Breakout Session 1701

1
(No Transcript)
2
Risk Management for the Contracts Professional
Breakout Session 1701 Dr. Rene G. Rendon,
CPCM, C.P.M., PMP U.S. Naval Postgraduate School
Date Monday, April 23 Time 1045 1145
am
3
Overview

• Todays Contract Management Environment
• Project Management And Risk Management
• Risk Management Process
• Summary

4
Contract Management Environment

• Todays contract management environment
• Growing demand for complex, sophisticated,
  customized supplies and services
• Increased reliance on contractors for performance
  of mission-critical functions
• Evolution of worldwide competitive markets

5
Contract Management Environment

• Results
• Increase in complexity (and uncertainty) in the
  processes used to contract for supplies and
  services
• Increased focus on Risk Management and related
  processes
• Project Management
• Contract Management

6
What is Project Management?

• The application of knowledge, skills, tools, and
  techniques to project activities in order to meet
  or exceed stakeholder needs and expectations from
  a project.

7
Project Management
Integration Management
Scope Management
Time Management
Cost Management
Quality Management
Human Resource Management
Communications Management
Risk Management
Procurement Management
8
Risk Management

• Risk A measure of the probability and impact of
  not achieving a defined project objective
• The occurrence of an event
• Probability of the occurrence of an event
• Impact of the occurrence of an event
• Risk involves uncertainty of future events
• The what of the event.
• The when of the event.

9
Risk and the Project Life Cycle
Project Risk
Amount at Stake
Time
10
Risk Management Process

• Risk Management The processes concerned with
  conducting risk management planning,
  identification, analysis, responses, and
  monitoring and control on a project.

A Guide to the Project Management Body of
Knowledge (PMBOK Guide), PMI, 2004.
11
Risk Management Process
Risk Management Planning
Risk Identification
Qualitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control
Quantitative Risk Analysis
12
Risk Management Process
Risk Management Planning
Risk Identification
Qualitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control
Quantitative Risk Analysis
13
Risk Management Planning

• Risk Management Planning
• The process of deciding how to approach and
  conduct risk management.
• Level of risk management
• Type of risk management
• Visibility of risk management

How Does Your Organization Plan for Risk
Management?
14
Risk Management Planning

• Risk Management Planning
• Should be conducted early during project
  planning.
• Outsourcing strategy planning
• Acquisition strategy planning
• Contract strategy planning

15
Risk Management Planning

• Risk Management Planning
• Reflects organizations risk attitude and risk
  tolerance.
• Based on project scope.
• Tailored to project work breakdown structure
  (WBS).
• Reflected in risk breakdown structure (RBS).
• Results in Risk Management Plan (RMP).

16
Risk Management Process
Risk Management Planning
Risk Identification
Qualitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control
Quantitative Risk Analysis
17
Risk Identification

• Risk Identification
• The process of determining which risks might
  affect the project and documenting those risk
  characteristics.
• Conducted by project team members, subject matter
  experts, customers, end-users,

How Does Your Organization Identify Risks?
18
Risk Identification

• Risk Identification
• Performed as an iterative process, throughout the
  project life cycle
• Results in the development of the initial risk
  register
• Identified risks
• Potential responses
• Updated RBS

19
Risk Identification

• Risk Identification
• Based on
• Scope statement
• Budget
• Schedule
• Work breakdown structure
• Risk breakdown structure
• Responsibility assignment matrix

20
Risk Identification

• Risk Identification Techniques
• Information gathering methods.
• Risk identification checklists.
• Assumption analysis.

21
Risk Management Process
Risk Management Planning
Risk Identification
Qualitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control
Quantitative Risk Analysis
22
Risk Analysis

• Risk Analysis
• Process of examining the identified risks to
  determine the probability and impact of the risk
  event.
• Includes qualitative and quantitative analysis.

How Does Your Organization Analyze Risks?
23
Risk Analysis

• Qualitative Risk Analysis
• Process for assessing each risk event to estimate
  the likelihood of risk occurrence, and the impact
  of the risk event in terms of cost, schedule and
  performance.
• Results in a prioritized list of identified
  risks, and a decision to further analyze high
  priority risks.

24
Risk Analysis

• Qualitative Risk Analysis
• Results of qualitative risk analysis will lead to
  further quantitative analysis of high priority
  risks or the development of responses for high
  priority risks.
• Conducted using a risk matrix approach.

25
Risk Analysis

• Risk matrix
• Method used for classifying project risks
  depending on the likelihood and the consequences
  of occurrence.
• Classifies risk into low, medium, high.

26
Risk Matrix
Source Risk Management Guide for DoD
Acquisition August 2006 Department of Defense
27
Risk Analysis

• Results of qualitative risk analysis
• Ranking or prioritization of project risks.
• Updated risk register.
• Risks identified for further/quantitative
  analysis.

