APM Edinburgh risk management january 2017 final

Kerry Wickett Head of Risk Management WSP | Parsons Brinckerhoff

APM VISION : A WORLD WHERE ALL PROJECTS SUCCEED

WHAT DEFINES A SUCCESSFUL PROJECT?Purely meeting time and cost constraints?

Project delivered under time and cost but left operational whole life costings of an additional £1m per annum

Delivered within time and cost but damaged the share price

Doesn’t achieve its wider objectives Doesn’t meet the scope / requirements identified

Risk management is key to project success

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KERRY WICKETTHead of Risk Management at WSP | Parsons Brinckerhoff

A leading global engineering and professional services consulting firm

Rail and light rail – including risk management for HS2 Highways England Power e.g. E.ON biomass conversion Building services

[email protected]

PROJECT RISK MANAGEMENT INTRODUCTION

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WHY DO PROJECTS FAIL? HOW CAN WE PREVENT THIS?

“We were doomed from the start”

Embed ri

sk

management fr

om

st

art

Do no pre-empt / drive the risk figure

Honesty and transparency

Project inception

WHY DO PROJECTS FAIL? HOW CAN WE PREVENT THIS?

Scope creep• Link objectives to the overall objectives• Clear categorisation of risk to cover the project lifecycle • Change management• Interface/ interdependencies• Stakeholder engagement – contract type, collaboration

Does the project have well defined objectives?

Does it have well defined scope?

Risk management strategy and plan clearly defined ?

WHY DO PROJECTS FAIL? HOW CAN WE PREVENT THIS?

Systems or people?• Clearly defined systems will help• Governance requirements• Integrated risk management – APM standard

Systems• Capacity and capability of resources - identify gaps in knowledge, or dependencies/ single point of reliance• Get the team talking – risk workshops (collaboration and integration)

People• Key is planning and early engagement• Project begins as soon as the idea originates• Risks are often known at the outset

Why not both?

WHY DO PROJECTS FAIL? HOW CAN WE PREVENT THIS?

It’s not my responsibility…..

• Define roles and responsibilities• Accountability by assigning owners for risks and mitigation actions • Training on risk so people understand it is their responsibility• Escalation if it is outside of the project’s control • Ensure ownership and accountability

WHY DO PROJECTS FAIL? HOW CAN WE PREVENT THIS?

We were just unlucky?

• The event will happen• Outcome/impact not known• E.g. Duration uncertainty

Uncertainty

• The event may or may not happen• The outcome may or may not be known• E.g. Underground obstructions encountered during excavations

Risk

Equals Project Risk

Estimate the height of the Statue of Liberty in metres

DEFINITION – UNCERTAINTY

DEFINITION – UNCERTAINTYEstimate the height of the Statue of Liberty in metres

Now put a tolerance around your estimate (+/-)

Either: Class A -0.25m +0.5m Class B -0.5m +1.0m Class C -1.0m +2.5m Class D -3.0m +5m

DEFINITION – UNCERTAINTYEstimate the height of the Statue of Liberty in metres

Do you want to change your original estimate?

www.youthcollection47.com

DEFINITION – UNCERTAINTYEstimate the height of the Statue of Liberty in metres

Answer: 93m

DEFINITION – UNCERTAINTYEstimate the height of the Statue of Liberty in metres

Your first estimate was a single point estimate

When you put a tolerance around it, you produced a three point estimate:- A single point estimate of 95m- and a tolerance of -3m +5m (92m / 95m / 100m)

A two point estimate could be used:- Between 85m and 120m

How far out were you?… now assume that’s £m!- What estimate would you prefer to have on your bid?

