Project Risk Management

1.The Importance of Project Risk Management

o????? Project risk management is the art and science of identifying, analysing, and responding to risk throughout the life of a project and in the best interests of meeting project objectives.

o????? Risk management is often overlooked in projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates.

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1.2. What is Project Risk

o????? General definition of a project risk: an uncertainty that can have a negative or positive effect on meeting project objectives.

o????? The goal of project risk management is to minimize potential negative risks while maximizing potential positive risks.

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1.3. Negative Risk

o????? A dictionary definition of risk is “the possibility of loss or injury.”

o????? Negative risk involves understanding potential problems that might occur in the project and how they might impede project success.

o????? Negative risk management is like a form of insurance; it is an investment.

o????? Managing negative risks involves several possible actions that project managers can take to avoid, lessen, change, or accept the potential effects of risks on their projects.

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1.4. Risk Can Be Positive

o????? Positive risks are risks that result in good things happening; sometimes called opportunities.

o????? Positive risk management is like investing in opportunities.

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1.5. Risk Utility

o????? Risk utility or risk tolerance is the amount of satisfaction or pleasure received from a potential payoff.

o????? Utility rises at a decreasing rate for people who are risk averse.

o????? Those who are risk-seeking have a higher tolerance for risk and their satisfaction increases when more payoff is at stake.

o????? Risk-neutral approach achieves a balance between risk and payoff through Project risk management processes.

2.Planning risk management:

Deciding how to approach and plan the risk management activities for the project.

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2.1. Project Risk Management Processes

o????? Risk management planning: Deciding how to approach and plan the risk management activities for the project.

o????? Risk identification: Determining which risks are likely to affect a project and documenting the characteristics of each.

o????? Performing Qualitative risk analysis: Prioritizing risks based on their probability and impact of occurrence.

o????? Performing Quantitative risk analysis: Numerically estimating the effects of risks on project objectives.

o????? Risk response planning: Taking steps to enhance opportunities and reduce threats to meeting project objectives.

o????? Implementing risk responses: implementing the risk response plans

o????? Risk monitoring and control: Monitoring identified and residual risks, identifying new risks, carrying out risk response plans, and evaluating the effectiveness of risk strategies throughout the life of the project.

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2.2.Main output of this process is a risk management plan

o????? Documents the procedures for managing risk throughout a project.

o????? The project team should review project documents as well as corporate risk management policies, risk categories, lessons-learned reports from past projects, and templates for creating a risk management plan.

o????? It is also important to review the risk tolerances of various stakeholders.

o????? Additional plans / Contingency plans: predefined actions that the project team will take if an identified risk event occurs.

o????? Fallback plans: developed for risks that have a high impact on meeting project objectives and are put into effect if attempts to reduce the risk are not effective.

o????? Contingency reserves or allowances: funds included in the cost baseline that can be used to mitigate cost or schedule overruns if known risks occur.

o????? Management reserves: funds held for unknown risks that are used for management control purposes.

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2.3. Risk Management Planning

o????? The main output of risk management planning is a risk management plan—a plan that documents the procedures for managing risk throughout a project.

o????? The project team should review project documents and understand the organizations and the sponsor’s approaches to risk.

o????? The level of detail will vary with the needs of the project.

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2.4.Topics Addressed in a Risk Management Plan

o????? Methodology

o????? Roles and responsibilities

o????? Budget and schedule

o????? Risk categories

o????? Risk probability and impact

o????? Risk documentation

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2.5.Contingency and Fallback Plans, Contingency Reserves

o????? Contingency plans are predefined actions that the project team will take if an identified risk event occurs.

o????? Fallback plans are developed for risks that have a high impact on meeting project objectives and are put into effect if attempts to reduce the risk are not effective.

o????? Contingency reserves or allowances are provisions held by the project sponsor or organization to reduce the risk of cost or schedule overruns to an acceptable level.

1.1. What Topic or Questions to Answer through this Risk Management Plan?

?? Methodology- How will risk management be performed on this project?

?? What tools and data sources are available and applicable?

?? Roles and responsibilities - Which people are responsible for implementing specific tasks and providing deliverables related to risk management?

?? Budget and schedule - What are the estimated costs and schedules for performing risk-related activities?

?? Risk categories - What are the main categories of risks that should be addressed on this project?

?? Is there a risk breakdown structure for the project?

?? Risk probability and impact - How will the probabilities and impacts of risk items be assessed?

?? What scoring and interpretation methods will be used for the qualitative and quantitative analysis of risks?

?? How will the probability and impact matrix be developed?

