4th Edition

17. 11.6 Monitor and Control Risks • Tools and techniques to Monitor and Control Risks include - Technical Performance Measurement Risk Audits Risk Re-assessment Variance & Trend Analysis Reserve Analysis Status Reports Status Meetings

18. 11.6 Monitor and Control Risks Risk Re-assessment • Risk monitoring and control activities often result in the identification of new risks, re-assessment of current risks and the closing of risks that no longer apply. Re-assessment sessions need to be scheduled regularly and risk registers, status reports and risk action plans updated as a result. Risk Audits • Examine and document the effectiveness of risk responses. Often combined with Risk Re-assessment activities. Variance and Trend Analysis • Compares the planned results of risk responses and action plans to the actual outcomes. Often combined with Risk Re-assessment activities.

19. 11.6 Monitor and Control Risks Technical Performance Measurement – Advanced technique • Measures the performance of technical accomplishments or deliverables. Can only be performed if quantifiable measures of technical performance are defined in the Project Management and Risk Management Plans. Reserve Analysis • Compares the amount of risk reserves or contingency that remain at any point in time to determine if it is adequate or can be adjusted up or down based on the performance of risk management activities. Status Meetings • Project Risk Management and a review of the Risk Register should be on the agenda for all Project Status Meetings. Status Reports • Risk ratings and trends should be included in Project Status Reports for the high priority risks.

20. 11.6 Monitor and Control Risks Outputs of this process include – Risk Register Updates Risk Re-assessments Risk Audits Risk reviews Risk Action Plans Risk Management Plan Updates Revised templates Risk Breakdown Structure Lessons learned from risk management activities Change Requests Corrective and Preventative Actions Project Management Plan Updates Project Document Updates Monitor Initiation Planning Execution Close Control Adapted from PMBOK 4th Edition

21. Team Assignment Criteria