CLEAR DEFINITION OF RISK

“Risk management is a process that allows individual risk events and overall risk to be understood and managed proactively, optimising success by minimising threats and maximising opportunities”

Should include threats and opportunities Issue management

RISK MANAGEMENT – HOW IT CAN HELP YOU …manage the risks to your project:

Provides a structured approach to managing the risk to your project;

Determines confidence ranges of estimates of project out-turns: cost & schedule;

Provides a level of confidence around a bid/project budget or/schedule;

Allows you to identify critical areas and prioritise actions where they will have the greatest effect on the success of the project; and

Gives PMs a decision making tool – what needs to be addressed to control costs and/or programmes.

RISK MANAGEMENT – HOW IT CAN HELP YOU …deliver your project more effectively:

Assists in moving towards a ‘no surprises’ environment and in managing expectations;

Allows everyone to see the bigger picture and potential conflicts/ interfaces;

Encourages a decisive and proactive management style – not ‘ re-active management by crisis’;

Provides a structured approach to exploiting opportunities; and

Provides a basis to capture lessons learned that can be disseminated to other projects and throughout the company.

PROJECT MANAGERS: CHALLENGESWhat makes a good project manager?

Risk taking? - assumptions- exclusions- constraints- due diligence- understanding risk appetite- in line with governance

Risk management should be integrated rather than bolted on

Communication and team work is key to success

Project Manager

How and when do we identify the risks?

RISK IDENTIFICATION

CLEAR DEFINITION OF RISK

How to clearly define a risk

There is a risk that...

Describe the adverse event or series of events that might happen. This will often be related to a milestone in or at the end of the work activity in which the risk is present.

The risk is caused by…..Identify the cause(s) of the risk and highlight the areas of work in which the causes are contained.

The direct impact of the risk is that ………

Describe the direct impact in terms of adverse effect on the objectives of the work area in which the risk is present and identify the associated effect area.

RISK MANAGEMENT LIFECYCLE

RISK IDENTIFICATION REMEMBER : What is the project there to do? Document review – contracts; estimates, plans, assumptions register,

scope etc. Interviews with key project players

Exploring issues in depth Getting team members to open up in a way that they might not in front

of their peers Risk brainstorming workshops

Secures team “buy – in” to the process. Also allows one idea to trigger another.

Sometimes the first time the team has worked together in one room Walk through design - visual aids, BIM

RISK IDENTIFICATION – LESSONS LEARNED

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WHEN SHOULD YOU IMPLEMENT RISK MANAGEMENT?

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LETS TAKE OPTION SELECTION AS AN EXAMPLE

Scheme AScheme cost £500mRisk Analysis £20mUncertainty £20mTotal £540m

Scheme BScheme cost £450mRisk Analysis £100mUncertainty £50mTotal £600m

So how do we get to a position where we can quantify risks?

RISK QUANTIFICATION AND ANALYSIS

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QUANTIFY – BASIC INPUTS REQUIREDRisk Type Likelihood of

occurenceMin Most Likely Maximum

Threat 50% 1m 2m 3mOpportunity 20% -500 -1m -1.5m

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YOU HAVE YOUR RISKS IDENTIFIED AND QUANTIFIED… WHAT NEXT?

We have a risk register… we’re compliant. Our job is complete??

RISK ANALYSIS – HOW IT WORKS

Monte Carlo simulation replaces discrete estimates with probability distributions.

It runs thousands of iterations modelling the probability distributions defined.

It throws a powerful spotlight on the problem of parallel activities. However, all too often it is used on cost plans but not on programmes

Maxim

um 7

days

Minim

um 3

days

Most Likely 5

days

QUANTITATIVE RISK ANALYSIS (QRA OF COST) Current position:

There is an 80% chance that the project risks will cost no more than £20million

MITIGATE!

Post mitigated position :

There is an 80% chance that the project risks will cost no more than £10million

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QUANTITATIVE SCHEDULE RISK ANALYSIS

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Current position:

There is an 80% chance that the project will run over by no more than 90 days

MITIGATE!

