RISK

The Essentials

Essential Questions
WHAT WHY WHEN HOW WHERE WHO
I keep six wise serving men.
(They taught me all I knew). There names are What & Why & When, and How & Where & Who
(Rudyard Kipling 1902)

WHAT
If it can go wrongit will (Murphys Law) Identification of what can go wrong, the consequences & the likelihood. Effect of uncertainty on objectives Perception Planning for contingencies Risk Context Risk management is a structured approach to identifying, assessing and controlling risks that emerge during the course of the policy, programme or project lifecycle. Its purpose is to support better decision-making through understanding the risks inherent in a proposal and their likely impact.

bhopal

Context
PROJECT

TECHNICAL REQUIREMENTS TECHNOLGY COMPLEXITY INTERFACES PERFORMANCE RELIABILITY QUALITY

EXTERNAL SUBCONTRACTORS SUPPLIERS REGULATIONS MARKET CUSTOMER WEATHER

ORGANISATIONAL PROJECT DEPENDENCIES RESOURCES FUNDING PRIORITIES

PROJECT MANAGEMENT ESTIMATING PLANNING CONTROLING COMMUNICATION CONTRACTS PROCUREMENT

People & Perception

Attitude Behaviour Consequences

Risk Horseshoe
Neutral Fair' apportionment of risk

Reasonable Increasing Potential Profitability Extreme Risk Taker

Behavoiur Increasing Potential Liability Behaviour Risk Averse

Balance

WHY
Objective view of a Project / Undertaking so that what can go wrong is incorporated into the Plan together with Actions that may be taken, by who & when Risk Management facilitates decision making and allows decisions to be made based on degree of uncertainty. Planning Contingencies (Cost & Time) Ascertain Degree of Exposure Communication / Responsibility / Allocation Optimism Bias Effective risk management helps the achievement of wider aims, such as: effective change management; the efficient use of resources; better project management; minimising waste and fraud; and supporting innovation.

WHEN
Planning - Risk Management Process adopted Execution - Risk may or may not be realised Monitoring & Control - Realising a risk/hazard is materialising and taking action as required Close Out - Learning & updating knowledge CONTINOUS NOT A Tick-in-the-box

HOW
Codes
ANZ STANDARD 4360:2004; BS31100:2008; National/Govt / State Codes

In house
Tailored to individual business

PMI
Generic to suit most projects

Approaches

Flow Chart

RISK PLANNING

After RCA 'Tricks of the Trade'

IDENTIFY RISKS

NON-CRITICAL' RISKS

SHORTLIST RISKS THROUGH RISK ANALYSIS

PROBABILITY / IMPACT CHANGED VIA PLANNING

RESIDUAL RISK DETERMINED

ELIMINATE BY CHANGING O/A PLAN

ADDITIONAL 'NON-CRITICAL'

CONTINGENCY PLANNING

FALLBACK PLANNING

SECONDARY RISKS

RISK OWNERS

EXISTING POLICIES /RULES + CHANGES

RISK RESPONSE PLAN TIME & COST RESERVES "FINAL" PLAN RISK MONITORING & CONTROL

PMI PMBoK Risk Management Process

Risk Planning Risk Identification Qualitative Analysis PLANNING Quantitative Analysis Risk Response Plan Risk Monitoring & Control

Planning
Inputs - Scope / Cost-Time estimates / Comms / Organisation Process / Enterprise Factors Tools & Techniques - Planning meetings & Analysis Outputs - Risk Management Plan

Planning
Strategic context - the environment within which the project/organisation operates; Organisational context - the organisation itself, its objectives, core activity and operations; and Risk management context - the parameters for dealing with risk

Identification
Inputs - Risk Management Plan / Activity $/Time estimates / Other Plans/ SHolder Register / Organisation Processes Tools & Techniques - Review Documents / Information gathering / Checklists / Assumptions / Diagrams/ Expert Judgement Outputs - Risk Register

Qualitative Assessment
Inputs - Risk Register / risk plan / Scope / Organisation Process Assets Tools & Techniques - Risk Probability & Impact Assessment / Risk Categorization & Prioritization / Expert Judgement Outputs - Updated Risk Register

Qualitative Analysis
Probability High Medium Low High Medium Low (3) (2) (1) (3) (2) (1) Almost certain Quiet Likely Possible > 70% 30% - 70 % <30%

Impact

> 1% of Project value 0.05 to 1% of Project value < 0.05% of Project value

Evaluation
Risk = Consequences x Likelihood
Impact M (2) H M L

Probability

H (3) M (2) L (1)

L (1) M L L

H (3) H H M

Evaluation / Ranking
LIKELIHOOD Insignificant Minor CONSEQUENCE Moderate Major Catastrophic

