RISK MANAGEMENT PROFESSIONAL. 1 Powered by POeT Solvers Limited

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1 RISK MANAGEMENT PROFESSIONAL 1 Powered by POeT Solvers Limited

2 This presentation is copyright 2009 by POeT Solvers Limited. All rights reserved. This presentation is protected by the Nigerian Copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of POeT Solvers Limited. You may not alter or remove any trademark, copyright or other notices. RMP, PMI-RMP, PMBOK Guide are registered marks of Project Management Institute, Inc. 2 Powered by POeT Solvers Limited

3 TOOLS AND TECHNIQUES FOR RISK MANAGEMENT PROCESSES Tools and Techniques for Plan Risk Management Planning Meetings are conducted to formulate a plan(s). The project manager discuss with his/her team HOW to do risk management (e.g. the method and techniques to use). Tools and Techniques for Identify Risks Documentation Review helps identify risks. Documents that can be reviewed include, but not limited to; schedule management plan, communication management plan, quality management plan, scope management plan, etc. Information Gathering helps gather information by using a variety of techniques. PMBOK specifies the following methods: Brainstorming Delphi Techniques Interview 3 Powered by POeT Solvers Limited

4 Root Cause Identification is used to find the root cause of a risk and this is done by asking the question what can cause the risk? twice or thrice. The first time the question is asked, a cause should be identified. The second time the question is asked, a cause of the first cause should be identified. This process should be repeated until controlling the identified cause will truly prevent the risk from happening. SWOT Analysis looks at the project from different angles: Strength, Weakness, Opportunity, and Threats (SWOT). It is useful for stimulating your thinking and will make you consider the positive risks as well. Checklist Analysis helps to remind the project team of common and repeated risks in project management as well as of specific risks involving a particular type of project. This list should be updated during closing phase of the project. Diagramming Techniques draw visual information to facilitate analysis and they also help find more and more risks Process Flowcharts Ishikawa Diagram 4 Powered by POeT Solvers Limited

5 Influence Diagram Tools and Techniques for Perform Qualitative Risk Analysis Risk Matrix and Risk Assessment. Risk matrix are usually used to perform risk assessment because all risks are not equal; some are more complex while some are easy to eliminate. Risk assessment matrix is a tool that is used to prioritize identified risks so effective and efficient risk responses can be developed. The risk matrix is based on the probability * the impact of the risks. (P*I) High Probability Medium Low Low Medium High Severity A simple Probability and Impact Matrix 5 Powered by POeT Solvers Limited

6 Probability and Impact matrix can be customized differently, but it should be pre-defined. For instance, a risk can be high if the cost impact is above a set Monetary Value of $100,000 Risk Categorization groups risks under Internal, External, or those generated from the project objectives. For instance, risks that are related to suppliers or governmental policies can be grouped under EXTERNAL RISKS. The material may arrive later than planned, thus extending the duration of task F by 5days. This technique helps ensure all potential risks are identified Risk Urgency Assessment ranks risks in accordance to how urgent they are likely to happen in the life of the project. Tools and Techniques for Perform Quantitative Risk Analysis Expected Monetary Value is a technique used to find the chances (Probability) of a risk event and its monetary (Impact) value in case it occurs. Formula for finding EMV=P*I 6 Powered by POeT Solvers Limited

7 Sensitivity Analysis is used to identify the risks that have the strongest effect on a project. This is usually represented by a Tornado diagram. Simulation is used to evaluate the effect of risks on the project as a whole. Decision Tree Analysis is a technique similar to EMV, but it s used when choosing among different alternatives. You need to analyze how each option benefits or hurts the project before making the decision. It takes the probabilities, impacts, and associated risks of the options or alternatives into account before making a decision. Note that: Decision Tree is used to analyze future events when trying to make a decision, It is used to analyze events that are mutually exclusive, Decision Tree analysis uses EMV formula, but in more complex scenario, If the decision to be taken has to do with COST always choose the smallest amount, but if it has to do with profit, choose the highest value. 7 Powered by POeT Solvers Limited

8 If you are to choose between two contractors for a work package on your project, which Contractor will you choose based on the following information? Contractor XYZ will cost $500,000 and Contractor PQR will cost $510,000. There is a 30% probability that Contractor XYZ can delay and the impact if that happens is additional $150,000 to the project estimate and Contractor PQR also has a 10% probability of delaying with the work. First draw a tree with all the possible options starting from the left to the right. Delay: 30% probability and $150,000 impact Contractor XYZ $500,000 No Delay: 0 Cost Delay: 10% probability and $150,000 impact Contractor PQR $510,000 No Delay: 0 Cost 8 Powered by POeT Solvers Limited

9 For Contractor XYZ, cost of Delay is (30% * $150,000) = $45,000 cost of No Delay is (70% * $0) = $0 So, the overall cost of choosing Contractor XYZ is $500,000 + $45,000 = $545,000 For Contractor PQR, cost of Delay is (10% * $150,000) = $15,000 cost of No Delay is (90% * $0) = $0 So, the overall cost of choosing Contractor PQR is $510,000 + $15,000 = $525,000 Therefore, it will be wise to hire Contractor PQR despite the fact that its initial cost is higher than that of Contractor XYZ. 9 Powered by POeT Solvers Limited

10 Techniques for Plan Risk Responses Strategies for Positive and Negative Risks Positive Risks / Opportunities Negative Risks / Threats Exploit Avoid Share Transfer Enhance Mitigate Accept Accept Tools and Techniques for Monitor and Control Risks Risk Reassessment is done at predefined dates during execution stage for existing risks plus any new ones. Status Meetings issues regarding project s progress are discussed with team members and the stakeholders in these meetings. Risk management should also be included in the meeting agenda for an opportunity to discuss various aspects of the risks in the project Powered by POeT Solvers Limited

11 Risk Audits are conducted to verify that risks identified during planning, their assessment, and responses planned are effective. Stakeholders can also be allowed to partake in the audit. Reserve Analysis Performance Review lets you check for new risks or re-examine those earlier identified when performance is poor compared to the plan. Variance and Trend Analysis these are forecasting methods used to monitor project performance. Techniques like Earned Value Analysis can be used to predict future performance based on past and current performance Powered by POeT Solvers Limited