PROJECT RISK MANAGEMENT

Presentation by:

Jennifer Freeman&

Carlee Rosenblatt

http://gussyingupthetuttle.blogspot.com/2009/10/risk.html

Topics We Will Cover...Controller’s FunctionProject Failures and Project ManagementProject Team’s OptionsProject Risk Management (PRM)PRM BenefitsProject Risk CategoriesProject Management RisksPRM Approach

Controller’s Function

The Controller...

• lends their expertise to the different projects

• provides financial analysis

• participates on project teams

Project Failures

Management is frequently disappointed with project results because they fall far below original expectations.

Reasons for failures vary, but there is one common denominator:

Earlier in the life of the project, the reasons were risks to the project.

Project ManagementTrack and manage issues that impact the project

negatively.

Implement an effective process for identifying and addressing project risks before these risks become issues.

http://wilderdom.com/Risk.html

Project Team’s Options

• Priorities or schedules may be changed

• Key decisions escalated to higher levels of management

• Activities added or enhanced

• Additional or different resources obtained

Project Risk Management (PRM)• The systematic process of identifying, analyzing, and

responding to risk by applying risk management principles and processes at the project level.

• It seeks to maximize the probability and consequences of positive events.

• It seeks to minimize the probability and consequences of adverse events.

• The goal is to prevent or reduce risk in a cost-effective manner without compromising quality or harming the mission.

PRM Benefits

• Ensures that project plans are realistic, with corresponding improvements in the overall business case and definition of project net benefits.

• Enhances the management’s understanding of the project’s implications during the early stages of the project.

PRM Benefits Continued

• Provides the opportunity to identify and consider a broader range of options than may be possible when the risk has become an issue, which can conserve resources.

• Allows for more time to be made available to address the risks in a careful and well-planned manner.

Project Risk Categories

• Issue – A current problem that is negatively impacting a project.

• Risk – A possible occurrence that would expose a project to potential failure in some or all respects.

Sometimes a risk is an issue that will happen in the future, but not all project risks become issues.

Categorizing Project Risks

• Valuable in assisting a project team to identify and consider the potential risks the project may face.

• Four categories of common project risks: Project management risks Technical risks Human risks Business risks

Project Management Risks

• Potential for unmet requirements in areas such as project management capabilities, project planning, and resource requirements.

• Examples of project management risks: Inadequate project management processes, procedures, or

skills Incomplete planning assumptions Overly aggressive time, budget, or benefits estimates Inadequate project resource commitments Resource coordination difficulties Failure to coordinate intraproject linkages and relationships

Technical Risks• Potential for unmet requirements in terms of project

designs, delivery schedules, information availability, and the like.

• Examples of technical risks: Inadequate definition of future state requirements Designs that do not address the full scope of objectives Hardware or software incompatibility Missed delivery schedules Design incompatibility or scheduling problems between

interdependent project components

Human Risks• Potential for various human dynamics to impede

project objectives or to reduce or negate benefits.

• Examples of human risks: Sponsorship that is inadequate to legitimize and sustain

the project Inadequate support from middle or lower levels of

management Differing or unclear understanding about the project

scope or impacts Inadequate or ineffective communication Project overload Residual issues from previous project implementations

Business Risks• Potential for occurrences external to the

organization, or in other parts of the organization, that could negatively impact the project.

• Examples of business risks: Strikes Competitor actions Legislative or regulatory changes Significant problems or opportunities that redirect

executive attention and/or funding.

http://santafeandthefatcityhorns.blogspot.com/2007_11_01_archive.html

Times to consider risk• During initial stages of the project• After achievement of key project milestones• Before beginning new project phases• When relevant information is received

Knowledge about changes in business conditions

Announcement of organizational changes Announcement of or discussion about changes

in a project sponsor or project member

PRM Approach – 6 Steps1. Identify the risks relevant to the project2. Evaluate risks to determine which needs most

attention3. Assign people to “own” key risks4. Address key risks through containment or

contingency plans5. Revisit the project plan for adjustment or

enhancement if the plan has been prepared6. Manage and track risks throughout the life of the

project

http://leadershipchamps.wordpress.com/2008/06/24/risk-management-processes/

1. Identify the Relevant Risks

• Prerequisites Objectives must be clear Proposed targets for schedule, budget, and

resource requirements understood

• Develop list of relevant risks

• Identify essence and develop risk statements for each category of risk

2. Evaluate the Risks

HighMedium Severity

High Severity

Very High Severity

MedLow

SeverityMedium Severity

High Severity

LowLow

SeverityLow

SeverityMedium Severity

Low Medium High

Pro

ba

bil

ity o

f O

cc

urr

en

ce

Potential Negative Impacthttp://www.youtube.com/watch?v=FRvsa-yNZk8

Probability of RiskThe relationship of risks and their probability across the project

life-cycle process

Controlling

Executing

ProbabilityClosing

Planning

Initiating

ImpactThe inverse relationship of probability and impact as the

project progresses through the life-cycle processes

ControllingExecuting

Probability

ClosingPlanningInitiating

Impact

ControllingExecuting

Probability

ClosingPlanningInitiating

Impact

3. Assign Risk Owners

• Risk owners are accountable for......Preparing the containment or contingency plans

...Monitoring changes in the probability and/or impact of the risk and notifying the project manager and team of any significant changes

...Taking the lead in initiating and managing the containment or contingency plans

4. Address Key Risks

Actionable Not Actionable

Very High

Containment Plan

Contingency Plan

HighContainment

PlanContingency

Plan

Med

Tracking List or

Containment Plan

Tracking List or Contingency

Plan

Low Tracking List Tracking List Degr

ee o

f Ris

k Se

verit

y

Containment – Specific actions that will be taken

Contingency – Plan that prepares for actions in the event that a nonactionable risk becomes an issue

Tracking List – Mechanism to ensure risks are retained and tracked as project moves forward

5. Revisit the Project Plan

• Revisit the original project plan after the containment and contingency plans have been prepared.

• Evaluate plan carefully for additional actions and trade-offs that will make the plan more achievable.

6. Manage and Track the Risks

• The risks that have been identified need to be: Managed carefully Monitored closely Tracked for changes in probability and/or impact

• Include steps to review and oversee PRM activities in the project plan.

Questions Answered by PRM• Are we losing sight of goals & objectives as the project moves forward?

• Are we ensuring that the results of the project will improve the organization’s ability to complete its mission? (The result should be an improvement over the previous process.)

• Are we ensuring sufficient funds are available, including to address risks?

• Are we tracking implementation to ensure “quicker/better/cheaper” objectives are being met?

• Are we applying appropriate RM principles throughout the project?

• Are we taking corrective action to prevent or fix problems, rather than simply allocating more money and time into them?

• Have changes in the environment, such as new IT systems or leadership, created new risks that need to be managed?

• http://www.youtube.com/watch?v=laKprX-HP94

References• Bragg, Steven M. and Roehl-Anderson, Janice M.

The Controller’s Function – The Work of the Managerial Accountant, 3rd Edition, 2005. 399-409.

• www3.od.nih.gov/oma/ma/NewRisk/PRM.doc• http://www.youtube.com/watch?v=FRvsa-yNZk8• http://www.youtube.com/watch?v=laKprX-HP94