Chapter 17 Risk Management
RISK MANAGEMENT RISK MANAGEMENT FOCUSES ON THE FUTURE RISK MANAGEMENT FOCUSES ON THE FUTURE RISK AND INFORMATION ARE INVERSELY RELATED RISK AND INFORMATION ARE INVERSELY RELATED
RISK MANAGEMENT (CONT.) HISTORICALLY, WE FOCUSED OUR ATTENTIONS ON SCHEDULE AND COST RISK MANAGEMENT. HISTORICALLY, WE FOCUSED OUR ATTENTIONS ON SCHEDULE AND COST RISK MANAGEMENT. TODAY, OUR PRIMARY EMPHASIS IS ON TECHNOLOGICAL RISK MANAGEMENT: TODAY, OUR PRIMARY EMPHASIS IS ON TECHNOLOGICAL RISK MANAGEMENT: – CAN WE DESIGN IT AND BUILD IT? – WHAT IS THE RISK OF OBSOLESCENCE?
Definition Of Risk Risk = f(Likelihood, Impact ) Likelihood is the probability of occurrence of an event Impact is the amount at stake Likelihood up risk up Impact up risk up event
Definition Of Risk-2 Risk = f(Hazard, safeguard) Hazard: source of danger Safeguards: ways of overcoming Hazard up risk up Safeguard up risk down
Tolerance For Risk Risk avoider Risk avoider Risk neutral Risk neutral Risk seeker Risk seeker
Risk Management (RM) The act or practice of dealing with risk The act or practice of dealing with risk –Is proactive rather than reactive –Includes: Planning for risk Planning for risk Assessing (identifying and analyzing) risk issues Assessing (identifying and analyzing) risk issues Develop risk handling strategies Develop risk handling strategies Monitor risk Monitor risk
Decision-Making Categories Decision Making under certainty Decision Making under certainty Decision making under risk Decision making under risk Decision making under uncertainty – Maximax, maximin, minimax, laplace criterion, decision trees
Risk Management Processes Risk planning Risk planning Risk assessment Risk assessment – Risk identification – Risk analysis/quantification Risk handling Risk handling Risk monitoring Risk monitoring
Types Of Risks (General) Business risks Business risks Insurable (pure) risk Insurable (pure) risk – Direct property damage – Indirect consequential loss – Legal liability – Personnel
Risk Planning Develop and document a comprehensive risk management strategy Develop and document a comprehensive risk management strategy Determine the methods to be used Determine the methods to be used Plan for adequate resources Plan for adequate resources Develop Risk Management Plan (RMP) Develop Risk Management Plan (RMP)
Risk Assessment One of the most important phases of risk management process One of the most important phases of risk management process –Risk identification Identify all potential risk issues Identify all potential risk issues Life-cycle risk analysis Life-cycle risk analysis –Risk analysis
Types Of Risk (PMI Method) External – unpredictable External – unpredictable External – predictable External – predictable Internal – non-technical Internal – non-technical Internal – technical Internal – technical Legal Legal
After risk analysis convert the results into risk levels. After risk analysis convert the results into risk levels. –High risk –Moderate risk –Low risk be careful with uncertainty statements be careful with uncertainty statements
Risk Handling Deal with known risk, identify who is responsible Deal with known risk, identify who is responsible – Assumption (retention) – Avoidance – Control (mitigation) – Transfer
Assumption Assumption –I know the risk exists, I am aware of consequences, I accept the risk should it occur Avoidance Avoidance –I will not accept this option, change the design, change the requirements Risk control Risk control –I will take necessary measures to prevent unfavorable results
Risk transfer Risk transfer –I will share the risk through insurance or warranty Which method to use? Which method to use?
Risk Monitoring Earned Value Earned Value Program metrics: formal periodic performance assessments Program metrics: formal periodic performance assessments Schedule performance monitoring Schedule performance monitoring Technical performance measurement: product design assessment Technical performance measurement: product design assessment
How Much Risk Is Acceptable? High tolerance for risk High tolerance for risk Medium tolerance for risk Medium tolerance for risk Low tolerance for risk Low tolerance for risk