Risk Management Process Training Session

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Risk Management Process Training Session

Victor Allen

April 3, 2012

1

What are risks?

My Definition of risk:

“A negative risk event is something that has not yet happened on your project, but if it did happen it would negatively impact your project to the extent that it would be worthwhile to reduce the likelihood that it will occur or reduce the negative impact if it occurred”

“A positive risk event is something that has not yet happened on your project, but if it did happen it would positively impact your project to the extent that it would be worthwhile to increase the likelihood that it will occur or increase the positive impact if it occurred”

3

Risk/Issue/Action?

4

(Risk)

An undesirable event that has not yet happened

(Issue)

An undesirable event that has happened and needs attention

(Action)

Work that needs to be done

Which of the following are risks?

The project may go over budget

I ran over a pot hole coming into work today and my tire is flat

Decisions in the site engineering area are not being made in a timely manner

Using unproven technology may require frequent re-design work resulting in a schedule delay

Which of the following are risks?

The project may go over budget

This is more of an impact than a risk. There are many reasons why a project may go over budget. The real question is what are the things that would cause you to go over budget? The answer to this question is the risk. Here are some examples of a better way to write this risk statement:

It may take more time than planned to secure internal employees to work on this project which will require us to hire consultants resulting in a cost overrun on the project.

The contractor productivity level may be less than quoted in the contract resulting in a cost overrun.

Which of the following are risks?

I ran over a pot hole coming into work today and my tire is flat

This is not a risk because it already happened. It has now become an issue that you have to deal with. Time to execute your contingency plan – hopefully you have a spare or AAA.

Which of the following are risks?

Decisions in the site engineering area are not being made in a timely manner

This is not a risk because it already happened. Decisions are already not being made timely, so the risk has occurred. It has now become an issue that you have to deal with.

Which of the following are risks?

Using unproven technology may require frequent re-design work resulting in a schedule delay

This is a risk.

5 Characteristics of a Risk Event

Risk is clear and understandable to anyone who reads it

Risk describes the impact or “so what” factor

Risk has not yet happened

Risk is something your actually worried about.

Risk affects your project, not another project or the company in general

10

Why do we manage risks?

To improve our chance of project success

Meeting your objectives

Meeting your budget

Meeting your schedule

Working Safely

Delivering with quality

Satisfying your customers and stakeholders

Avoid surprises

11

“The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning” ~ Charles Tremper
“If you don’t manage the risks, the risks will manage you” ~ Victor Allen

Program Risk Manager

Project Risk Manager(s)

Project 1

Project 2

Project 3

Risk Management Database

Risk Register

Risk Assessment Reports

Risk Scorecard

Processes and Methods

Risk Response Planning

Mitigation Planning

Contingency Planning

Reviews

12

External

Audit

DOE

Expert

Internal

Corporate Risk

General Audit

Compliance

Risk Management Framework

The Risk Register

13

Project X: Risk Plan
Impacts
# Risk Event Description What is the event? Category Sub-project, Project Phase, Location etc. (Optional) Likelihood Schedule Cost Quality Safety Scope Total Score Risk Event Drivers What are the conditions, actions, or events that are likely to trigger the risk event to occur or is a leading indicator to the risk event occurring? Response/ Mitigation Strategy What action(s) will be taken to limit the likelihood of these event occurring or limiting the impacts?
1 Contracted vendor under performs resulting in schedule delays, rework and cost overruns Contract H H M M M L 75 Drivers to monitor: – Schedule slippages and missed milestones. Drivers that have occurred: – Re-work occurring. – Change orders issued. Planned Actions: – Conduct weekly monitoring of schedule adherence. – Implement change review process to manage scope, time, cost changes effectively. – Develop and implement quality management plan for vendor work. Completed Actions: – Negotiate cost plus incentive fee contract based upon milestone completion

Risk Register – Impacts Defined

14

Risk impact level Matrix
Likelihood Low Medium High
Unlikely Likely Almost Certain
Impacts Low Medium High
Schedule No Impact to Critical Path or Field Work Potential to Affect Critical Path or Field Work Certain to Affect Critical Path or Field Work
Cost Less Than $ 250,000 $ 250,000 to $1,000,000 Greater Than $ 1,000,000
Quality Minor impact to product deliverables Moderate impact to product deliverables Major impact to product deliverables
Safety No Impact to worker safety Minor impact to worker safety Major impact to worker safety
Scope < 1% 2% to 5% > 5%

Responding to Risks

15

Risk: I may run out of gas on my way to work in the morning and be late for an important meeting which will make my boss very angry.

What are you going to do to respond to this risk?

Responding to a risk mean that you are going to try one or more of the following:

Mitigate the risk: try to reduce the likelihood it will occur and/or the impact if it occurs (i.e. fill up your tank with gas the night before).

Transfer: give some or all of the risk to a third party (i.e. hire a cab)

Avoid: Eliminate the possibility (i.e. walk to work or stay at nearby hotel)

Accept: Do nothing and take your chances

The Risk Register

16

# Risk Event Description What is the event? Contingency Plan What action(s) will be taken if this event occurs? Owner Risk Timeframe Critical date(s) or period of exposure Organizational or Cross-Project Impacts Comments
1 Contracted vendor under performs resulting in schedule delays, rework and cost overruns – Negotiate contract with alternate vendor to perform services. – Complete work with internal resources. Jane Doe On-going No (01/12) Vendor has repeatedly failed weld inspections on structural steel.

The Risk Register

17

Financial Analysis
# Risk Event Description What is the event? FA Review Required? $ Impact Source Probability Source EMV Comments
1 Contracted vendor under performs resulting in schedule delays, rework and cost overruns Y $ 500,000 PM input 0.9 Default $ 450,000

The Risk Register

18

Schedule Analysis Risk Closure
# Risk Event Description What is the event? Scheduler Review Required? Critical Path ? Scheduler Response\ Comments (Activity #, Quantified impact etc.) Closure Statement Notes / Lessons Learned
1 Contracted vendor under performs resulting in schedule delays, rework and cost overruns Y This risk will impact the Critical Path Built 20 days of contingency into the Schedule Steel Erection Work Package delays will impact Siding and Roof Construction Work Packages.

Tips for Successful Risk Management

Executive Champion who understands Risk Management

Risk Manager who owns process, coaches and mentors

Good set of processes, tools, and templates

Risk Training for the team (concept and processes)

Make Risk Management a priority

Benchmark your process and effectiveness regularly

Establish Historical Risk Database and leverage the past

Work the Risk Plan

Develop Contingency Plans for high risk items

Don’t sweat the small risks

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