Dynamics of Project Risk Management

Lec-1Overview of Project Risk Management

Dynamics of Project Risk Management Lec-01 Overview of Project Risk Management

By: Engr.Dr.Attaullah Shah PhD ( Civil) Engg , Mphil (Eco),MSc Engg ( Strs), BSc Engg ( Gold Medalist),

MBA, MA ( Eco), MSc Envir Design, PGD Computer Sc.Tel: 051-9250100

E-mail: pdaiou@yahoo.com.

Bio details of the Instructor

• Engr. Dr. Attaullah Shah – Director ( Planning and Projects AIOU)

» pdaiou@yahoo.com. pd@aiou.edu.pk, www.drshahpak.weebly.com» +92-333-5729809, +92-51-9057212

• Qualification • PhD Civil Engineering ,M.Phil Eco ,MSc Structure Engg• MBA, MA Eco, MSc Envir Design,BSc Civil Engg (Gold Medal), Post Grad Dip Comp (Gold Medal)

• Professional and Field experience: – 25 Years

• Research Publications in refereed journals and conferences: – 25 Journals publications+ 35 Conference publications

• Areas of interests » Project Management» Sustainable built Environment » Structural Engineering

Some quotes about risk management • The only virtue of being an aging risk manager is that you have a large collection

of your own mistakes that you know not to repeat Donald Van Deventer

• Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted. Albert Einstein

• Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so. Douglas Adams

• “A good rule of thumb is to assume that “everything matters.” Richard Thaler

• “The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.” Charles Tremper

• Risk varies inversely with knowledge• The risk to be perceived defines the duty to be obeyed-Benjamin Crudozo

Risks- Everywhere

Decision Environments Certainty:

One and Distinct outcome.

Risk Where there are more than one outcomes. The probability of the outcomes can be anticipatedOn cloudy day, we prefer to take umbrella. Why?

"A discrete occurrence that may affect the project for good or bad." NOTE: Do not forget that there can be good risks, sometimes called opportunities!

Uncertainty Where there are more than one outcomes.The probability of the happening can not be anticipatedWar, Strikes, riots, disasters etc.

DEFINITIONS• RISK FACTORS: When looking at risk, one should determine:

– The probability that it will occur (what)– The range of possible outcomes (impact or amount at stake)– Expected timing (when) in the project life cycle– Anticipated frequency of risk events from that source (how often)

• Risk management refers to the culture, processes and structures that are directed– towards the effective management of potential opportunities and

adverse effects.• The risk management process involves the systematic

application of management– policies, processes and procedures to the tasks of establishing the

context, identifying, analyzing, assessing, treating, monitoring and communicating risk.

Some Risks in large construction projects• Weather changes• Different productivity• (Sub)contractors are

– Unreliable– Lack capacity to do work– Lack availability to do work– Unscrupulous– Financially unstable

• Late materials delivery• Lawsuits• Labor difficulties• Unexpected manufacturing

costs• Failure to find sufficient

tenants

• Community opposition• Infighting & acrimonious

relationships• Unrealistically low bid• Late-stage design changes • Unexpected subsurface

conditions– Soil type– Groundwater– Unexpected Obstacles

• Settlement of adjacent structures

• High lifecycle costs• Permitting problems• You can name more…….

Facts about project risks • Every project, regardless of scope or complexity, is going to have

some inherent risks• The type, number and severity of the risks will vary depending on

a variety of factors, such as the project’s overall size, its related constituent pieces, the number of individuals on the project, and so forth.

• Any sort of risk assessment, regardless of the situation, is always a combination of both art and science, coupled with the individual’s own personal experience and knowledge.

• Risk management facilitates better business and project outcomes

• Risk management provides a structured way of assessing and dealing with future uncertainty.

Risk Management in large projects

• Large potential losses/gains due to large and complex projects

• Risks in large projects are multiplying due to: – Changing economic conditions locally and globally – Technological advancements – Changing patterns of demand – Growing competition due to globalization – Varying operating requirements – Global compliance of products and services – Social and environmental impacts

• Private participation in the large public/Govt. projects

PMBOK Perspective1 Plan Risk Management: The process of defining how to conduct risk management activities for a project

2 Identify risks: The process of determining which risks may affect the project and documenting their characteristics.

3 Perform qualitative risk analysis: The process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact.

4 Perform quantitative risk analysis: The process of numerically analyzing the effect of identified risks on overall project objectives.

