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Managing RiskCourse evaluation patternClass participation and attendance: 5-10%Class tests/ surprise tests (2): 5-10%Case analyses/ assignments (5-6):25-30%Midterm exam: 20-25%End term exam: 25-35%

Total : 100%Cases covered:London Grand Bend (6 Teams)DMRC ( 3 teams)

Bamboo House all teamsCrocodile Census all teamsCases for Post Mid-term and teams TBA

Last leg of London Grand BendThe critical path(S)......1: A-B-D-E-F-G-H-K-L-N-O-Q-R-S2: A-B-D-E-F-G-H-K-K-M-P-Q-R-S3: A-B-D-E-F-G-H-I-L-M-P-Q-R-S4: A-B-D-E-F-G-H-I-L-N-O-Q-R-SCALLED CONCURRENT CRITICAL PATHSHOW TO ADDRESS a project with multiple critical paths?

Some directionsFirst, accept that there can be more than one critical path in a projectIn this case, they are listed in the previous slideTo tinker with the project duration, through CRASHING.All four critical paths must be simultaneously crashed, to successfully reduce the project time of the projectWe should also realise.Critical paths can shift with the variation associated with actual task durationOther alternatives1. crashing2. processing tasks concurrently3. Sequence alteration4. Transforming critical paths into non-critical paths

Risk Management ProcessRiskAn uncertain event that, if it occurs, has a positive or negative effect on project objectivesRisk ManagementA proactive attempt to recognize and manage internal events and external threats that affect the likelihood of a projects successWhat can go wrong (risk event)How to minimize the risk events impact (consequences)What can be done before an event occurs (anticipation)What to do when an event occurs (contingency plans)The Risk Event GraphFIGURE 7.1

Risk Managements BenefitsA proactive rather than reactive approachReduces surprises and negative consequencesPrepares the project manager to take advantage of appropriate risksProvides better control over the futureImproves chances of reaching project performance objectives within budget and on time

The Risk Management ProcessFIGURE 7.2Managing Risk..IStep 1: Risk IdentificationGenerate a list of possible risks through brainstorming, problem identification and risk profiling.Macro risks first, then Micro or specific eventsStep 2: Risk AssessmentScenario analysisRisk assessment matrixFailure Mode and Effects Analysis (FMEA)Probability analysis Decision trees, NPV, and PERTSemi-quantitative scenario analysis

Partial Risk Profile for Product Development ProjectFIGURE 7.4Risk Breakdown Structure

FIGURE 7.3Risk Assessment FormFIGURE 7.6

Impact Scales

FIGURE 7.5Risk Severity MatrixFIGURE 7.7

Managing Risk - IIStep 3: Risk Response DevelopmentMitigating RiskReducing the likelihood an adverse event will occurReducing impact of adverse eventTransferring RiskPaying a premium to pass the risk to another partyAvoiding RiskChanging the project plan to eliminate the risk or conditionSharing RiskAllocating risk to different partiesRetaining RiskMaking a conscious decision to accept the riskContingency PlanningContingency PlanAn alternative plan that will be used if a possible foreseen risk event actually occursA plan of actions that will reduce or mitigate the negative impact (consequences) of a risk eventRisks of Not Having a Contingency PlanHaving no plan may slow managerial responseDecisions made under pressure can be potentially dangerous and costlyRisk Response MatrixFIGURE 7.8

Risk and Contingency Planning1Technical RisksBackup strategies if chosen technology failsAssessing whether technical uncertainties can be resolvedSchedule RisksUse of slack increases the risk of a late project finishImposed duration dates (absolute project finish date)Compression of project schedules due to a shortened project duration dateRisk and Contingency Planning2Costs RisksTime/cost dependency links: costs increase when problems take longer to solve than expected.Deciding to use the schedule to solve cash flow problems should be avoided.Price protection risks (a rise in input costs) increase if the duration of a project is increased.Funding RisksChanges in the supply of funds for the project can dramatically affect the likelihood of implementation or successful completion of a project.Contingency Funding and Time BuffersContingency FundsFunds to cover project risksidentified and unknownSize of funds reflects overall risk of a projectBudget reservesAre linked to the identified risks of specific work packagesManagement reservesAre large funds to be used to cover major unforeseen risks (e.g., change in project scope) of the total projectTime BuffersAmounts of time used to compensate for unplanned delays in the project scheduleContingency Fund Estimate (000s)TABLE 7.1

Managing Risk - IIIStep 4: Risk Response ControlRisk controlExecution of the risk response strategyMonitoring of triggering eventsInitiating contingency plansWatching for new risksEstablishing a Change Management SystemMonitoring, tracking, and reporting riskFostering an open organization environmentRepeating risk identification/assessment exercisesAssigning and documenting responsibility for managing riskChange Management ControlSources of ChangeProject scope changesImplementation of contingency plansImprovement changes

Change Management ControlThe Change Control ProcessIdentify proposed changes.List expected effects of proposed changes on schedule and budget.Review, evaluate, and approve or disapprove of changes formally.Negotiate and resolve conflicts of change, condition, and cost.Communicate changes to parties affected.Assign responsibility for implementing change.Adjust master schedule and budget.Track all changes that are to be implemented.The Change Control ProcessFIGURE 7.9

Benefits of a Change Control SystemInconsequential changes are discouraged by the formal process.Costs of changes are maintained in a log.Integrity of the WBS and performance measures is maintained.Allocation and use of budget and management reserve funds are tracked.Responsibility for implementation is clarified.Effect of changes is visible to all parties involved.Implementation of change is monitored.Scope changes will be quickly reflected in baseline and performance measures.

Change Request FormFIGURE 7.10

Change Request LogFIGURE 7.11Key TermsAvoiding riskBudget reserveChange management systemContingency planManagement reserveMitigating riskRiskRisk profileRisk Breakdown StructureRisk severity matrixScenario analysisSharing riskTime BufferTransferring riskPERT and PERT SimulationChapter 7 AppendixPERTProgram Evaluation Review TechniqueAssumes each activity duration has a range that statistically follows a beta distribution. PERT uses three time estimates for each activity: optimistic, pessimistic, and a weighted average to represent activity durations.Knowing the weighted average and variances for each activity allows the project planner to compute the probability of meeting different project durations.Activity and Project Frequency DistributionsFIGURE A7.1

Activity Time CalculationsThe weighted average activity time is computed by the following formula:

(7.1)Activity Time Calculations (contd)The variability in the activity time estimates is approximated by the following equations:The standard deviation for the activity: The standard deviation for the project: Note the standard deviation of the activity is squared in this equation; this is also called variance. This sum includes only activities on the critical path(s) or path being reviewed.

(7.2)(7.3)Activity Times and VariancesTABLE A7.1

Probability of Completing the Project

The equation below is used to compute the Z value found in statistical tables (Z = number of standard deviations from the mean), which, in turn, tells the probability of completing the project in the time specified.(7.4)Hypothetical NetworkFIGURE A7.2

Hypothetical Network (contd)FIGURE A7.2 (contd)

Possible Project DurationFIGURE A7.3

Z Values

TABLE A7.2