Risk Management Basics for Project Managers

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Risk Management Basicsfor Project Managers

• October11, 2001

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Overview

• Background
• What does the PMBOK say?
• Examples from my experiences with risk management
  techniques
• Recommendations for a basic risk management
  technique
• Resources/references

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Background
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My Qualifications

• Why am I qualified to present this topic to you?
  
• Background (shady)
• Education (I did really well in 3rd grade)
• Lack of chapter competent speaker volunteers
  (YES!)
• Experience lessons learned (gray hair tells it
  all--learned lessons the hard way)

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Risk Management Is Not...

• Safety activity focused
• Workmens compensation/disability focused
• Insurance claim focused
• Accounting focused

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Risk Management Is...

• Dealing with events that can impact your project,
  whether those events are known or unknown to the
  project team
• Why? So you can meet your project goals
• Cost
• Schedule
• Technical performance

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How Do You Risk Manage?

• You use all of the talent and ability of the team
  to deal with the major risks!

Risk management helps you, as a Project Manager,
be successful! and get gigantic pay raises and
your boss will like you
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What is a PMBOK?

• 1. An African antelope that is able to bound
  over boabob trees, or
• 2. An abbreviation for a new STD, or
• 3. A large, boring book that contains pearls of
  wisdom surrounded by pages of silly definitions
  and lists, or
• 4. A PM resource of immense value

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PMBOK

• Four major processes to manage risk
• Risk identification
• Risk quantification
• Risk response development
• Risk response control
• This is virtually a universal process!

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Risk Identification

• What events are likely to affect the project
  outcome?
• Risk ID is a regular, periodic project activity
• Includes both internal and external events
  (project team controllable and uncontrollable)
• Output list of risk sources, risk events and
  triggers (symptoms)

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Risk Quantification

• Which risks are worth responding to?
• Probability X impact highest values get
  emphasis
• Can be measured in impact, schedule impact,
  performance impact or qualitatively
• Output list of the risk opportunities that
  require project team attention

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Risk Quantification
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Risk Response Development

• How does the project team respond to each risk?
• Three potential responses avoidance, mitigation
  or acceptance
• Output Risk Management Plan with planned
  responses.

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Risk Response Control

• How does the project team execute the risk
  management plan?
• Monitor and control the execution of the plan
  with iterative, adaptive process
• Output corrective actions and updates to the
  risk management plan

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Real World Experiences
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Real World Experience 1 (1978)

• Contractual technical and cost performance
  measurement program (DoD EW program)
• Monthly report of key technical and cost
  parameters as contract deliverable
• If measure exceeded thresholds, corrective action
  plans required
• Very structured (and expensive)
• Lesson learned Must be scaleable

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Real World Experience 2 (1989)

• Complete avoidance by transferring risks to
  vendors (ATF concept development phase)
• Teams got 500 million to meet requirements, but
  competitors spent several billion each
• Development phase implemented with completely
  different risk management plan
• Lesson learned Risk-sharing partnerships are
  desirable

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Real World Experience 3 (1997)

• Simple, qualitative, minimum-effort risk
  management process appropriate for all projects
• Following portion of the presentation describes
  this process

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Recommended Process
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Personal Experience Guidelines

• Two kinds of risk management real and
  eyewash. Usable, real risk management has 3
  process characteristics
• Appropriate level of complexity and cost
• Risk list status are visible to the entire
  team.
• Regular team risk status reviews

Result Understanding of risk influences
day-to-day activities of team members
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Recommended Minimum Process

• Start risk management at team formation
• Use entire team to brainstorm risk list
• Team discusses each risk and votes on
  perception of impact and probability
• The risk with the highest impact/probability
  products are the high risk list that the team
  must deal with

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Process, contd

• Develop risk management worksheet for each high
  risk.
• These worksheets and the process documentation
  are the entire Risk Management Plan
• Review status regularly with the team, take
  appropriate corrective actions and make
  appropriate changes

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Process, contd

• Execute the risk management plan when a trigger
  is reached.
• Put the actions into the project plan with owners
  and dates
• Track execution
• Periodically review project (team activity) for
  additions or deletions to risk plan

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Process Diagram
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(No Transcript)
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Good References

• Project Management Book of Knowledge and various
  textbooks (www.pmibookstore.org)
• American Graduate University Procurement
  Associates (www.agu.edu)
• Defense Systems Management College
  (www.dsmc.dsm.mil)