5 Plan risk responses: The process of developing options and actions to enhance opportunities and to reduce threats to project objectives.

6 Monitor and control risks: The process of implementing risks response plans, tracking identified risks, monitoring residual risks, identifying new risks, and evaluating risk process effectiveness throughout the project.

Plan Risk Management

Inputs1.Project scope statement

2.Cost management plan

3.Schedule management plan

4.Communications management plan

6.Enterprise environmental factors

7.Organizational process assets

Tools & Techniques

1. Risk management plan

Identify Risks

Inputs1.Risk management plan

2.Activity costs estimates

3.Activity duration estimates

4.Scope baseline

5.Stakeholder register

6.Cost management plan

7.Schedule management plan

8.Quality management plan

9.Project documents

10.Enterprise environmental factors

11.Organzational process assets

Tools & Techniques

1. Risk register

Perform Qualitative Risk AnalysisTools & Techniques

1. Risk register updates

Inputs1.Risk register

2.Risk management plan

3.Project scope statement

4.Organizational process assets

Plan Risk ResponsesTools & Techniques

1. Risk register updates2. Risk related contract decisions3. Project management plan updates4. Project document updates

Inputs

1.Risk register

2.Risk management plan

Perform Quantitative Risk AnalysisTools & Techniques

1. Risk register updates

Inputs1.Risk register

2.Risk management plan

3.Cost management plan

4.Schedule management plan

5.Organizational process assets

Monitor and Control RisksTools & Techniques

1. Risk register updates2. Organizational process asset updates3. Change requests4. Project management plan updates5. Project document updates

Inputs1.Risk register

2.Project management plan

3.Work performance information

4.Performance reports

Project life cycle characteristics• Cost and staffing levels are low at the start, higher toward

the end, and drop rapid as the project draws to a conclusion

• The probability of successfully completing the project is lowest, and hence risk and uncertainty are highest, at the start of the project. The probability of successful completion gets progressively higher as the project continues

• The ability of stakeholder to influence the final characteristics of the project’s product and the final cost of the project is highest at the start and gets progressively lower as the project continues

Cost and staffing level

time

Initial phase

Intermediate phase

Final phase

Generic Life Cycle

Cost of changes

time

Initial phase

Intermediate phase

Final phase

Generic Life Cycle

The project life cycle often consists in four phases:

1.Conceptual development2.Definition3.Implementation 4.Closure

Main Step of Project Life cycle

Representative Project Life CyclesCONSTRUCTION

( MORRIS REPRESENTATION)

Perc

ent

com

plet

e

100%

STAGE I

STAGE II

STAGE III STAGE IV

FEASIBILTYProject formulationFeasibility studiesStrategy design and ApprovalProject

“GO” decision

PLANNING and DESINGBase designCost and scheduleContract terms and conditionMajor

contracts let

CONSTRUCTIONmanufacturingDeliveryCivil WorksInstallationTesting

Installation substantially complete

Full operation

TURNOVER and STARTUPFinal testingMaintenance

Representative Project Life CyclesPHARMACEUTICAL

( MURPHY REPRESENTATION)

Drug sourcin

g

Screening Lead

Identified

PreclinicalIND

Workup

FileIND

FileNDA

Post registration ActivityFormulation stability

Process Development

MetabolismToxicology

Patent process

Discovery

Screening

Preclinical development

Ten plus years

Registration Workup

Postsubmission Activity

IND = Investigation New Drug ApplicationNDA= New Drug Application

PH I PH II PH III

APPR

OVA

L

Representative Project Life CyclesSOFTWARE

( MUENCH REPRESENTATION)