?? Revised stakeholders’ tolerances

?? Have stakeholders’ tolerances for risk changed?

?? How will those changes affect the project?

?? Tracking-How will the team track risk management activities?

?? How will lessons learned be documented and shared?

?? How will risk management processes be audited?

?? Risk documentation-What reporting formats and processes will be used for risk management activities?

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1.2. Common Sources of Risk on Projects

Several studies show that projects share some common sources of risk, broad categories of risk help identify potential risks :

o????? Market risk

o????? Financial risk

o????? Technology risk

o????? People risk

o????? Structure/process risk

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1.3. Risk Breakdown Structure

o????? A risk breakdown structure is a hierarchy of potential risk categories for a project.

o????? Similar to a work breakdown structure but used to identify and categorize risks.

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1.3.1.Knowledge Area

o????? Risk Conditions

o????? Type of risks - Known (identified and quantified) / Known-unknown (identified or imagined but inability to quantify) / Unknown (unidentified but may be expected) / Unknown-unknown (unidentified, never imagined, never expected)

1.3.2.Integration

o????? Inadequate planning;

o????? poor resource allocation;

o????? poor integration management;

o????? lack of post-project review.

1.3.3.Scope

o????? Poor definition of scope or work packages;

o????? incomplete definition;

o????? Time Errors in estimating time or resource availability;

o????? errors in determining the critical path;

o????? poor allocation and management of float;

o????? early release of competitive products;

o????? Cost Estimating errors;

o????? inadequate productivity, cost, change, or contingency.

1.3.4.Quality

o????? Poor attitude toward quality;

o????? substandard design, materials, and workmanship;

o????? inadequate quality assurance program.

1.3.5.Human resource

o????? Poor conflict management;

o????? poor project organization and definition of responsibilities;

o????? absence of leadership.

1.3.6. Communications

o????? Carelessness in planning or communicating.

1.3.7.Risk Ignoring risk;

o????? unclear analysis of risk;

o????? poor insurance management.

1.3.8. Procurement

o????? Unenforceable conditions or contract clauses;

o????? Adversarial relations.

1.3.9.Stakeholders

o????? Lack of consultation with key stakeholder;

o????? poor sponsor engagement.

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1.4. Identifying Risks

o????? Risk identification is the process of understanding what potential events might hurt or enhance a particular project.

o????? You cannot manage risks if you do not identify them first.

o????? Another consideration is the likelihood of advanced discovery.

o????? Often viewed at a program level rather than a project level.

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1.5. Risk identification tools and techniques include:

o????? Brainstorming

o????? The Delphi Technique

o????? Interviewing

o????? SWOT analysis

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1.6. Brainstorming

o????? Brainstorming is a technique by which a group attempts to generate ideas or find a solution for a specific problem by amassing ideas spontaneously and without judgment.

o????? An experienced facilitator should run the brainstorming session.

o????? Be careful not to overuse or misuse brainstorming.

o????? Psychology literature shows that individuals produce a greater number of ideas working alone than they do through brainstorming in small, face-to-face groups.

o????? Group effects often inhibit idea generation.

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1.7. Delphi Technique

o????? The Delphi Technique is used to derive a consensus among a panel of experts who make predictions about future developments.

o????? Provides independent and anonymous input regarding future events.

o????? Uses repeated rounds of questioning and written responses and avoids the biasing effects possible in oral methods, such as brainstorming.

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1.8.Interviewing

o????? Interviewing is a fact-finding technique for collecting information in face-to-face, phone, e-mail, or instant-messaging discussions.

o????? Interviewing people with similar project experience is an important tool for identifying potential risks.

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1.9. SWOT Analysis

o????? SWOT analysis (strengths, weaknesses, opportunities, and threats) can also be used during risk identification.

o????? Helps identify the broad negative and positive risks that apply to a project.

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1.10.Risk Register

o????? The main output of the risk identification process is a list of identified risks and other information needed to begin creating a risk register.

o????? A risk register is:

o?? A document that contains the results of various risk management processes and that is often displayed in a table or spreadsheet format.

o?? A tool for documenting potential risk events and related information.

o?? Risk events refer to specific, uncertain events that may occur to the detriment or enhancement of the project.

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1.11.Contents

?? Identification number for each risk event

?? Rank for each risk event

?? Name of each risk event

?? Description of each risk event

?? Category under which each risk event falls

?? Root cause of each risk

?? Triggers for each risk; indicators or symptoms of actual risk events

?? Potential responses to each risk

?? Risk owner or person who will own or take responsibility for each risk

?? Probability and impact of each risk occurring

?? Status of each risk

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