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PowerPoint Presentation PROJ6003 PROJECT EXECUTION & CONTROL Module 4 – Risk & Communication Management Week 7 Giovana Bruno – Lecturer Email: giovana.bruno@laureate.edu.au 11/8/19 11/8/19 Announcement! Make-up class: 09/11/2019 – Saturday Content covered – Module 5: Parts of Weeks 9 & 10 Room: G.1 - 10am - 1:00pm Room: G.1 - 1:30pm - 4:30pm 11/8/19 2 Subject Modules Module 1: Change Control Tools and Techniques Module 2: Directing and Managing Project Work Module 3: Quality Assurance and Control Module 4: Risk and Communication Management Module 5: Progress and Performance Measurement Tools Module 6: Project Closure 11/8/19 3 Where are we in Project Management? 11/8/19 Draw on the white board where we are: Timeline with 10KA, 5 PG, and show each module what we will cover 4 The processes required for effective project risk management. Tools and techniques for qualitative and quantitative risk analysis. The planning, management and control of project communications. What we’ll cover in this Module 11/8/19 Module 4 Project Risk Management 11/8/19 6 Project Risks Project characteristics: Uniqueness Varying Complexity Context of assumptions and constraints Conflicting Stakeholders’ expectations Constant Change External environment Market volatility Competitor actions Emergent requirements Client organisational change Internal organisation changes PSTLIED (Political, Social, Technological, Legal, International, Environmental, Demographic) factors Why projects are risky? Project risk is an uncertain event or condition that, if it is occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost, and quality. A risk may have one or more causes and, if it occurs, it may have one or more impacts. 11/8/19 All projects are risky since they are unique undertakings with varying degrees of complexity that aim to deliver benefits. They do this in a context of constraints and assumptions, while responding to stakeholder expectations that may be conflicting and changing. Organisations should choose to take project risk in a controlled and intentional manner in order to create value while balancing risk and reward. (PMI, 2017, p. 397). 7 Understanding Risks Risks are also two-dimensional, capturing both the expected number (frequency) and the magnitude (severity) of an undesired occurrence or loss. Known risk – The risk that has been identified and analysed, making it possible to plan responses. Unknown risk – The risk that events will occur on projects even though they cannot be estimated or even identified in advance, but can be recognised after they have occurred: “Black Swans”. Realised risk – The expenses that have already been incurred in a project and must be paid regardless of whether there is proper insurance. 11/8/19 Black Swan: Hillson (2010 cited in Thorn, 2011) stated that are two types of “black swans”, that we named the real and false “black swans”. The first would be completely unpredictable risks. The second is a risk simply derived from the fact that uncreative risk identification and analysis misses out very low probability risks with extreme impacts. So both are extreme high impact, low probability and almost impossible to predict. In popular conversation, the black swan event is something with an extremely low likelihood of occurrence and an extremely high potential effect. It is seen as the thing that is thought will never happen, but, if it did happen, then the individual/organization would be affected in a really big way. In contrast, Taleb states in his book that black swans have three characteristics: they are unexpected and unpredictable outliers, they have extreme impacts, and they appear obvious after they have happened. Black Swans can be tackled with right level of budget and contingency plan for emergent risks. 8 Major Catastrophic Loss 11/8/19 9 Major Components of Risk Management Process (Larson & Gray, 2011, p. 213) 11/8/19 Project Risk Management is the process of conducting planning, identification, analysis, response strategies and control risks. 10 PMBOK’s Project Risk Management Why do we do it? To increase the probability and/or impact of positive risks and to decrease the probability and/or impact of negative risks to optimise the chances of success. 11/8/19 Activities involved in Project Risk Management: Identifying Risks Determining Probability Evaluating its impact Planning risk responses Documenting & tracking risks Communicating Risks 11 Benefits of Effective Risk Management Exploits more opportunities that arise during project Addresses uncertainties in estimates and assumptions Increases chance of success – unmanaged risks may deviate from agreed-upon project objectives. Supports innovation and creativity Increases efficiency Adds value to output of other processes when perspective of risk is considered Since it is a continuous process, it allows continuous monitoring and improvement of strategies 11/8/19 Every project has risks. Risks have the potential to adversely affect the delivery of projects. The effective management of risks addresses uncertainty in project estimates and assumptions. In fact, project risk management adds value to the output of other management processes when the perspective of risk is taken into account. Planning for risk management involves determining how to approach, plan and execute the various activities required for managing project risks. Because new risks may be introduced at any point in the project management life cycle, risk management is a continuous process. It begins at the project-planning phase and continues throughout the project-execution phase. Project Risk Management aims to identify and manage risks that are not addressed by other project management processes. When unmanaged, these risks have the potential to cause project to deviate from the plan and fail to achieve the defined project objectives. 