Almost Certain

Significant Risk

Significant Risk

High Risk

High Risk

High Risk

Likely

Moderate Risk

Significant Risk

Significant Risk

High Risk

High Risk

Moderate

Low Risk

Moderate Risk

Significant Risk

High Risk

High Risk

Unlikely

Low Risk

Low Risk

Moderate Risk

Significant Risk

High Risk

Rare

Low Risk

Low Risk

Moderate Risk

Significant Risk

Significant Risk

Quantitative Assessment
Inputs - Risk Register / Risk Plan / Cost & Schedule Plans Tools & Techniques - Data gathering / Quantitative Analysis / Expert Judgement Outputs - Updated Risk Register

Quantitative Analysis

Quantitative Analysis
Cost Probability
Total cost Cumulative Frequency Line Graph
1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 405 410 415 420 425 430 435 440 445 Total cost (value)
0.20 0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 407. 33 409. 68 412. 04 414. 39 416. 74 419. 10 421. 45 423. 80 426. 16 428. 51 430. 86 433. 22 435. 57 437. 92 440. 28 442. 63 444. 98 447. 34 449. 69 452. 04

Total cost frequency distribution

Probability

Probability

Total Cost (value)

 Ignoring a risk does not make it go away. You pay for your risk management if you do it or notunfortunately it may cost you more to cure than prevent. (An ounce of prevention is worth more than a pound of cure

Decision Tree
Use mec ha nic a l metho d +$80,000 +$80,000 0.500 Elec tro nic suc c ess +$150,000 0.500 Awa rd ed c o ntra c t +$90,000 Try elec tro nic metho d +$90,000 +$150,000 0.500 Elec tro nic fa ilure +$30,000 0.700 Ma g netic suc c ess Prep a re p ro p o sa l Try ma g netic metho d +$20,000 +$84,000 0.300 Ma g netic fa ilure $0 0.500 No t a wa rd ed c o ntra c t -$50,000 -$50,000 Use mec ha nic a l metho d $0 $0 +$120,000 +$120,000

Use mec ha nic a l metho d +$30,000 +$30,000

+$20,000

Do n't p rep a re p ro p o sa l $0 $0

Response Planning
Inputs - Risk Register & Risk Management Plan Tools & Techniques - Strategies for ve / +ve risks, Contingency Responses Outputs - Risk Register / Contract Decisions / Update Documents / Project Mngmnt Plan

Transfer - Share Treat /ReduceAdaptMitigate (Enhance) Terminate Abandon - Avoid Take - Accept (Exploit)

Treatment

Treatment
High
IMPACT
CONTROL Hazards ACTIVELY MANAGE Preparation of scenarios & plans DELEGATE Expected Risks with Procedures High

MONITOR Routine Matters, Trivail accepted risks PROBABILITY

Low

Monitoring & Control

Inputs - Risk Register / PM Plan / Work Performance Information & Reports Tools & Techniques - Risk re-assessment / Audits / Variance & Trend analysis / Performance analysis, Reserve Analysis / Status Meetings Outputs - Update Risk Register / Change Requests / Update Documents & Plans/ Org assets

Realistic Reporting

Close Out
Not in PMBoK BUT part of Procurement close out

WHERE
Internal Within an organisation / project / technical capacity External Government, Legal, Environmental, Supplier Organisations.

WHO
Financial /Legislative Authority Commercial / Risk Capacity Legal relationships between parties Technical personnel to confirm compliance / quality/ approach Estimators Contract Administrators Planning and Project Controls Project Managers to orchestrate Governance to ensure performance

SUMMARY The Essentials

Planning to ensure appropriate risks are identified, evaluated and monitored. Suppliers are selected to provide the required work/services during project evolution Administration to ensure and performance is as required and/or change is identified, captured and controlled wrt impact on cost / time / quality / scope Closure to finalise the buying/ selling process and ensure lessons are learnt and legal closure of deals.

IDENTIFICATION

based on SCOPE, cause & consequences

ANALYSE / QUANTIFY based on likelihood/severity Reviews PLAN / TREAT based on AVOIDANCE, ACCEPTANCE (Mitigation), TRANSFER, INSURE based on PROCEDURES/METHODS, REVIEWS REPORTS, MODIFICATIONS & closure

MONITOR,

"EFFECTIVE RISK MANAGEMENT IS SEQUENTIAL & CONTINUOUS"

Impact / Consequence /Severity

CATASTROPHIC MAJOR MODERATE MINOR INSIGNIFICANT

Likelihood / Frequency
RARE -No recorded incidents or little opportunity for occurrence UNLIKELY MODERATE LIKELY ALMOST CERTAIN -

 If budget is set at 420 then it is only 30% probable that this figure will be met. If the organisation wants 90% confidence then 430 is required then a reserve of 10 is required (430 420/420) which is a contingency of ~2.5%. The curve is flatter and wider for projects with greater uncertainty say on price of duration than a definitive cost, in which case the line is vertical. Decision tree

Sequential & Continuous

Flow

Risk Outcomes

But

&