Lessons in Project Management - 4 - Risk Management

International Project Management

Prof. Dr. Frank Habermann

Lecture 4 –

Identifying and Handling Project Risks

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Which kinds of risk would you take?

What actually is a risk?

The process of risk management

– Identifying

– Prioritizing

– Responding

When does risk management have to happen?

Content

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No risk, no fun?

http://www.hosae.ch/blog/wp-content/uploads/2009/08/Desktop-Hintergrund.bmp

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Would you take the …

Picture source: http://monkeysjumping.com/wealthy-baker/

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Would you climb a montain?

Picture source: http://www.vorsorgefachmann.info/images/risiko.png

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Would you ride a motorbike?

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Would you dive with a shark?

Picture source: National Geographic, Photo by David Doubilet

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Would you tease an alligator?

Picture source; pix.motivatedphotos.com/2009/4/9/

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Would you jump?

Picture source: http://farm4.static.flickr.com/3306/3298473550_a9fa13ea33_o.jpg

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With our without risk management?

Without With

Picture source: adapted from www.mattwardman.com/blog/

Gerald preferred the latter!

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what

actually is

a

risk?

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What is a risk?

Picture source: www.iamthewitness.com/books/img/Benjamin.Franklin.jpg

“The only thing certain in life is death and taxes”

(Benjamin Franklin)

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What is a project risk?

Life is riskful!

Illness

Accidents

Crime

Loss

etc.

RR

R

LIFE

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What is a project risk?

Life is riskful!

Business is riskful!

-> it‘s just a specialpart of life withparticular risks

R

RR

RR

LIFE

BUSINESS

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What is a project risk?

Life is riskful!

Business is riskful!

Business projects are riskful!

R

RR

RR

R R

LIFE

BUSINESS PROJECT

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What is a project risk?

Life is riskful!

Business is riskful!

Business projects are riskful!

Projects have to copewith general risks (of lifeand business) as well aswith project-specific risks

R

RR

RR

R R

LIFE

BUSINESS

exogenousproject risks

endogenousproject risks

PROJECT

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and what

is project

riskmanagement

?

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Mastering the „what happens next“ machine

Source: www.youtube.com/watch?v=cog2a3YeDMM

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Project risk management issystematically dealing with project risks

Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg

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Project risk management issystematically dealing with project risks

find likely events

and their potential impacts

Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg

IDENTIFY

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Project risk management issystematically dealing with project risks

find likely events

and their potential impacts

Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg

analyze probability of events

and severity of potential damage

IDENTIFY

PRIORITIZE

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Project risk management issystematically dealing with project risks

find likely events

and their potential impacts

Picture source: www.schueddekopf-gmbh.de/aktuell/_img/unfall_mensch.jpg

analyze probability of events

and severity of potential damage

develope scenario /action plans

establish reserves and monitor

IDENTIFY

PRIORITIZE

RESPOND

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We differentiate two major types of risks

IDENTIFY

PRIORITIZE

RESPOND

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KNOWN-UNKNOWNS

– Something we know EXISTS but wedon‘t know when it will happen andhow severe the consequences will be

We differentiate two major types of risks

IDENTIFY

PRIORITIZE

RESPOND

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KNOWN-UNKNOWNS

– Something we know EXISTS but wedon‘t know when it will happen andhow severe the consequences will be

We differentiate two major types of risks

IDENTIFY

PRIORITIZE

RESPOND

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KNOWN-UNKNOWNS

– Something we know EXISTS but wedon‘t know when it will happen andhow severe the consequences will be

UNKNOWN-UNKNOWNS

– Something which has NEVER HAPPENEDbefore and thus cannot be anticipated, neither qualitatively nor quantitatively

We differentiate two major types of risks

IDENTIFY

PRIORITIZE

RESPOND

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What are the sources of risks?

IDENTIFY

PRIORITIZE

RESPOND

Remember lecture#2: project stakeholders, team and environment

Remember lecture#3: scoping and contracting

Remember endogenous and exogenous risks

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What are the sources of risks?

IDENTIFY

PRIORITIZE

RESPOND

Remember lecture#2: project stakeholders, team and environment

Remember lecture#3: scoping and contracting

Remember endogenous and exogenous risks

Initial checklist for risk management:

- Do you know all major stakeholders?

- Particularly, do you know your customer(s)?

- Have you organized senior management support?

- Are there significant conflicts you are aware of?

- Are all requirements and goals clearly defined?

- Is the project scope realistic and managable?

- Do you have a clear contract undersigned?

- Are all agreed resources in place?

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What are the sources of risks?

IDENTIFY

PRIORITIZE

RESPOND

Remember lecture#2: project stakeholders, team and environment

Remember lecture#3: scoping and contracting

Remember endogenous and exogenous risks

Initial checklist for risk management:

- Do you know all major stakeholders?

- Particularly, do you know your customer(s)?

- Have you organized senior management support?

- Are there significant conflicts you are aware of?

- Are all requirements and goals clearly defined?