evaluate identify

designconstruct

test evaluation evaluation

risk analysis

DeployUnit requirements

Subsystem requirements system requirements business requirements

Conceptual design logical design

physical designfinal design

Proof of concept first buildsecond build

Final build

PLANT PROJECT

Strategic Plan

Needs Identification

Feasibility

Investment Return

End of Investment

Basic Dsign

Acquisition Production

End of Production

Conceptual Design

Planning

Executing

Delivery

Project Plant Life Cycle

Plant Life Cycle

Investment Life Cycle

Representative Project Life Cycles

Risk management in project life cycle • Risk and the associated cost to

address the risk, varies over the project life cycle– For initial phase there is high

chance of risk events, but low cost impact

– For final phase there is low chance of risk events, but cost impact is high

• Risk management can be applied usefully at all stages of a project or procurement

• Identifying and managing risks greatly affect project success

Need for Risk management in project phases • Economic viability assessment-Feasibility studies• Corporate governance and accountability• Contractual purposes, to assess alternative

contractual and legal frameworks for the project• Tendering, when deciding whether or not to bid, or

accept a bid• Regulatory purposes, for legislative, judicial or

licensing agencies• Communication purposes, to provide information

for owners, sponsors, users, contractors, joint venture partners

Examples Project phases and Risk management application

Risks in Public sector (Govt.) projects • New project delivery methods adopted:

• BOOT ( Build Own Operate and Transfer) • BOT ( Build Operate and Transfer) • PPP ( Public Private partnership) • BLT ( Build Lease and Transfer) • PFI ( Private Financing Initiatives)

• Risk management is an important part of the drive to improve the overall quality and standard of government procurement activities.

• In the government procurement arena, risk management is important in that it supports: – Consistent and justifiable public decision-making, generating an audit trail of

the available– information and a documented method that demonstrates how this

information was used to form effective decisions.

Risk Management Approaches • Project Management Institute (PMI), USA (2003), Project

Management Body of Knowledge, Chapter 11 on risk management;

• Association for Project Management, UK (1997), PRAM Guide;• AS/NZS 4360 (2004), Risk Management, Standards

Association of Australia;• IEC 62198 (2001), Project Risk Management—Application

Guidelines;• Office of Government Commerce (OGC), UK (2002),

Management of Risk; and• Treasury Board of Canada (2001), Integrated Risk

Management Framework.

A Practical Case Study Of Risk Management for Strategic Partnership in Local Council

The Partnership• The Vision– To improve significantly the quality of life for the people

by working together• Responsible to Public Service Board – Chaired by DG• Management group have executive responsibilities• 4 Main Areas of Service– Children and Young People – Safer and Stronger Communities– Healthier Communities and Older People– Sustainable Communities –

Case Study – County CouncilLocal Strategic Partnership

Situation• The Local Govt desire to achieve their objectives and goals

through Local strategic partnership • The Local Strategic Partnership has developed its’ Local Area

Agreement and prior to implementation wished to use risk management as the common thread for all Partner organisations to:-– Have a consistent definition of, a shared appetite for and a consistent

process of identifying / managing risk– To create a single risk register of the Partnership’s significant risks,

prioritised for risk improvement planning and a platform for future monitoring of such risks / action plans

Case Study : Local Strategic Partnership

Project MethodologyThe project activity was subdivided into a number of key stages as follows:

THE LOCAL AREA AGREEMENTRISK WORKSHOP

Risk Identification, Analysis & Assessment

Analysis&

reportingRisk questionnaire Facilitated

risk workshop

Phase 1 Phase 2 Phase 3

• Timescales of the project– Proposal drafted 15th May 2011– Risk Workshop Briefing Note and Questionnaire

issued 26th May 2011.– Workshops on 12th July 2011.– Report and Recommendations issued 24th August

2011 after consultation and agreement with the Client.