12 Plan Risk Management Defines how to conduct risk management activities. Plan Risk Management should begin once a project is conceived and should be completed early in the project. It may be necessary to revisit this process later in the project life cycle as a result of implementing changes to the project. Risk Management Plan: Risk Strategy Methodology Roles and Responsibilities Funding Timing Risk Categories Risk Appetite Defined Probability & Impact matrix Reporting Tracking 11/8/19 General Risk Categories Risk Categories provide a means for grouping individual project risks. 11/8/19 Categories can also be done using different domains, or Knowledge Areas, phases (initial, planning, etc) and then have a subcategory (eg. Initial > requirement management (subcategory), positive or negative (Positive > scope management > risk). The obvious, pragmatic approach is to sort the risks into “heaps” based on common features. For instance, risks are sorted by organizational areas, technical areas, or contract areas. So-called “risk breakdown structures” (Hillson, 2003; PMI, 2004) may also be used as frameworks for such classifications. 14 Risk Breakdown Structure (RBS) A common way to structure risk categories is with a risk breakdown structure (RBS), which is a hierarchical representation of potential sources of risk. It helps the project team consider full range of sources from which risks may arise in the project. (PMI, 2017, p. 406) 11/8/19 The best way to deal with a large amount of data is to structure the information to aid comprehension. For risk management, this can be achieved with a Risk Breakdown Structure (RBS) - a hierarchical structuring of risks on the project. The RBS can assist in understanding the distribution of risk on a project or across a business, aiding effective risk management. just as the Work Breakdown Structure (WBS) is an important tool for projects because it scopes and defines the work, so the RBS can be an invaluable aid in understanding risk. The RBS can be used to structure and guide the risk management process. the RBS has been defined as 'A source-oriented grouping of risks that organises and defines the total risk exposure of the project or business. Each descending level represents an increasingly detailed definition of sources of risk.'22 The RBS is therefore a hierarchical structure of potential risk sources. 15 “Universal Risk Areas” for generic projects (Hillson, 2003) 11/8/19 How to use RBS (Hillson, 2003): Risk identification aid: upper levels can be used as prompt list to ensure complete coverage during the risk identification phase. This is accomplished by using the RBS to structure whichever risk identification method is being used. As checklist: A risk identification checklist can also be developed based on the RBS, by taking each of the lowest RBS levels and identifying a number of generic risks in each area based on previous experience. Ensuring complete identification: Using the RBS to structure the risk identification task provides assurance that all common sources of risk to the project objectives have been explored, assuming that the RBS is complete. Risk Assessment – finding hot-spots: Identified risks can be categorised by their source by allocating them to the various elements of the RBS. This then allows areas of concentration of risk within the RBS to be identified, indicating which are the most significant sources of risk to the project. Needs to combine this with Probability and Impact assessment to determine areas where risks can present major impacts. Additional Insights: * understanding the type of risk exposure on the project * exposing the most significant sources of risk to the project * revealing root causes of risk, via affinity analysis * indicating areas of dependency or correlation between risks * focusing risk response development on high-risk areas * allowing generic responses to be developed for root causes or dependent groups of risks. 16 Example of RBS for Construction Project (Hillson, 2003) 11/8/19 Each of these RBS structures is different, reflecting the range of possible sources of risk exposure for projects in various sectors and industries. It is therefore necessary for any organisation wishing to use the RBS as an aid to its risk management to develop its own tailored RBS. The more generic versions mentioned above might be used as a starting point, but these are unlikely to include the full scope of possible risks to every project, so they must be modified accordingly. An organisation may wish to produce a single generic RBS covering all its projects, or there may be several different RBS structures applying to particular project types. Large projects may require their own specific RBS. (Hillson, 2003) 17 Types of risk management activities in relation to project phases 11/8/19 18 Definitions of Risk Probability and Impact Definitions of risk probability and impact levels are specific to the project context and reflect the risk appetite and thresholds of the organisation and key stakeholders. 11/8/19 Definitions of risk probability and impact levels are specific to the project context and reflect the risk appetite and thresholds of the organisation and key stakeholders. The project may generate specific definitions of probability and impact levels or it may start with general definitions provided by the organisation. The number of levels reflects the degree of detail required for the Project Risk Management process, with more levels used for a more detailed risk approach (typically five levels), and fewer for a simple process (usually three). (PMBOK, 2017) 19 Examples of definitions Probability / Likelihood Impact / Consequence 11/8/19 Probability and Impact Matrix with Scoring Scheme Example: Opportunities and threats are represented in a common