Derby Business School

1. www.derby.ac.uk/dbs Derby Business School www.derby.ac.uk/dbs

2. Education with the personal touch Week 7: Designing and developing a project – managing obstacles and risk www.derby.ac.uk/dbs

3. Session 7 • Designing the project

4. The 5 Phase Project Life Cycle DEFINE PLAN ORGANISE CONTROL CLOSE State the problem Identify project goals List the objectives Determine preliminary resources Identify assumptions and risks Identify activities Estimate time & cost Sequence activities Identify critical activities Write project proposal Define management style Establish control tools Prepare status report Review project schedule Issue change orders Obtain client acceptance Install deliverables Document the project Issue final report Conduct project audit Determine personnel needs Recruit Project Manager Recruit Project Team Organise team Assign work packages IMPLEMENTATION PLANNING

5. A Project Charter – PIDOften called a Project Proposal – Scoping Document – Project Initiation Doc etc Problem Statement (15 words max)……………… Goals……………………….. Business Opportunity………………. Scope…………………………… Cost/Benefit Projection…………………. Milestones for Completion: ………………………… Roles and Responsibilities:……………………………..

6. The Project Proposal • A statement of the objective, the process being applied and the expected results / benefits. • A description of the project activities, timetable, and resource requirements on which a decision can be taken to proceed. • A tool for the Project Manager and team to use to support / facilitate decision making for the duration of the project.

7. The key reference document for • control of the project. • A development facility and induction tool • for new project team members. • A communication mechanism to inform the • organisation of progress of the project.

8. The Project Control Cycle Revise / update Baseline plan Decision making Authorise work Circulate reports Expedite Evaluate & forecast Change control Monitor progress Burke (1999)

9. The Nine Key Areas for Planning • Integration • Scope • Time • Cost • Quality • Human Resources • Communications • Risk • Procurement

10. Breakdown Structure Department Discipline Project Team Supplier Contractor Team Member Contractor

11. Work Breakdown Structure HOUSE Plumbing Electrical Civil Piping Sewerage Foundations Walls / roof Wiring Appliances

12. Cost Breakdown Structure Project Budget Cost Centre Budget 1 Cost Centre Budget 2 Supplier 1 Supplier 2 Supplier 3 Supplier 4 Labour Materials Hire Labour Materials Hire Labour Materials Hire Labour Materials Hire

13. Lines of Communication Client General Manager Vendors Contractors Department Manager Department Manager Department Manager Project Team Burke (1999)

14. Information and Control System Data Capture Data Processing Progress Report Work Execution Project Meetings Information Burke (1999)

15. Changing Project Goals Markets Changes elsewhere Changing goals Unclear corporate goals Priorities Technical failure or change New information Boddy & Buchanan (1992)

16. Risk Management A key element of the Project Definition and Design is some assessment of the level of risk involved, and how that could affect the Project. This will be considered in depth later in the session. Don’t forget what you did on risk in the Finance Module!!

17. What is Risk Management? • ‘The possibility of loss, injury, • disadvantage or destruction’ • Proposal Risks - inherent in the venture • Performance Risks - inherent in the proposed approach

18. A Hazardous Business “Risk is usually taken to indicate some degree of hazard. For a firm the hazard is financial in nature. While bankruptcy and insolvency are extreme examples, lesser hazards such as a modest earnings decline are more common.” (Bettis 1982) “If it appears that the organisation may be vulnerable, those situations posing a threat to the continued development and achievement of the organisation’s objectives should be monitored and such action as is reasonable should be taken to educe the likelihood of loss.” (Ritchie & Marshall 1993)

19. Risk Analysis and Assessment ‘Analysis is the separation of a whole into its component parts; an examination of a complex, its elements and their relationships’ ‘Assessment being the estimation of probabilities and the value of an outcome’

20. Engineering Definitions … • Accident - an unintended event that causes death, injury, environmental or material damage. • Accident sequence - a progression of events that results in an accident. • Initiating event -> hazardous state -> accident • Hazard - a physical situation that can lead to an accident. • Risk - the combination of the frequency (or probability) and the consequence of an accident. Risks - Gino Franco

21. Project Definitions … • The possibility of suffering harm or loss. (PMI) • Uncertainty inherent in plans and the possibility of something happening (i.e. a contingency) that can affect the prospects of achieving business or project goals. (BS 6079) Risks - Gino Franco

