Lessons in Project Management - 4 - Risk Management

International Project Management

Prof. Dr. Frank Habermann

Lecture 4 –

Identifying and Handling Project Risks

© Becota GmbH | www.becota.com | 2010

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

© Becota | www.becota.com | 2010

No risk, no fun?

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


Would you take the …

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


Would you climb a montain?

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


Would you ride a motorbike?


Would you dive with a shark?

Picture source: National Geographic, Photo by David Doubilet


Would you tease an alligator?

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


Would you jump?

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


With our without risk management?

Without With

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

Gerald preferred the latter!


what

actually is

a

risk?


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)


What is a project risk?

Life is riskful!

Illness

Accidents

Crime

Loss

etc.

RR

R

LIFE



Life is riskful!

Business is riskful!

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

R

RR

RR

LIFE

BUSINESS



Life is riskful!


Business projects are riskful!

R

RR

RR

R R

LIFE

BUSINESS PROJECT



Life 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


and what

is project

riskmanagement

?


Mastering the „what happens next“ machine

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

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


Project risk management issystematically dealing with project risks

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



find likely events

and their potential impacts


IDENTIFY



find likely events



analyze probability of events

and severity of potential damage

IDENTIFY

PRIORITIZE



find likely events



analyze probability of events

and severity of potential damage

develope scenario /action plans

establish reserves and monitor

IDENTIFY

PRIORITIZE

RESPOND


We differentiate two major types of risks

IDENTIFY

PRIORITIZE

RESPOND


KNOWN-UNKNOWNS

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


IDENTIFY

PRIORITIZE

RESPOND


KNOWN-UNKNOWNS



IDENTIFY

PRIORITIZE

RESPOND


KNOWN-UNKNOWNS


UNKNOWN-UNKNOWNS

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


IDENTIFY

PRIORITIZE

RESPOND


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



IDENTIFY

PRIORITIZE

RESPOND




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?



IDENTIFY

PRIORITIZE

RESPOND




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!


All fields of expertise are sources of risks

IDENTIFY

PRIORITIZE

RESPOND

Management risks

Socialrisks

Domain-specificrisks

Environmentalrisks

RISKPROFILE


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.


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


Methods for identifying risks

IDENTIFY

PRIORITIZE

RESPOND



IDENTIFY

PRIORITIZE

RESPOND

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


Example risk profile questions

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



IDENTIFY

PRIORITIZE

RESPOND

THINK (ALONE)

INTERVIEW OTHERS (1:1)

QA

Consult the key stakeholdersVerify relevance /completenessIdentify further intervieweesSummarize results



IDENTIFY

PRIORITIZE

RESPOND

THINK (ALONE)

INTERVIEW OTHERS (1:1)

QA

ORGANIZE WORKSHOPSConnect peopleDiscuss multiple perspectivesIdentify individual risk eventsFind a common understanding


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

IDENTIFY

PRIORITIZE

RESPOND


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

IDENTIFY

PRIORITIZE

RESPOND

Picture source: www.dirjournal.com


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


The IPRA matrix for analyzing risks

IDENTIFY

PRIORITIZE

RESPOND



You can workwith a scaledapproach (here3 categories)!

low

medium

high

low medium high


The IPRA matrix for analyzing risks

IDENTIFY

PRIORITIZE

RESPOND



1 3 5

3 9 15

5 15 25

You can evenapply weightsand quantifyrisks

low

medium

high

low medium high


Example risk analysis

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

IDENTIFY

PRIORITIZE

RESPOND


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

IDENTIFY

PRIORITIZE

RESPOND


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/


Your attitude determines your action

IDENTIFY

PRIORITIZE

RESPOND

Whatever I do, I will always

survive!

Picture sources: www.beaconmultimedia.com/images



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/


thinking in worst-scenarios

ignoring chances

neither efficientnor effective

thinking in best-scenarios

ignoring risks

naive and/orirresponsible


IDENTIFY

PRIORITIZE

RESPOND


too optimistic too pessimistic


thinking in worst-scenarios

ignoring chances

neither efficientnor effective

thinking in best-scenarios

ignoring risks

naive and/orirresponsible


IDENTIFY

PRIORITIZE

RESPOND


too optimistic too pessimistic

be

REALISTIC

CONFIDENT

MEASURED


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


Major strategies of responding to risk

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


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


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


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“


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


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


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


Whendoes

risk management

have to happen?


Risk management takes place during the entire projectR

ISK

MA

NA

GEM

ENT

EFFO

RT

TIME

Pre-Project Main Project



ISK

MA

NA

GEM

ENT

EFFO

RT

TIME


Kick-off Plan approvedTesting/Piloting

completed

3 crucial situations(points of no return …

-> or „expensive“ return)



ISK

MA

NA

GEM

ENT

EFFO

RT

TIME


Kick-offTesting/Piloting

completedPlan approved



ISK

MA

NA

GEM

ENT

EFFO

RT

TIME


Kick-offTesting/Piloting

completed

continuous project risk management

extra effort

(planning)

extra effort

(releasing)

extra effort

(shapingthe

businesscase)

Plan approved


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


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?


Over the time estimating becomes easier …

TIME


KNOWLDGE GAINED



TIME


KNOWLDGE GAINED

ballparkfigures



TIME


KNOWLDGE GAINEDRFI/RFPfigures

ballparkfigures



TIME


KNOWLDGE GAINED

Planningdetails

ballparkfigures

RFI/RFPfigures


Finally, even risk management is riskful…

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


… 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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Lessons in Project Management - 4 - Risk Management

Business

becota gmbh

project risk management

project risks picture

handling project risks

project stakeholders

general risks of life

sources of risks

process of risk management