- Is the project scope realistic and managable?

- Do you have a clear contract undersigned?

- Are all agreed resources in place?

As long as you answer with a single „no“ or „not sure“, you better not start the project!

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All fields of expertise are sources of risks

IDENTIFY

PRIORITIZE

RESPOND

Management risks

Socialrisks

Domain-specificrisks

Environmentalrisks

RISKPROFILE

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All fields of expertise are sources of risks

IDENTIFY

PRIORITIZE

RESPOND

Management risks

Socialrisks

Domain-specificrisks

Environmentalrisks

RISKPROFILE

BudgetScheduleOrg. StructureMethods & Tools etc.

TeamMotivationCommunicationTrust etc.

RegionIndustryTechnologyStandardsetc.

CulturePoliticsEconomyCorporationetc.

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Distributed teams Various languages Different measures Different technical standards Reliability of infrastructure (technology, transport, etc.) Ethnical and religious differences Social violence and instability Prejudice and nationalism Different business practices and rules Different feeling for time and punctuality Different attitude towards risk in general Divergent competency profiles and certificates Government involvement and control Legal basis (multiple national laws) Different currencies, levies, and taxes Intellectual property rights Corruption Environmental safety Climate

Sources of risks which areimmanent to international projects

IDENTIFY

PRIORITIZE

RESPOND

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Methods for identifying risks

IDENTIFY

PRIORITIZE

RESPOND

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Methods for identifying risks

IDENTIFY

PRIORITIZE

RESPOND

THINK (ALONE)Look for risk sourcesIdentify crucial stakeholdersDevelop risk categories / profilesPrepare interviews

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Example risk profile questions

Source: Verzuh, E., The Fast Forward MBA in Project Management, p. 102

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Methods for identifying risks

IDENTIFY

PRIORITIZE

RESPOND

THINK (ALONE)

INTERVIEW OTHERS (1:1)

QA

Consult the key stakeholdersVerify relevance /completenessIdentify further intervieweesSummarize results

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Methods for identifying risks

IDENTIFY

PRIORITIZE

RESPOND

THINK (ALONE)

INTERVIEW OTHERS (1:1)

QA

ORGANIZE WORKSHOPSConnect peopleDiscuss multiple perspectivesIdentify individual risk eventsFind a common understanding

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Now that you‘ve spotted a risk – how dangerous is it?

IDENTIFY

PRIORITIZE

RESPOND

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Now that you‘ve spotted a risk – how dangerous is it?

IDENTIFY

PRIORITIZE

RESPOND

Picture source: www.dirjournal.com

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The IPRA* matrix for analyzing risks

IDENTIFY

PRIORITIZE

RESPOND

Probability(likelyhood ofoccurence of the event)

Impact(severity ofthe damage)

low risk

high risk

*IPRA = International Project Risk Assessment

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The IPRA matrix for analyzing risks

IDENTIFY

PRIORITIZE

RESPOND

Probability(likelyhood ofoccurence of the event)

Impact(severity ofthe damage)

You can workwith a scaledapproach (here3 categories)!

low

medium

high

low medium high

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The IPRA matrix for analyzing risks

IDENTIFY

PRIORITIZE

RESPOND

Probability(likelyhood ofoccurence of the event)

Impact(severity ofthe damage)

1 3 5

3 9 15

5 15 25

You can evenapply weightsand quantifyrisks

low

medium

high

low medium high

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Example risk analysis

Source: Verzuh, E., The Fast Forward MBA in Project Management, p. 106

IDENTIFY

PRIORITIZE

RESPOND

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Now that you know the risk … what will you do?

IDENTIFY

PRIORITIZE

RESPOND

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Now that you know the risk … what will you do?

IDENTIFY

PRIORITIZE

RESPOND

Picture source: http://i.dailymail.co.uk/i/pix/2010/01/07/

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Your attitude determines your action

IDENTIFY

PRIORITIZE

RESPOND

Whatever I do, I will always

survive!

Picture sources: www.beaconmultimedia.com/images

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Your attitude determines your action

IDENTIFY

PRIORITIZE

RESPOND

Whatever I do, I will always

survive!

Whatever I do, This projectwill kill us!

Picture sources: www.beaconmultimedia.com/images http://revnyou.files.wordpress.com/2008/11/

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thinking in worst-scenarios

ignoring chances

neither efficientnor effective

thinking in best-scenarios

ignoring risks

naive and/orirresponsible

Your attitude determines your action

IDENTIFY

PRIORITIZE

RESPOND

Picture sources: www.beaconmultimedia.com/images http://revnyou.files.wordpress.com/2008/11/

too optimistic too pessimistic

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thinking in worst-scenarios

ignoring chances

neither efficientnor effective

thinking in best-scenarios

ignoring risks

naive and/orirresponsible

Your attitude determines your action

IDENTIFY

PRIORITIZE

RESPOND

Picture sources: www.beaconmultimedia.com/images http://revnyou.files.wordpress.com/2008/11/

too optimistic too pessimistic

be

REALISTIC

CONFIDENT

MEASURED

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TO BE KEPT IN MIND:

Sometimes financial interests are

stronger than honest risk assessment,

particularly in politics, i.e.

big money determines action, e.g.

