Risk management: The act or pratice of dealing with risk
Risk management focuses on: • Know nown unkn nknown owns • Proa Proact ctiv ive e mana manage geme ment nt
The alternative to proactive management is reactive management, also called crisis management. This requires significantly more resources and takes longer for problems to surface.
Risk management focuses on the future
Risk and information are inversely related 2
Historically, we focused our attentions attention s on schedule and cost risk management. Today, our primary emphasis is on technological risk management: • Can Can we we desi design gn it and and bui build ld it? it? • What is the the ris risk k of obsol obsolesc escenc ence? e?
Definition Of Risk
= f ( ( Likelihood, Likelihood, Impact)
• Likelihood is the probability of occurrence • Impact is the amount at stake
Tolerance For Risk
Relative uncertainty (partial information)
Developing and Using Payoff Tables Establishing the procedure to follow Construct the Payoff table Decision-making under certainty
Decision-making under complete uncertainty
Decision-making under risk
Maximin Approach Maximax Approach Minimax regret Approach Insufficient Reason Approach Expected Monetary Value (EMV) Approach Expected Opportunity Loss (EOL) Approach Approach Expected Value of Perfect Information (EVPI) Approach
Five steps to develop payoff table 1. List List all all the the alt alter erna nati tive ves. s. 2. List List the futur future e con conseq sequen uences ces of each each alternative. 3. Identi Identify fy the payoff payoffs s associa associated ted with each each combination. 4. Assess ssess the the degr degree ee of of cert certain ainty ty that that thes these e combinations combinations will materialize 5. Deci Decide de on a dec decis isio ion n crit criter erion ion..
Risk planning: Process of developing and documenting interactive strategy and methods for identifying risk issues, developiing risk handling plan and monitoring how riskd have changed Is a program of action: • Develop Develop and and document document an organ organiz ized, ed, compre comprehens hensiv ive e and ininteractive risk management managemen t strategy • Determ Determine ine the the metho methods ds to to be used used to to exec execute ute the the risk management strategy • Plan Plan for adequ adequate ate reso resour urce ces s 10
Risk assessment: Process of identifying and anlyzing program areas and critical process risks to increase the likelihood of meeting cost, performance and schedule objectives.
Risk assessment components •
Risk identification: Process of Identifying all potential risks: cost, funding, schedule, contract relationships, technical and political risks
Risk anlysis: Process of examine each identified risk issue to estimate the likelihood and predict the impact on the project (Cost-Schedule-Technical Evaluation) 11
Risk handling: includes specific methods and techniques to deal with known risks, identifies who is responsible for the risk issues, and provides an estimate of the cost and schedule with reducing the risk
Options for handling risk: • Risk Risk as assump sumpti tion on/r /ret eten enti tion on • Risk Risk avoi avoida danc nce e Mit Mitig igat atin ing g • Risk Risk contr ontrol ol/p /prreven eventi tion on • Risk transfer
Which Method to Use? Rigid Policies/ Procedures l a r n u o i d t e a c t o r n e P m t u c c e o j o r D P
Avoidance Avoidance Transfer Reduction Assumption
Guidelines High High
Low Low Tolerance for Risk
Risk monitoring: process of systematically tracking and evaluating the performance of risk handling actions and providing inputs to updating risk handling strategies
Some techniques suitable for risk monitoring: •
Earned Value (EV)
Program me metrics
Sched chedul ule e per perfo form rman anc ce mon monit itor orin ing g
Tech Techni nica call per perfo form rman ance ce meas measur urem emen entt (TP (TPM) M)
Prioritization of Risks Schedule Schedule
Technical Performance or Quality
First (Highest) Priority Second Priority Third Priority 15
Classroom Activity 12a
Evaluate your organisation’s ability to manage risk. What can you do to improve the way you manage the risk of projects.