– Presentation to Local Council Board on 4th September 2011

Case Study : Local Strategic Partnership

Phase 1. Pre-workshop Study Risk QuestionnaireThese established an up-to-date ‘snapshot’ of the material risk exposures, and led to the production of a risk “long-list” that formed the basis of the risk assessment workshops.The main objectives of the Questionnaire were: -

1. To capture respondents’ perceptions of the particular risks to the delivery of proposed partnership ,expected outcomes; and

2. To begin to capture details regarding any controls or counter-measures currently in place to manage such risks.

Case Study : Local Strategic Partnership

Phase 1. Pre-workshop Study (contd.) – all participants, representatives of the 4 key Service Groups within the Strategic Partnership were issued with a briefing document to set the risk context for the ensuing workshops

The objectives of these workshops were to:1. To introduce a common and consistent approach to risk management for all delivery groups;2. In the context of the objectives of the partnership vision and aims, to identify potential risks to

the achievement of relevant expected outcomes for respective delivery groups3. To assess and prioritize risks in terms of potential impact and likelihood;4. To identify and prioritize key risks; and5. Begin to develop action-plans to address the risks identified

Phase 2. Service Group workshopsOur consultants facilitated a series of four risk identification and assessment workshops, one for each of the following Service Groups (Blocks):-

• Healthier Communities and Older People Partnership (7 delegates)• Safer and Stronger Communities (6 delegates)• Children and Young People (14 delegates)• Sustainable Communities (20 delegates)

Phase 2 (contd.) Workshop Agenda• Introduction and Explanation of Objectives.• A risk management training/refresher session: on key risk

management theory and the methodology being used in the workshops.

• Risk Identification and assessment of the impact and likelihood.

• Risk prioritisation.• Summing up and the next steps.

Case Study – County CouncilLocal Strategic Partnership

Number of Risks per Service

In total 136 Risks were identified

61

28

37

108 7 9 8

0

10

20

30

40

50

60

70

CYP HCOP SC SSC

Risks

Outcomes

• Top 5 Risks– Mainstream budget reductions in NHS and National

Treatment Budgets.– That District Councils fail to develop planning policies

which adequately support the requirements of the LAA– Expected uplift funding not provided by the Department of

Health/Home Office to support the delivery of the National Drug Strategy

– Restructuring – Police, Probation, Local Government or review of Crime and Disorder Act – individually.

– Withdrawal of local bus services by commercial operators.

Phase 3 – Analysis & Reporting• The potential impact and likelihood of these risks were assessed against

meaningful definitions / criteria and captured in a risk register in order to prioritize the outputs for risk improvement planning.

• Risk improvement planning measures were then applied to the 32 risks deemed to be critical, according to their combined impact and likelihood score.

Block leads, in conjunction with target lead officers, were subsequently asked, through the appropriate partnerships, to review the critical risks and

• amend the delivery plans for these targets detailing how the risks are to be managed / addressed.

• amend the relevant delivery plans where appropriate.In doing this, priority was given to the targets on the list.

Case Study – County CouncilLocal Strategic Partnership

• Recommendations – Fill in the Gaps– Identify the Strategic Risks– Prioritise– Actions– The Risk Register– Risk Management Schedule

Outcome (I)• 47 delegates bought-in to the risks to the partnership through

active participation in the workshops,• All 12 different organizations within the Strategic Partnership

were represented, and were able to overcome individual cultural differences in approach to risk tolerance / assessment

• They jointly identified some 136 risks to the successful implementation of the Local Area Agreement, not risks to themselves nor their own organizations, but to the partnership

• These findings were then presented to the Public Service Board for sign-off and have been maintained under subsequent review as part of the Strategic Partnerships monitoring and review process

Case Study – County CouncilLocal Strategic Partnership

Outcome (II)The risk management process has given:-• the Management Group a better understanding of the risks

to successful implementation,• the Public Service Board assurance that risks are being

managed and• external government stakeholders confidence that

modernisation reforms can be made to work effectively across the various stakeholder organisations in the County.

Applying Good Practice in Your Organization Class Discussions

• What partnerships are your organizations involved in?• Who is leading them? • How are you involved?• What are the particular challenges?• How does risk management support these partnerships?• How can you become involved?• What skills / further support would you find helpful?

Assignments:1 • Please visit research paper titled as

Managing risk in software development projects: a case study

By Prasanta Kumar Dey, Jason Kinch, Stephen O. Ogunlana at http://www.emeraldinsight.com/journals.htm?articleid=1597801

Download the complete article and explain risk management process in the software development projects.