- Genetic research

- Nuclear energy

- Global warming, etc.

In other cases people are guided by

strong social, cultural and other values, e.g.

- Daily routines and work habits

- Equal rights for men and women, etc.

… and what determines our attitude?

IDENTIFY

PRIORITIZE

RESPOND

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Major strategies of responding to risk

Picture source: http://wilderdom.com/images/RiskPeanuts2.jpg

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Five major response strategies1- Accept

IDENTIFY

PRIORITIZE

RESPONDUnderstand the risk but take no preparationsReact, if it occurs (if costs are small, solve the problem) Alternatively, just live with the damage

Applicable only for minor risks!

http://www.onlinemalerei.de/scherbenhaufen3.jpg

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Five major response strategies2- Exclude

IDENTIFY

PRIORITIZE

RESPONDAvoid major risks by excluding those from your projectHand the riskful task over to another projectHas to happen in the scoping phase

Down-scaling a project has limitations!

http://www.allseasonstentrental.com/fence.jpg

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Discussion: What are the limits of down-scaling your project?

Picture source: http://wilderdom.com/images/RiskNotTakingRisksCartoon.jpg

„We‘ve considered every potential risk exceptthe risk of avoiding all risks“

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Five major response strategies3- Transfer

IDENTIFY

PRIORITIZE

RESPONDExternalize responsibility for potential damages bypurchasing insurance, external consultants/experts, etc.Hiring externals has it‘s own risks (legal stuff, liability, etc.)

Transferring risks is expensive!

http://pmstudent.com/wp-content/uploads/hand-over-keys.jpg

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Five major response strategies4- Prepare alternative action

IDENTIFY

PRIORITIZE

RESPONDConsider alternative courses and remedyHave a plan B for important risks (contingency plan)Install project buffer (extra time and money)

Continuously monitor the project‘s main risks!

Picture source: http://picture.funnycorner.net/funny-pictures/5179/In-case-of-fire.jpg

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Five major response strategies5- Mitigate

IDENTIFY

PRIORITIZE

RESPONDAny feasible action to minimize or eliminate the risk,intensively involving all available technological, human and organizational resources

Reasonable for highly critical solutions!

Picture source: http://desktopwallpaper-s.com/wallpapers/19/Rain_Umbrellas.jpg

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Whendoes

risk management

have to happen?

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Risk management takes place during the entire projectR

ISK

MA

NA

GEM

ENT

EFFO

RT

TIME

Pre-Project Main Project

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Risk management takes place during the entire projectR

ISK

MA

NA

GEM

ENT

EFFO

RT

TIME

Pre-Project Main Project

Kick-off Plan approvedTesting/Piloting

completed

3 crucial situations(points of no return …

-> or „expensive“ return)

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Risk management takes place during the entire projectR

ISK

MA

NA

GEM

ENT

EFFO

RT

TIME

Pre-Project Main Project

Kick-offTesting/Piloting

completedPlan approved

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Risk management takes place during the entire projectR

ISK

MA

NA

GEM

ENT

EFFO

RT

TIME

Pre-Project Main Project

Kick-offTesting/Piloting

completed

continuous project risk management

extra effort

(planning)

extra effort

(releasing)

extra effort

(shapingthe

businesscase)

Plan approved

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Why do we spend these extra efforts?C

OST

/EFF

OR

T

TIME

Crucial decision(„point of no return“)

effort put inrisk management

Cost of changes / corrections

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Estimating means forecastingthe project future (time & money)

„Projects are unique –uniqueness means

entering unknown fields“

Questions you should ask yourself:

Do you, as the project manager, know all theteam members?

Have you worked with them before?

Do they know each other and have theyworked together before?

Which project risks have you identified and to whichextent do these risks impact your estimates regardingproject time and resources?

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Over the time estimating becomes easier …

TIME

Pre-Project Main Project

KNOWLDGE GAINED

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Over the time estimating becomes easier …

TIME

Pre-Project Main Project

KNOWLDGE GAINED

ballparkfigures

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Over the time estimating becomes easier …

TIME

Pre-Project Main Project

KNOWLDGE GAINEDRFI/RFPfigures

ballparkfigures

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Over the time estimating becomes easier …

TIME

Pre-Project Main Project

KNOWLDGE GAINED

Planningdetails

ballparkfigures

RFI/RFPfigures

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Finally, even risk management is riskful…

Picture source: http://wilderdom.com/images/RiskSharpEdgesSign.jpg

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… but your project is your baby … and timely precautions are better than late therapies

Picture source: www.siloah.de/siloah/content/kliniken_und_institute/frauenklinik/

Thank you very much!

presentation by

Frank Habermann

founder of Becota and Professor of Business

http://de.linkedin.com/in/frankhabermann/en

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