28
Risk Management Process
Risk Management Planning
Risk Identification
Qualitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control
Quantitative Risk Analysis
29
Risk Analysis

• Quantitative Risk Analysis
• The process of numerically analyzing the affect
  of identified risks on project objectives.
• Conducted using various quantitative techniques
• Probability distributions
• Expected value analysis
• Decision tree analysis

30
Risk Analysis

• Results of quantitative risk analysis
• Updated risk register.
• Updated prioritized risks.
• Updates to Risk Management Plan.
• Updates to Project Management Plan.

31
Risk Management Process
Risk Management Planning
Risk Identification
Qualitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control
Quantitative Risk Analysis
32
Risk Management Process

• Risk Response Planning
• Process of developing options, and determining
  actions to reduce threats to the projects
  objectives.
• Conducted based on results of risk analysis
• Assigns risks to risk owners
• Applies resources and inserts activities into
  Risk Management Plan.

How Does Your Organization Respond to Risk?
33
Risk Response Planning

• Risk Response Planning
• Results of risk analysis will determine the
  appropriate risk response strategy.
• Avoid
• Transfer
• Mitigate
• Acceptance

34
Risk Response Planning

• Risk Avoidance
• Eliminates the sources of any unacceptable risks.
• Involves making a change to the project (design,
  requirement, specification, practices) that
  reduces the risk to an acceptable level.

35
Risk Response Planning

• Risk Transfer
• Shifts the risk impact to another party.
• Typically involves the use of various instruments
  such as insurance, performance bonds, warranties,
  guarantees, and through the use of specific
  contract types.

36
Relationship Between Contract Type, Requirement,
and Risk
COST CPFF CPIF
CPIF/FFP FFP/FPI FFP/FPI
FFP/FPI STUDIES EXPLORATORY ADVANCED
ENGINEERING OPER SYS
PRODUCTION FOLLOW-ON RESEARCH DEVELOP.
DEVELOP. DEVELOP.
DEVELOP
PRODUCTION
37
Risk Response Planning

• Risk Mitigation
• Attempts to mitigate the risk by reducing the
  probability and/or impact of the risk event.
• Activities include
• Alternative design
• Demonstrations
• Prototypes
• Key performance parameters
• Modeling and simulation
• Using open systems

38
Risk Response Planning

• Risk Acceptance
• A conscious decision to actively acknowledge and
  accept the risk without planning to mitigate it.
• Strategy includes ensuring adequate resources
  (personnel, cost, schedule) exist to address the
  risk in the event it occurs.

39
Risk Response Planning

• Risk Response Planning
• Results of risk response planning includes
  documenting the selected risk response strategy
  to the Risk Management Plan and related
  documents.
• Ensuring resources are acquired for implementing
  the selected risk response strategy for each
  identified risk.

40
Risk Management Process
Risk Management Planning
Risk Identification
Qualitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control
Quantitative Risk Analysis
41
Risk Monitoring and Control

• Risk Monitoring and Control
• The systematic process of tracking and evaluating
  the effectiveness of implemented risk response
  strategies.
• Involves application of project management
  control techniques such as Earned Value
  Management.
• Performed throughout the project lifecycle.

42
Risk Monitoring and Control

• Risk Monitoring and Control
• Results in updates to Risk Management Plan and
  related documents.
• May also result in change requests to planned
  work processes and activities to reflect
  corrective and preventive actions

How Does Your Organization Monitor and Control
Risk?
43
Risk Management Process
Risk Management Planning
Risk Identification
Qualitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control
Quantitative Risk Analysis
44
Risk Management

• Roles and responsibilities for risk management
• Who owns the corporate RM process?
• Who is responsible for RM training and process
  improvement?
• Who owns specific contract risk issues?
• Not everybody should be a risk manager, but
  everybody should know about the RM process and
  know their role in RM.

Who is Responsible for Risk Management in Your
Organization?
45
Success Factors for Risk Management

• Establish a formal risk management methodology.
• Assign trained risk managers.
• Develop trained cross-functional teams.
• Early supplier involvement in procurement
  process.
• Establish a formal contract management
  methodology.

46
Success Factors for Risk Management

• Mature contracting processes produce successful
  contracts.

How mature are your organizations contracting
processes?
47
Risk Management Skills

• Risk management skills are needed to effectively
  perform contract management.
• Risk management should be addressed in all areas
  of contract management

• Procurement Planning
• Solicitation Planning
• Solicitation
• Source Selection
• Contract Administration
• Contract Closeout

• Pre-sales Activity
• Bid/No-Bid Decision-Making
• Bid/Proposal Preparation
• Contract Negotiation
• Contract Administration
• Contract Closeout

48
Future of Contract Management

• Contract management environment will continue to
  be characterized by
• Increase in complexity (and uncertainty) in the
  processes used to produce and acquire supplies
  and services
• Increased focus on Risk Management and related
  processes
• Project management
• Contract management

49
Future of Risk Management and CM

• Contract managers need to be knowledgeable of
  project management, plus possess risk management
  skills, to ensure successful contract results.
• Mature contracting process will continue to be
  vital for successful contract management.