22. Issues Resolution Management Risks Issue or Risk? Risks - Gino Franco

23. Why think about Risk? • RISK • Technical • Cost • Schedule Methods, tools and processes Expert knowledge, judgement and experience Individual knowledge, judgement and experience SYSTEM COMPLEXITY Risks - Gino Franco (Higuera 1996)

24. The EGAP-principle • The World Bank have identified the EGAP principle as a source of problems for many feasibility studies for capital projects • The principle: - “Everything Goes according To Plan” !! • Flyberg suggests instead “MLD – most likely development” Risks - Gino Franco

25. Risk Management Plan risk management Risk Management plan Identify risks Analyse risks Risk register Assess risks Plan risk responses Project Objectives achieved Actions to reduce risks Risks - Gino Franco

26. Risk identification • It is difficult to identify all risks. • Risks should be described succinctly. • Can help to subdivide risks into different categories Risks - Gino Franco

27. Risk Categories – Erik Clemens • Financial • Technical • Project • Functional • Systemic Risks - Gino Franco

28. Risk Categories for a software project – Cadle &Yates • Commercial • Customer • Requirements • Developer’s skills • Development environment • System software • Tools and methods • Target architecture • Bought - in items Risks - Gino Franco

29. Risk Quantification Likelihood: Improbable Highly likely Low <10% : Medium 10-30%: High: >30% Impact: Minor Major Critical Small: by < 5%: Medium: by 5 – 10%: Large: delay project by >10% and Hideability! Risks - Gino Franco

30. Risk quantification techniques • Expected Value • Sensitivity Analysis • Monte Carlo Simulations • Failure Modes Effects Analysis • PERT Risks - Gino Franco

31. The Risk Register or Log • Reference list of risks • Title and description of the risk • Current status of risk • Potential impacts • Risk owner • Actions • Action log Risks - Gino Franco

32. Risk reporting Likelihood of occurrence High Medium Low Potential impact Small Moderate Large Accept- able Risks - Gino Franco

33. A variation – Tusler’s risk classification scheme 90% 50% 0% Puppies Tigers Probability Kittens Alligators 0 5 10 Impact Risks - Gino Franco

34. Risk in PRINCE2 • PRINCE distinguishes between • Business risk • Project risk • Risk should be assessed at the beginning of the project and reviewed regularly. • Risks may be transferred to a third party e.g. insurance, penalty clauses on contractors. • Risk log i.e. risk register. Risks - Gino Franco

35. Your Turn ! • Do you have a risk management system in place in your organisation? • Do you categorise risks? • How do you report on them? Risks - Gino Franco

36. Why do it? PREVENTATIVE ACTION CONTINGENCY PLAN Risks - Gino Franco

37. Risk Strategies • Accept or Ignore • Management Reserves • Contingency Reserves • Contigency Plans • Avoid • Mitigate • Transfer (Marchewka 2003) Risks - Gino Franco

38. Role for Risk Management (Chapman and Ward 2003) • Diagnose desirable changes in plans • Demonstrate the need for changes • Facilitate, demonstrate and encourage “enlightened caution” Risks - Gino Franco

39. The Benefits of Managing Risk (Maylor 2003) • Providing a vehicle for improving project plans and better reflecting reality • Highlighting areas for attention and contingency planning at the planning stage • Attempting to harness the “gut feel” element of risk assessment • Allowing the quantification of risk to build up experience in a structured way and allowing this factor to be traced historically for future benefit in other projects Risks - Gino Franco

40. It may seem obvious but … ‘In a World Bank study of ninety-two projects, only a handful was found to contain “thoughtful” risk analysis showing “good practice”’ (cited by Bent Flyberg 2003) Risks - Gino Franco

41. Your Turn Again! • An Airline has call centres around the globe to deal with enquiries and ticket sales. Between them, the centres offer a 24x7 service. • The airline is thinking of implementing a new ticketing system requiring the use of new technology. • What risks do you think the project would face? Construct a risk table for 3-5 , identifying probability, impact and actions. Risks - Gino Franco

42. Aim for today’s lecture was … • Consider the concept of risk • Examine how and why we manage risk • Try identifying and analysing risks Risks - Gino Franco