Post mitigated position :

There is an 80% chance that the project will now run within schedule by 10 days

QUANTITATIVE SCHEDULE RISK ANALYSISQuantitative Schedule Analysis

SQRA – can incorporate duration, cost and estimation uncertainties

Project Finish Date: Best and Worst Case scenario (min/max)

Primavera or MS Project calculated finish date (Deterministic)5 % Chance of achieving deterministic finish date

80% Confidence in achieving 10th September finish date

1000 Simulations of the project

Display Histogram report for any element of the project e.g. a task or milestone. Show the likelihood of finishing a milestone on time.

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So now what we do about the risks?RISK MITIGATION

GOOD MITIGATION?

Risk : Long lead items may not be ordered in time

Cause: Lack of organisational skills

Consequence: Project delays

Mitigation : Ensure long lead items are ordered with enough time.

THOUGHTS PLEASE?Risk : The long lead items required by the project which are the hydraulic control units, the reactor pressure vessel and the concrete containment vessel liner may not be ordered in line with the programme requirements (ref WBS)

Causes: No ownership for long lead itemsLack of understanding of what the long lead items areInsufficient engagement with the supply chain Design not finalised, undefined scope

Consequence: Project dependencies mapped to the programme illustrate potential delays of X months. Increased costs for acceleration for having to use an alternative supplier

Mitigation : Assign owner for long lead items to ensure accountabilityCreate and monitor a long lead items log Provide a report outlining the supply chain, typical lead times and procurement processes. Order enough material in advance for uncertainty in designNegotiate returns/ other projects upcomingReserve production slot

What is missing?

WHAT’S MISSING

Title Strategy

Probability

Budget

Schedule

Pre Mitigation Risk Rank

MitigationsProbability

Budget

Schedule

Post Mitigat

ion Risk Rank

OJEU Process causes delays Reduce

VH L M 20Clear procurement strategy with appropriate input. Resource assigned to avoid successful challenge

L L L 8

Outline design of public realm measures Reduce

M M L 13Further detailed design as part of project development process. Factor in contingencies into current estimates

VL M L 5

Jewson land acquisition Eliminate

VL VH VH 18Residual risk still exists. Shortly due to be eliminated

N/A

Unforseen Stats Accept

H M M 16

Note* Full Stats surveys not cost effective

H M M 16

Unforseen Ground conditions / contamination Accept

M M M 13 

N/A

Tie them into the programme

What are you going to do about them and when?

- owners - due dates- reporting e.g. overdue metrics/ due this period- escalation

Mitigations as early on as risk identification e.g. advanced works

Black swan events

REPORTING AND PRIORITISING RISKS

- Dashboards

- Prioritising risk treatment – tornado charts, proximity

- APM book “Prioritising Project Risks” - a short guide to useful techniques.

“There are essentially two reasons to prioritise projects risks 1) to inform stakeholders of range of outcomes arising from uncertainty; and2) to prioritise risk responses for the effective management of risk.”

CULTURE AND BEHAVIOURAL ISSUES

“

“Tunnel vision

from a past good/ bad

experience”

“I won’t speak up in case I look stupid”

“

“I’ll be over cautious so I can say I told

you so”

“

“How does this benefit me, don’t have time, I’ve

always done it this way?”

“

“An over-eager facilitator”

CULTURE AND BEHAVIOURAL ISSUES

“

“Use past metrics/ lessons

learned to identify trends”

“No such thing as a silly question”

“

“Three point estimates allow

you to be realistic and

build in margins”

“

“I now have analysis to assist me make some

informed decision making”

“

“Everyone listened to”

Kerry WickettHead of Risk Management WSP | Parsons Brinckerhoff

APM VISION: A WORLD WHERE ALL PROJECTS SUCCEED

So back to the original question ………. Is this a realistic vision and how can risk management help?

CONCLUSION

Risk management should be an integral part of a project.

Risk management does require a certain level of time, effort and resources but it will assist and aid decision making and ultimately improve chances of project success.

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